NON-U.S. E&D LEADS U.S. OIL FIRMS' ACTIVITY GOING INTO THE 1990S

A major expansion of non-U.S. exploration and development is pacing U.S. oil companies' activity at the onset of the 1990s.

It's a culmination of a trend dating at least to the mid-1980s. That can be seen in these findings of Arthur Andersen & Co.'s latest survey of 1989 oil and gas reserves disclosures by U.S. companies:

Non-U.S. oil production outpaced U.S. production for the first time, an average 2.132 million b/d vs. 2.103 million b/d in 1989.
Non-U.S. oil reserves topped those in the U.S., 22.055 billion bbl vs. 21.987 billion bbl in 1989, also for the first time.
Non-U.S. exploration and development spending outstripped U.S. E&D spending, $21.9 billion vs. $17.3 billion in 1989, another first.

Andersen's data also point to lower finding costs in the U.S. and elsewhere and a rising emphasis on natural gas in the U.S.

In preparing the study, Andersen analyzed almost all reserve quantity, value, cost, and other financial data filed with the Securities and Exchange Commission by 236 public oil companies in 1985-89.

In 1989, the group had total revenues exceeding $96 billion and accounted for more than 60% of total oil and gas production and reserves in the U.S.

FOREIGN SHIFT

The most noteworthy trend reflected in the financial data is the shift among U.S. companies, mainly major companies, to search for oil and gas outside the U.S.

For the U.S. companies in the survey, total E&D outlays jumped by $3.6 billion to $28.8 billion in 1989. By contrast, U.S. companies' E&D spending in the U.S. fell by $400 million, or 3%, in the year to year survey comparison.

For the same period, U.S. companies' E&D spending outside the U.S. jumped by $4 billion, or 41%.

The overall survey included British Petroleum Co. plc, Royal Dutch/Shell Group, BHP Petroleum Pty. Ltd., and 14 Canadian companies, in addition to the U.S. companies.

"U.S. companies are looking overseas primarily because the potential for a major discovery is greater outside the U.S.," said Victor A. Burk, Andersen's managing director for oil and gas services.

"Major companies are using this period to rationalize their asset portfolios and expand foreign operations. As many of the major U.S. companies are focusing their efforts overseas, many U.S. independents have been acquiring reserves and acreage from those companies.

"U.S. independents are also using technological advances and operating efficiencies in promising areas in the U.S. to find new oil and gas reserves.

"The environment today is the best environment we have seen for independents in 5 or 6 years."

ADAPTING TO CHANGE

The survey results reflect U.S. companies' growing success in adapting to a changing market, said Burk.

The survey shows that "the world oil industry is entering a new era, and U.S. exploration and production companies are successfully adapting to the changing environment," Burk said.

Among major forces reshaping the petroleum industry, he said, are continuing declines in U.S. oil production, increased U.S. reliance on imports, rapid economic growth and demand for oil in East Asia, the changing political and economic structure in eastern Europe and the U.S.S.R. in tandem with reduced Soviet oil production, and increased concern for the environment.

Survey data underscore trends that show the strength and resilience of the energy industry, Burk said.

CONTINUING TRENDS

Among study findings that showed trends continuing from previous years were:

Non-U.S. E&D spending increased 20% to $21.9 billion in 1989. It was part of a 7% hike in overall E&D spending to $39.2 billion, the third straight increase in total E&D spending. Total capital outlays of $43.7 billion were down from $53.5 billion in 1988 largely because of a 73% drop in acquisition spending.
Average U.S. finding costs for discoveries/extensions declined by $1.03/bbl to $7.24/bbl of oil equivalent (BOE) in 1989. If finding costs are calculated using reserves added through discoveries/extensions plus purchases and revisions stemming from new information, improved recovery, or prior year adjustments, U.S. finding costs fell slightly to an average $4.89/BOE in 1989.
Foreign finding costs via discoveries/extensions fell by almost 9% to $8.73/BOE in 1989. Factoring in revisions and acquisitions, foreign finding costs rose 5% to $5.04/BOE.
U.S. oil production replacement performance continues to improve, as the replacement ratio from discoveries reached 52% of oil production in 1989, the highest level since 1985.
U.S. gas production in 1989 increased 4% to 27.389 bcfd, the group's highest level in 5 years, although U.S. gas production replacement from discoveries was roughly flat at 66%.
Additions to U.S. gas reserves increased 6% to 6.6 tcf, the second straight increase in gas reserves additions and the second highest level in 5 years.
Non-U.S. gas production jumped to 15.175 bcfd from 14.036 bcfd in 1988.