By OGJ editors
HOUSTON, June 21 -- Spending for worldwide exploration and production is expected to increase 21.3% to $261 billion this year, up from a 14.7% projected rise in December among 308 companies surveyed by Lehman Bros. Inc., New York.
That increase is the "result of adding $21 billion to 2006 budgets, partially offset by overspending 2005 budgets by $7 billion," Lehman Bros. reported June 21. The growth is driven both by increased investments in the US and outside North America.
E&P spending in the US now is expected to grow 27.7% this year, up from a 14.9% rise forecast in December, as a result of high commodity prices and inflationary pressure on the costs of rigs and services, the survey said.
Growth in international spending is projected to rise 20.1% vs. a 14.9% increase projected in December. "Spending increases are coming from significant European companies, US independents and majors, and several national oil companies or state-sponsored enterprises in many regions such as Latin America, Asia-Pacific, and Russia," the survey said.
Capital spending in Canada is expected to increase by 14.6%, up modestly from a 13.3% projected rise in December. E&P spending in that country is "dampened by limited rig availability, strong Canadian exchange rates, and project timing," said Lehman Bros.
The surveyed companies are now using an average price of $55.70/bbl of crude, up from $49.90/bbl previously, as the basis for their 2006 budgets. However, their price assumptions for natural gas have declined to $6.95/Mcf from $7.65/Mcf in December.
"On average, companies said they would reduce spending if oil prices fell to $42/bbl and natural gas prices declined to $5/Mcf," said Lehman Bros. "Some 67% of the companies in our survey are indicating higher E&P spending in 2007, and almost 72% of those companies are planning double-digit increases."
Front-month benchmark US light, sweet crudes closed at $68.89/bbl on the New York Mercantile Exchange June 20, with subsequent months priced above $63/bbl through 2012. The front-month natural gas contract closed at $6.50/MMbtu the same day and is in contango, with each consecutive month priced sequentially higher through February 2007.