Global exploration and production spending is expected to increase 13% to $308 billion, said Lehman Bros. Inc., New York. The amount is up from the 9% projected last December for 301 companies surveyed by the firm.
The increase is a result of expanding 2007 budgets by more than $12.6 billion, offset by overspending 2006 budgets by $1.1 billion, Lehman Bros. reported last month. The spending growth is driven by an upsurge in international investments (Table 1).
International spending is now estimated at 20% growth vs. the yearend estimate of 13%. “Operators have boosted their 2007 budget plans by $10.7 billion over the last 6 months, while underspending their 2006 budgets by $1.9 billion,” said Lehman Bros. analysts.
Asian and European companies will make the largest additions to their 2007 capital expenditures, but growth is expected to continue broadly among all regions and company types.
Of the 87 companies surveyed in this category, national oil companies in Russia, Asia, and Latin America will continue to have the largest aggregate spending growth in 2007, the report said. Korea National Oil Corp. heads the list with its plans for hiking its spending by as much as 87%.
US spending
US capital expenditures for 2007 “were essentially unchanged from our December 2006 survey results,” Lehman Bros. analysts said, adding, “[US] budgets are still expected to increase by 5% to $77.3 billion by the 274 companies we surveyed.”
The report shows that the biggest gains are from the smaller companies (Table 2). “Companies spending less than $100 million indicate that 2007 spending levels will increase 15%,” Lehman Bros. said. This amount, however, is down from the 31% increase these companies initially projected. The $100 million-$1 billion spenders, which include most of the publicly traded US independent E&P companies, boosted their 2007 spending plans to reflect a 10% surge, up from 7% last December.
Companies in this group posting the highest swells include St. Mary Land & Exploration, up 39%; Range Resources, up 32%; Ridgewood Energy, up 26%; and Statoil ASA, up 23%.
The supermajors, with budgets of more than $1 billion/year, expect to raise their 2007 E&P capital expenditures in the US by 1%. This amount is down two percentage points from the group’s estimate at yearend 2006.
Canadian spending
Investments in Canada in 2007 are expected to decline by a bigger margin than was predicted last December, Lehman Bros. reported.
“While oil and gas companies modestly added to their expenditure plans for 2007 in Canada, these companies also overspent their 2006 budgets by $1.6 billion, which led to a bigger drop in capital expenditures year-over-year.”
The Lehman Bros. survey results indicate that “Canadian E&P expenditures are anticipated to fall 11% in 2007 to an aggregate spending level of $24.6 billion by the 72 companies that we surveyed, as opposed to the 7.5% drop indicated in our yearend survey.” The firm said it attempted to exclude oil sands spending from the survey.
The largest budget cuts are expected from the biggest companies (Table 3). Those companies that spend more than a $1 billion a year are now expected to reduce spending by 13% in 2007 from 2006 levels, and those that spend between $100 million and $1 billion a year will trim their budgets by 8%.
“The very smallest companies are expecting to modestly increase their spending by 2%, while these companies had expected flat to modestly down spending levels in 2007 previously,” Lehman Bros. analysts said.
Listed among those companies that raised their 2007 expenditure forecasts are EOG Resources, up 39%; PetroCanada, up 20%; and Penn West Petroleum, up 14%.
The surveyed companies based their 2007 E&P budgets on commodity price assumptions of $56.90/bbl for crude and $6.74/Mcf for gas. This is up from the $55.14/bbl and $6.47/Mcf, respectively, used for their 2006 budgets.