Salomon Bros.' survey shows that more than 200 companies have schedules a combined 10.5% jump in upstream outlays this year. U.S. operators expect higher oil prices, as well as better match between gas supply and demand.
Solid increases in world exploration and production spending are in store for 1990.
More than 200 companies plan a combined 10.5% hike in E&P spending compared with 1989 outlays, an annual survey by Salomon Bros. Inc., New York, shows.
The firm's report, by James D. Crandell and Carol Y. Lau, reveals that surveyed companies plan to spend 12.6% more this year outside North America and 12% more in Canada. In the U.S., 130 independents plan to spend 11.7% more than last year and 19 majors 6% more.
Fueling increased spending in the U.S. are expectations of higher oil prices and a closer match between gas demand and deliverability.
The surveyed companies expect oil prices to average $18.37/bbl in 1990, 21% higher than they expected for 1989.
More than 70% of the companies said the U.S. gas surplus no longer affects their E&P spending. The companies' budgets, as estimated by Salomon Bros., show they expect to receive $1.77/Mcf for their gas compared with $1.78/Mcf in 1989.
Of the companies that are shifting budget emphasis between exploration and production, a majority is shifting toward exploration this year. In 1989 more companies shifted toward development.
More companies spent more of their budget on leases than spent less in 1989, a good sign for future exploration increases. A smaller majority plans to spend more in 1990.
About 71% of the companies surveyed in December 1989 said drilling economics are superior to those of purchasing reserves, up from 58% of those surveyed a year earlier.
About 65% of the companies are trying to purchase reserves in 1990, down slightly from last year.
The survey excludes money from public drilling funds and, when possible, excludes money earmarked for large purchases of reserves, producing properties, or other companies.
1990 BUDGET OUTLOOK
Responses from most companies indicate a move toward exploration in 1990 for the first time in 8 years.
However, 63% of the companies surveyed would cut total E&P spending if oil prices averaged $15/bbl in 1990, and 46% would increase spending if oil prices averaged $21/bbl in 1990.
More companies responded that U.S. gas demand and supply would be in closer balance this winter than any other period.
Companies that believe the U.S. gas surplus is limiting spending included 32% of surveyed U.S. independents, 21% of U.S. majors, 23% of Canadian companies, and 17% of international companies.
Oil and gas prices appeared to be less important factors in spending plans in 1990 than in the past. U.S. independents cited cash flow, gas prices, and development programs as the most important determinants of spending. Only 18% of U.S. independents listed gas prices as a major influence on 1990 spending, down from 44% in 1989.
Prospect availability, called a big influence on spending by 44% of the majors last year, was not mentioned by majors this year. It is a big influence for 13% of independents, down from 14% in 1989.
For the fourth consecutive year in 1990, a slight majority of major oil companies plans to spend less of its combined capital budget on E&P.
A majority of all companies plans to spend less than cash flow this year. This outlook was strongest among U.S. independents.
Of the companies that said financial leverage or lack of liquidity limited spending in 1989 and 1990, 21% said those factors would be more important this year, 46% said they would be about the same as in 1989, and 33% said they would be less important this year.
1989 SPENDING RESULTS
More companies overspent what they thought they would spend at midyear last year and overspent what they budgeted going into 1989. This was particularly true of companies operating in Canada and overseas.
Oil's 1989 price increase and the lack of a gas price hike have not halted the shift in spending toward gas from oil. The shift toward gas was not quite as dramatic as indicated for 1989 at the beginning of the year, but more than four times as many companies shifted spending toward gas in 1989 than shifted to oil. An even greater percentage plans to do so in 1990.
A slight majority of companies' E&P capital spending exceeded cash flow last year.
In 1989 about 57% of companies that explore onshore and offshore spent an increased percentage of their budget offshore.
The figure is substantially larger than originally indicated and largely reflects independent companies' increased emphasis offshore. The figure in 1990 is 41%.
More than half of all companies surveyed viewed drilling costs as stable in 1989, but more than twice as many companies thought costs had risen as those that believed they had fallen.
More Canadian companies believed costs had fallen than believed they had risen.
OTHER RESPONSES
A significant turnaround occurred in companies' views of gas exploration in the U.S.
Companies were asked to rate U.S. exploration economics for oil and gas as excellent, good, fair, or poor in 1988 and 1989.
Most companies judged the economics of U.S. oil exploration as poor and U.S. gas exploration fair in 1988, but a majority said U.S. gas exploration economics were good in 1989.
About 25% of companies said U.S. oil exploration opportunities were good last year compared with 15% in 1988, but a 51% majority still rated oil exploration economics as fair last year.
The 71% of all companies that view the economics of drilling as more favorable than purchasing reserves is one of the highest percentages in recent years.
The 65% of companies seeking to buy reserves is down slightly from 1989 but still higher than in most recent years. Most companies, particularly U.S. and Canadian companies, prefer to buy gas reserves.
The companies collectively viewed seismic technology advances, most notably three dimensional seismic surveys, as the most important technological innovation in the oil service industry during the past 2-3 years. Horizontal drilling was the only other advance mentioned by more than 10% of respondents.
Almost all expressing concern mentioned a shortage of qualified personnel, particularly among roughnecks and floorhands and including qualified reservoir and petroleum engineers, seismic and geophysical professionals, and drilling technicians.
Copyright 1990 Oil & Gas Journal. All Rights Reserved.
