INDUSTRY ADJUSTS 1992 E&P BUDGETS

A midyear update of Salomon Bros.' survey of the petroleum industry's 1992 exploration and production budgets pinpoints the ways operators are adjusting outlays to match the times.

The New York financial firm's latest tally shows:

Operators have made deep cuts in their 1992 U.S. and Canadian E&P budgets since yearend 1991.
Moderate increases budgeted earlier for E&P outside North America are intact.
Many companies substantially underspent their budgets in first half 1992.

In Salomon Bros.' largest survey--247 companies responded--operators said they were budgeting a 3.2% year to year decline in their 1992 worldwide E&P spending, compared with a 1.3% increase planned for 1992 in December 1991 (OGJ, Jan. 27, p. 43).

The decline in spending falls entirely in North America.

Preliminary indications suggest that 1993 E&P spending will be relatively flat in the U.S. and flat to moderately increased in Canada. Elsewhere, spending should continue to rise steadily in 1993, Salomon Bros. said.

Budgets exclude producing property purchases and merger or acquisition of other companies when possible.

BUDGET BREAKOUTS

U.S. spending in 1992 is budgeted to be down 18.5% for 141 independent companies and 20.1% for 20 major operators from 1991 levels, compared with the 4.2% and 12.7% declines, respectively, indicated 6 months earlier.

The survey shows all companies classed by Salomon Bros. as independents will cut spending to $3.616 billion this year from $4.438 billion in 1991.

Spending in Canada is estimated to drop 20.5% to $3.61 billion in 1992, compared with an indicated decline of only 4.9% planned in December 1991.

Salomon Bros. projects a 9.5% year to year increase outside of North America to $32.226 billion.

The firm called the amount of underspending of 1992 budgets "substantial."

In total, about 39% of all companies surveyed are underspending their worldwide exploration and production budgets this year, compared with only 6% that is overspending.

Sluggish outlays are most pronounced in the U.S., where 57% of independents and 40% of majors are underspending their 1992 budgets, and least pronounced in Canada, where spending tends to be more heavily weighted in the first quarter of the year.

U.S. SPENDING

Almost all large independents have cut their original 1992 U.S. E&P budgets.

Burlington Resources shifted fund allocations to reserve purchases. Freeport McMoRan deemphasized its oil and gas E&P business. Maxus deemphasized U.S. exploration and eliminated high risk projects in light of depressed economic conditions.

Enserch, Louisiana Land & Exploration, Nerco, Sonat, and others blamed their spending cuts on weak natural gas prices and the corresponding loss of cash flow.

Coastal and Enron are posting year to year increases in U.S. spending. Coastal credits its hike to tight sands drilling, and Enron attributes the advance to its project mix.

Louisiana Land & Exploration halted discretionary gas drilling in the Gulf of Mexico and shifted its emphasis to oil and drilling outside North America.

By contrast, Anadarko, the only independent posting more than $100 million in either 1991 or projected 1992 spending, raised its U.S. budget from the level indicated 6 months ago, modestly boosting it because of the timing of projects in South Louisiana and the Gulf of Mexico.

Overall, 45% of independents responding to Salomon Bros.' survey cut their U.S. spending plans for the year to date. Only 23% made increases. Among companies classed by Salomon Bros. as major operators in the latest survey, about 60% reduced their U.S. E&P budgets from yearend 1991 projections. In December 1991, 21 companies indicated a 10.7% decline for 1992 spending.

Agip, Occidental, and Union Pacific Resources budgeted spending hikes from 1991 totals, but most other companies plan significant declines. Most notably, Amoco, Elf Aquitaine, Oryx and Pennzoil plan reductions of about 50% year to year in 1992.

SPENDING IN CANADA

The 107 companies that made up Salomon Bros.' survey of Canadian operators said they will cut their E&P outlays by 20.5% vs. a 4.9% decline that 103 companies forecast 6 months ago. Combined plans for 1992 call for outlays of $3.610 billion, compared with $4.539 billion in 1991.

The substantial difference in planned spending in Canada partly reflects the unanticipated delay in outlays for the multibillion dollar Hibernia offshore oil field development project. Chevron, Mobil, Gulf Canada (which dropped out), and Petro-Canada are involved in the project.

Amoco, Chevron, Gulf Canada, Imperial, Norcen Energy, Petro-Canada, and Saskatchewan Oil & Gas plan substantially lower spending levels from 1991 levels and their original expectations for 1992. Similar to the U.S. sample, a considerable portion--54%--reduced spending plans, more than four times the number--only 12%--that raised them.

OUTSIDE NORTH AMERICA

Salomon Bros.'s survey covers an 80 company sample of E&P spending plans outside North America. The latest plans for a 9.5% increase this year is very close to a 9.1% hike indicated by a slightly different group of 80 companies in the December 1991 survey.

Agip, Atlantic Richfield, Canadian Occidental, Clyde Petroleum, and Louisiana Land & Exploration are among companies that plan to boost spending above the levels projected 6 months ago.

By contrast, Chevron, Enterprise, Kerr-McGee, Oxy, Oryx Texaco, and Triton moderately cut their spending projections from those in the December 1991 survey. Marginally more companies--27%--raised their 1992 spending plans than those that reduced them--25%.

PRICE OUTLOOK

Despite sharp cuts in oil and gas E&P plans, companies have only modestly trimmed their average 1992 oil and gas price expectations, Salomon Bros.' survey revealed.

Majors and independents operating in the U.S. reduced their average 1992 oil price forecasts to $20.16[bbl from $20.40/bbl 6 months ago and lowered their average 1992 gas price projection to $1.52/Mcf from $1.63/Mcf in December 1991.

In Canada, operators also project a mean of $20.16/bbl for oil and $1.25 (Canadian)/Mcf for gas vs. $21.24 and $1.30 (Canadian), respectively, 6 months ago.

Outside North America, companies pared their average 1992 oil price expectations to $19.18/bbl from $19.84/bbl 6 months ago.

Oil prices are based on West Texas intermediate for the U.S. and Canada and Brent blend outside North America.

U.S. and Canadian gas prices are based on Texas Gulf Coast and western Canada benchmarks.

1993 OUTLOOK

About 50% of majors and independents expect flat spending in the U.S. next year. More independents project increases next year than those expecting declines, but more majors are anticipating reductions than those that are looking for increases.

In Canada, a significant majority--63%--expects flat spending year to year. Most of the remainder expect an increase.

Outside North America, almost half of the companies surveyed look for increases in spending in 1993. Less than 20% anticipate declines.

The list of surveyed companies varies slightly year to year, particularly for independents. Thus, Salomon Bros. said, it is not statistically accurate to compare estimated spending totals with prior survey results.