Worldwide exploration and production budgets are expected to decline by 1.4% in 2002 vs. those for 2001. Two opposing forces are driving this decline. They are:
- US E&P expenditures are budgeted to fall by 17.9%, while Canadian E&P outlays are slated to decline 19.6% in 2002 vs. year-ago levels.
- E&P outlays outside the US and Canada are budgeted to grow substantially, by 10.5% in 2002 vs. last year.
These are some of the findings of Lehman Bros.' semiannual E&P spending survey, which polled 357 companies worldwide during Nov. 15 and Dec. 10, 2001, including privately held US and Canadian independents and numerous state-owned oil and gas firms.
Independent E&P firms are doing some of the biggest spending cutbacks in the US, said Jim Crandell, oil services and drilling analyst for Lehman. The 256 independents surveyed are expected to cut their E&P outlays by 23.7%. "The…drop among independent producers in the US was broad-based and reflects declining cash flow and weak natural gas prices," Crandell said.
Major oil firms' E&P budgets, meanwhile, are 9.4% lower for 2002 than the year before, Crandell said. This decline among the majors was due to a combination of "steep" cuts by companies such as Amerada Hess Corp., Conoco Inc., and Occidental Petroleum Corp. and increases by companies such as USX Marathon Group, ExxonMobil Corp., and Murphy Oil Corp.
The companies surveyed based their 2002 budgets on an average West Texas Intermediate oil price expectation of $21.09/bbl. "If oil prices averaged $18-20/bbl, 67% of the companies surveyed said that this would not impact their spending," Crandell said. "As one might expect," he added, "oil companies have become more cautious on the outlook for oil prices compared with a year ago…."
Those companies surveyed based 2002 budgeting on a US Henry Hub natural gas price of $2.83/Mcf, with the most common forecast being $3.00/Mcf. Sixty-eight percent of the companies surveyed said that an average of $1.75-2.00/Mcf in 2002 would impact their E&P outlays. And "of those impacted, over half said they would reduce their E&P spending by 25% or more," Crandell noted.
The economics of drilling was viewed as more favorable than acquiring reserves by 70% of US companies surveyed, vs. 62% of Canadian firms and 81% of companies based elsewhere in the world. In addition, 3D and 4D seismic continued to be the most frequently cited technology that is influencing the E&P business, while "material increases in the companies who listed fracturing-stimulation directional drilling and intelligent well completions should be noted," Crandell said.
Spending outside US, Canada
One of the more "surprising" aspects revealed in this year's survey, Crandell noted, was the increase in E&P expenditures outside the US and Canada. "The…rise budgeted in international E&P expenditures was very broad-based," Crandell said, "and reflects gains by companies based in all major regions of the world."
Among those companies based outside the US and Canada making significant increases in their E&P budgets in 2002 were: Petroleos Mexicanos, up 37% to $8.3 billion; Petroleo Brasiliero SA, up 35% to $4.2 billion; Royal Dutch/Shell, up 19% to $6.2 billion; Statoil ASA, up 13% to $1.7 billion; Enterprise Oil PLC, up 23% to $1.3 billion; ENI SPA, up 12% to $4.5 billion; Norsk Hydro ASA, up 11% to $1.3 billion; OAO Lukoil, up 25% to $1.5 billion; Gazprom, up 99% to $2.2 billion; China National Offshore Oil Corp., up 54% to $1.7 billion; and BG PLC, up 32% to $1.3 billion.
These increases offset declines made by BP PLC, down 2% to $4.4 billion; Cairn Energy PLC, down 37% to $113 million; Repsol-YPF SA, down 16% to $1.4 billion; Surgutneftegaz, down 7% to 794 million; and OAO Tatneft, down 63% to $105 million.
Among those companies based in the US and Canada, increases in international spending were made by: ExxonMobil, up 11% to $5.8 billion; Conoco, up 14% to $1.4 billion; Murphy Oil, up 77% to $170 million; USX-Marathon, up 39% to $375 million; Phillips Petroleum Corp., up 46% to $1.6 billion; Talisman Energy Inc., up 25% to $828 million; Apache Corp., up 15% to $300 million; and Burlington Resources Inc., up 27% to $400 million.
These increases outweighed declines planned by Anadarko Petroleum Corp., down 24% to $1.3 billion; ChevronTexaco Corp., down 7% to $3.8 billion; El Paso Corp., down 25% to $150 million; Kerr-McGee Corp., down 42% to $525 million, and Samedan Oil Corp. parent Noble Affiliates Inc., down 20% to $200 million.
"Many of the companies with gains internationally are planning declines in the US," Crandell said.
US, Canada spending
Within the US, declines in E&P capital spending cuts were led largely by independent firms, Crandell noted. Of the independents surveyed, those downscaling their US E&P budgets included Anadarko Petroleum, down 35% to $1.4 billion; Apache, down 69% to $200 million; Burlington Resources, down 46% to $300 million; Cabot Oil & Gas Corp., down 35% to $130 million; Chesapeake Energy Corp., down 34% to $260 million; Denbury Reources Inc., down 33% to $120 million; Devon Energy Corp., down 42% to $725 million; EEX Corp., down 57% to $60 million; and Forest Oil Corp., down 38% to $265 million.
Among the majors the decline in US E&P spending was a combination of "steep" cuts by some companies, "more modest reductions" by others, and "actual increases" by a few others.
Leading decreases was Amerada Hess, down 54% to $230 million; Conoco, down 33% to $590 million; and Occidental , down 24% to $520 million.
Meanwhile, gains were made by USX-Marathon, up 10% to $775 million; ExxonMobil, up 9% to $2.5 billion; and Murphy Oil, up 7% to $300 million.
Regarding Canadian E&P outlays, Crandell noted that the reduction for 2002 came on the heels of "large gains" in both 2000 and 2001. "Most large operators are planning declines in spending reflected in the US lower cash flow and weaker natural gas prices," Crandell said.
Those planning declines included Anadarko Petroleum, down 33% to $300 million; Apache, down 74% to $100 million; Murphy Oil, down 28% to $250 million; Burlington Resources, down 40% to $450 million; Canadian Natural Resources Ltd., down 25% to $750 million; El Paso Corp., down 17% to $250 million; and Shell Canada Ltd., down 19% to $900 million.
Those "bucking the trend" were Petro-Canada, up 2% to $1.3 billion; Unocal Corp., flat at $230 million; and several majors.