Friday, August 28, 2009

Play it Again: Costs are Going to go up

Schlumberger continues to share its message that drilling costs, which have been falling for the past year, have bottomed and will start increasing very soon, perhaps next month.  Here is a short Reuters article to this effect.

The article notes that part of this expected increase will come from raw materials since commodity prices have pretty much hit bottom.  There have been positive indications of late for the energy services sector as rig counts continue to rise, albeit slowly. At least on the gas drilling side (representing 70% of the rigs in the U.S.), however, I would think that it might be hard to raise prices for a few months.  As long as companies are reigning in production in response to an over-supplied and under-priced market, service companies are going to be fighting each other for business and will  have a hard time raising prices. 

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