Global E&P spending forecast to rise 11% in 2008

Global capital expenditures for exploration and production companies is expected to increase 11% to $332 billion in 2008, according to the latest spending survey released Dec. 10 by Lehman Bros.

Dec 12th, 2007

By OGJ editors
HOUSTON, Dec. 12 -- Global capital expenditures for exploration and production companies are expected to increase 11% to $332 billion in 2008, according to the latest spending survey released Dec. 10 by Lehman Bros. The survey polled 344 companies—the largest survey conducted by the financial services firm.

Meanwhile, Lehman Bros. said, spending in 2007 was "moderately above" original budgets. "As oil prices remained high, global exploration and production capital expenditures in 2007 increased by 14%, as compared with gains of 13% in our 2007 midyear survey, and 9% at the beginning of the year."

Of the companies surveyed with both onshore and offshore operations, 43% expected a larger share of the 2007 budget to be dedicated to offshore spending than was the case in the prior year. In 2008, however, 28% expect the proportion to increase, Lehman Bros. reported. "Deepwater spending continues to increase relative to overall offshore budgets; 85% of companies forecasting a shift intend to focus more on deepwater in 2008 up from 81% in 2007, the study said.

Investment in the US—one of the principal production regions along with the North Sea—is expected to grow by just 3.5% to $81 billion, the study said. This compares with an estimated 7.4% gain in 2007. "We believe that several majors will increase their US E&P spending in 2008," the study said.

Next year, Lehman Bros. said, it is expected that Canadian outlays will decline for the second consecutive year. "Spending in Canada is likely to decline by 12% to $20.3 billion," Lehman Bros. reported. This compares with a drop of 10% in 2007. "Perceptions of the economics of drilling have dropped sharply in Canada over the past 2 years," it said.

The survey found that increases in spending outside North America will be "substantially stronger" than that in North America. Among the 100 companies surveyed operating internationally, Lehman Bros. estimates they will increase E&P outlays by 16% to $267 billion in 2008 vs. $230 billion in 2007. This gain, the firm said, is believed to be understated and should rise even higher.

Lehman Bros. found that oil price expectations among oil and gas companies has increased. In order to establish their 2008 budgets, the study found, companies assumed a price for oil (West Texas Intermediate) of $67.91/bbl and an average price for natural gas in the US of $6.78/Mcf.

Fewer companies this year, the study said, expect to overspend their cash flow in 2008. Of the companies surveyed, 37% expect 2008 capital spending to exceed total cash flow. This compares with 43% of companies expecting to overspend cash flow in 2007.

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