Analyst: US E&P capital spending on the rise

By OGJ editors

HOUSTON, Apr. 14 -- US exploration and production companies anticipate sustained growth in capital spending this year, reflecting continued optimism for industry fundamentals, the St. Petersburg, Fla.-based Raymond James & Associates Inc. reported.

"Capital expenditures by our E&P coverage universe in 2003 totaled $19.8 billion, an increase of 32% over 2002. In particular, exploration and development spending was 68% of the total and posted 34% growth. For 2004, we are projecting that our universe's E&D spending will grow a further 26%," said RJA analyst Wayne Andrews, Houston.

RJA's coverage universe involves 31 companies, representing 18% of US production, and the spending analysis is not necessarily representative of the entire industry, Andrews noted.

"These 31 companies unquestionably pursue among the most aggressive drilling programs in the industry," he said. "Finally, we note that in addition to their aggressive capex spending, our universe repaid $570 million of debt during the year [2003]."

The E&P companies' capital spending plans also look very promising for oil service companies, he said.

"Higher capex budgets stimulate growing demand for rigs, which provides service firms with an opportunity to push through moderate price hikes without jeopardizing the level of drilling activity," Andrews said.

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