By OGJ editors
HOUSTON, Dec. 9 -- Oil and gas companies in a Lehman Bros. survey plan to increase worldwide exploration and production spending next year by 5.7% after raising outlays in those areas this year by an estimated 12.4%.
The totals for 327 companies, including Lehman Bros. estimates for companies without final budget figures, are $176.8 billion in 2005 vs. $167.3 billion this year.
E&P spending percentage gains next year will be larger in the US and Canada than elsewhere.
A US increase of 7.8% to $41 billion will come mainly from a surge of activity by companies spending less than $100 million each. Expenditures in that category will be up 24% next year, according to the survey of 249 companies with US operations. US outlays by companies spending more than $1 billion will rise only 2%.
Canadian E&P outlays by 75 surveyed companies will rise 8.6% to $18.6 billion. Companies spending more than $1 billion each will set the pace in Canada, representing a combined spending increase of 14% vs. 2% for companies spending less than $100 million.
Outside the US and Canada, E&P spending by 87 surveyed companies will rise by 4.5% next year to $117.3 billion. Lehman Bros. said international outlays by supermajors will rise modestly next year, while that of some government-owned companies that have spent heavily in recent years will be unchanged or down.
According to the survey, E&P expenditures this year over last year will be up 16.5% in the US, 13.5% in Canada, and 10.9% elsewhere. Lehman Bros. said companies this year spent more than they budgeted in response to elevated oil and gas prices.
"While aggregate budgets were raised in all areas of the world," the company said, "the increases have been the most significant in North America."
Price expectations for 2005 average $35.81/bbl of West Texas Intermediate crude oil and $5.39/Mcf of natural gas at Henry Hub. At this time last year, average price expectations were $25.29/bbl of crude and $4.17/Mcf of gas.
Of companies surveyed, 30% said they would increase E&P spending next year if the average crude price exceeded $40/bbl, and 31% said they would do so if the average gas price topped $6/Mcf.
Key drivers of 2005 spending, in order of importance indicated by the survey, are cash flow, prospect availability, natural gas prices, oil prices, and drilling success.
"Prospect availability continues to be a leading issue hampering spending, both domestically and internationally," Lehman Bros. said.
Onshore vs. offshore
This year, among surveyed companies with both onshore and offshore operations, 60% kept their onshore and offshore budget shares about where they were in 2003, while 26% increased the offshore portion and 14% decreased it. Next year, 32% of the companies will increase the offshore percentage.
Among companies with deepwater spending, 28% will increase outlays of that type in 2005 after 21% did so this year.
Asked to rank technologies influencing the E&P business, survey respondents as a group listed 3D and 4D seismic first, followed in order by fracturing and stimulation technology, horizontal drilling, drillbit technology, directional drilling, reservoir recovery optimization, and intelligent well completions.
Significantly higher rig rates would lead 36% of the companies in the new survey to cut their drilling programs.
Companies seeking to purchase reserves represented 56% of those surveyed. But 89% of companies surveyed in the US identified the economics of drilling as more favorable than the economics of purchasing reserves, as did 81% of the companies in Canada and 90% of the international companies.
The economics of exploration are seen as "good" or "excellent" in the US by 74% of the surveyed companies (vs. 70% in last year's survey), in Canada by 53% (vs. 59%), and internationally by 80% (vs. 85%).
Most of the companies said they think drilling costs will rise. The most frequently cited increase is 10-20%.