Global E&P investments for 2007 remain flat, study finds

Oil and gas companies' 2007 global investment for E&P projects totaled $402 billion—unchanged from 2006, said the latest annual upstream performance review by IHS Herold and Harrison Lovegrove & Co.

Paula Dittrick
Senior Staff Writer

HOUSTON, Sept. 8 -- Oil and gas companies' 2007 global investment for exploration and development projects totaled $402 billion—unchanged from 2006, said the latest annual upstream performance review by IHS Herold Inc. and Harrison Lovegrove & Co. Ltd.

Capital spending varied greatly by region. Lower levels of investment in Canada and the US last year were offset by gains in regional spending elsewhere.

Rising royalty rates in Alberta and new Canadian royalty trust legislation contributed to lower overall upstream investments in Canada by more than 25%, analysts said. Conventional oil and gas spending in Canada plunged by nearly $30 billion from 2006.

In the US, substantially lower acquisition activity contributed to a 9% decline in 2007 upstream spending compared with 2006. Worldwide acquisition spending was $90 billion, down 30% from 2006 record levels.

Asia-Pacific investments rose upon China's increasing natural gas demand and the rest of Asia's increasing LNG demand. Upstream spending in Russia and the Caspian region soared 58% upon higher acquisition activity and development spending.

The review is based on information that 232 oil and gas companies filed with the US Securities Exchange Commission and similar agencies worldwide.

Revenues, costs climb
"Higher prices drove a 10% increase in revenue to $931 billion," said Robert Gillon, IHS Herold senior vice-president. "But cost pressures have been unrelenting with lifting costs rising by 17% and government take up 5% to $253 billion, or 51% of pre-tax profit. "

Consequently, net income edged up 2% to $246 billion. The upstream net income per boe held flat at $12.98/boe after nearly doubling since 2003. World upstream profit margins were lower for the third consecutive year.

Cash flow worldwide from oil and gas producing operations totaled $430 billion in 2007, up 10% from 2006. Cash flow per boe increased 8% to $21.99/boe

Industry's cash flow total exceeded investment om 2007 when cash flow was 7% larger than upstream spending, the review showed.

"Our universe generated surplus cash flow of approximately $28 billion in 2007," analysts said. "The US region, and to a much lesser extent Canada, invested in excess of cash generated. A significant cash surplus was generated in Europe with smaller amounts of cash flow surpluses registered in the other regions."

Reserve revisions cut F&D costs
Positive reserve revisions cut finding and development costs in half in the US and Europe.

The US finding and development cost was $16.56/boe, down from $31.49/boe in 2006. But excluding estimated reserves revisions, US F&D was virtually flat at $22.50/boe after having risen in previous years. Worldwide, positive reserves revisions cut F&D costs by about $4/boe.

Oil and gas production growth worldwide slowed, reaching 19.6 boe in 2007, which was 1.3% higher than 2006.

Strong gas-related production gains was reported last year in the US and Asia-Pacific. Increased oil output came from Russia and the Caspian region to offset what analysts called "dismal performance in Canada, Europe, and South and Central America." Consequently, oil production held flat.

Natural gas reserves and production continued at the 3% growth rate of the last 5 years, analysts said.

Contact Paula Dittrick at paulad@ogjonline.com

More in General Interest