CANADIAN CAPITAL SPENDING TO SLIP 4.7% IN 1993

Total capital and exploration spending by the Canadian petroleum industry is estimated at $6.579 billion in 1993, a drop of 4.7% from estimated 1992 outlays.

Last year Canadian capital spending of $6.9 billion represented a drop of 8.9% from 1991 outlays, according to an Oil & Gas Journal survey (see table, p. 28).

All survey related spending estimates in this story are in U.S. dollars. All individual company spending estimates are in Canadian dollars.

E&P SPENDING

Canadian exploration and production spending will post a modest increase in 1993 after a sharp decline in 1992.

Planned outlays will rise 1.1% to $3.913 billion, following an 18.8% drop last year, when estimated E&P spending fell to $3.872 billion.

According to Baker Hughes Inc., the number of active rotary drilling rigs in Canada fell to an annual average 97 in 1992, down from 124 in 1991. The count has been falling since 1985, when it averaged 310. But this year started out on a more positive note, with an average 166 rigs working in January, up from only 129 in the same month last year.

In addition, OGJ projects an increase in Canadian well completions this year, up 6.1% to 5,034 (OGJ, Jan. 25, p. 76).

A recent survey by Salomon Bros. shows little change in planned Canadian E&P spending. The analyst's survey of planned Canadian E&P expenditures showed a drop of 0.1% in 1993.

NON-E&P SPENDING

Canadian non-E&P spending is expected to fall 12.1% in 1993 vs. a year ago to $2.7 billion. In 1992 non-E&P spending jumped 7.9% to $3 billion.

Refining and marketing outlays each will move up in 1993 after falling sharply last year.

Refining spending will climb 9% to $375 million following a decline of 36.8% in 1992 to $344 million. Marketing outlays are projected to rise 7.7% this year to $448 million compared with a decline of 20.6% in 1992 to $416 million.

Petrochemical capital spending will be almost flat, slipping 0.3% to $321 million. Petrochemical spending last year was up 0.9% vs. 1991 at $322 million.

The biggest non-E&P change will be in transportation spending, particularly outlays for natural gas pipelines. Total Canadian transportation spending plans call for a decline of 29.6% in 1993 to $1.016 billion. Total transportation spending soared by 57.5% in 1992 vs. 1991 to $1.443 billion. In both years the change stems from shifts in spending on natural gas pipelines.

Spending on natural gas pipelines will fall 39.1% in 1993 to $806 million. Last year outlays on natural gas pipelines moved up 67.6% to $1.322 billion. The amount of natural gas pipeline to be laid in 1993 fell to 1,007 miles from 1,654 miles in 1992 (OGJ, Feb. 8, p. 25).

Crude and product pipeline mileage planned is 77 miles in 1993 compared with only 12 miles in 1992. Crude and product pipeline outlays will move up to $4 million from only $7 million in 1992. Spending on other transportation will increase to $168 million in 1993 from $114 million in 1992.

Canadian oil and gas industry capital spending on nonpetroleum activities will be flat in 1993 at $506 million vs. the same amount in 1992 and $508 million in 1991.

IMPERIAL SPENDING CUTS

In line with the recent trend of retrenchment among major integrated companies in Canada, Imperial Oil Ltd., Toronto, plans to slash 1993 spending by $200 million as part of a continuing cost cutting program.

Imperial will have a 1993 capital budget of $600 million, but much of that will be earmarked for maintenance programs and environmental requirements.

The company, a partly owned subsidiary of Exxon Corp., cut staff levels to about 10,000 by yearend 1992 from 15,000 in 1990. Imperial Pres. Robert Peterson said, "It is not unrealistic that Imperial could operate with 8,500 employees.

"Plans to consolidate exploration and production operations with Exxon's operations in Houston have not been explored in detail but are not being ruled out as a possibility," Peterson said.

Other strategic moves Imperial plans include:

Reducing retail service station outlets by 250 this year and another 400 the next several years. The target is 3,400 stations by yearend 1995.
Slashing gasoline exports of 35,000 b/d to the U.S. by 50,000, with a corresponding cut in refinery throughput.
Converting its 44,200 b/d Ioco, B.C., refinery to a storage terminal in 2-5 years because the plant is no longer competitive. The 118,500 b/d Sarnia refinery and 112,100 b/d Nanticoke refinery, both in Ontario, will operate at reduced volumes.

In addition, Peterson expects to see west-east flow of the Sarnia-Montreal crude oil pipeline reversed. The line was built to move western Canadian crude to Quebec, but imported crude is expected to be a better buy in the future.

NORCEN PLANS

Canadian independent producers are emphasizing strong if selective programs in E&P spending while keeping a ready eye on what properties the majors are divesting.

Typical of that trend is Norcen Energy Resources Ltd., Calgary, which plans a $260 million capital budget for 1993, excluding potential acquisitions.

This compares with estimated spending of $216.6 million in 1992 and outlays of $258 million each in 1990 and 1991. Norcen expects to finance its capital budget from operating cash flow.

Norcen's 1993 spending plan breaks out as $215 million for oil and gas operations and $45 million for its propane business.

Oil and gas division spending will be up from $188.8 million in 1992. Total exploration spending will rise to $83 million, with increases planned for Canada, U.S., and other countries. Total exploration outlays were an estimated $72.8 million in 1992. Oil and gas development spending will increase to $129.4 million from $114.1 million in 1992. Most of the development spending will be in Canada with a budget of $100 million, up $23.2 million on the year. U.S. planned development spending will fall $15 million to $9.4 million. Outside North America, development spending is set at $20 million, up $7.1 million.

Norcen Pres. Barry D. Cochrane said, "Focus and efficiency will be critical factors in selecting capital spending priorities for 1993. Exploration and development activity in Canada and internationally will continue to be directed primarily towards oil, reflecting the oil prone nature of Norcen's landholdings in western Canada as well as generally better economics for oil exploration in the company's international projects. In the U.S. Gulf Coast region, where gas prices are high and a well developed gathering and transmission infrastructure exists, the exploitation focus will be balanced between gas and oil."

Meantime, Norcen has entered into a joint venture development project in Russia involving stimulating production in Vakh oil field in western Siberia. Norcen's share of production is expected to rise steadily, climbing from about 1,400 b/d at yearend 1992 to 4,500 b/d by yearend 1993.

OTHER CANADIAN COMPANIES

Among other Canadian companies, Amoco Canada Petroleum Co. Ltd., Calgary, set a 1993 capital and exploration spending budget of $333 million, about the same as estimated 1992 spending.

Planned project expenditures of $222 million are $30 million higher than in 1992. Planned project expenditures in exploration are up 25% from last year at $53 million. Amoco Canada Chairman T. Don Stacy said, "Continuing exploratory success for deep natural gas, as well as expectations of increasing natural gas demand and deliverability over the medium term, justify the exploration investment."

PanCanadian Petroleum Ltd., Calgary, expects a significant increase in its capital program in 1993. The company plans to drill 660 wells in 1993, up 60% from last year. Pan Canadian drilled 411 wells and had interests in 477 wells in 1992. This was 19% of all wells drilled in western Canada last year.

Conwest Exploration Co. Ltd., Toronto, expects its oil and gas division capital spending will rise in 1993 from $32 million in 1992. The company said it has an inventory of high potential exploration prospects.

Total Canada Oil & Gas Ltd., Calgary, also indicated increased spending in 1993. Total's Pres. Don West said, "The stepped up drilling program in the last quarter of 1992 will carry over into the first quarter of 1993 and continue throughout the year." Total Canada, following sale of stock by parent Total of France, soon will adopt a new name (OGJ, Feb. 15, p. 46).