INCREASED WORLD E&P SPENDING AFFIRMED FOR 1995

A midyear survey by Salomon Bros. Inc. (10200 bytes) affirms the New York investment firm's forecast of an advance in industry's world upstream spending this year.

The June survey tallied 286 exploration and production budgets totaling $59 billion for 1995, up 8.4% from approximate spending in 1994 (see table, P. 98). The updated total compares with a predicted gain of only 5.7% for 1995 in the firm's December 1994 survey (OGJ, Jan. 16, p. 22).

Regions outside North America account for most of the world spending growth, posting an updated 14.3% advance compared with only a 7.5%, rise indicated last December to $35.1 billion.

U.S. E&P spending will climb 3.617, 5.2% by independents and 2.3% by majors. That is the same total advance, broken out as 4% by independents and 3.2% by majors, indicated in the yearend 1994 tally.

By contrast, Canadian spending will slip 5.6% instead of increase 1.9%, as forecast last December. The reasons: heightened concerns about natural gas prices and higher than originally estimated spending in 1994.

Oil price assumptions for 1995 have changed little since yearend 1994, rising to $17.90/bbl for West Texas intermediate from $17.55/bbl 6 months ago. The natural gas price outlook has weakened, falling to $1.67/Mcf from $1.81 in the U.S. and to $1.56/Mcf from $1.79 in Canada.

The major theme in the yearend 1994 survey was the rebound in spending plans outside North America after 3 years of decline. This trend continues in the midyear update.

INCREASES, DECREASES

About 45% of survey respondents have increased their 1995 spending plans since last December, while only 29% have trimmed budgets.

In addition, 85% of respondents expect to spend their full budgets or more this year, and about 55% expect second half spending to exceed first half spending for the year. However, almost half the respondents expect E&P spending to be less than operating cash flow in 1995.

Several companies with significant changes since December have simply refined their plans. These include Atlantic Richfield and Chevron with increases and Elf, Mobil, and YPF with decreases.

However, a number of companies are responding to changing sentiment, Salomon Bros. said.

For example, British Petroleum cited improved performance and higher cash flow as reasons for increased spending. Unocal and Amerada Hess shifted from U.S. projects to greater activity outside North America. Exxon cited a shift toward upstream activity, and Statoil mentioned increased North Sea activity.

Among companies that reduced spending plan, Ampolex and Texaco had slippage in the timing of major projects.

INDEPENDENTS

Of 172 independents surveyed, about 36% increased budgets while a little more than 30% reduced plans since last December, largely based on relative exposure to natural gas vs. oil activity.

Among independents, oil price expectations firmed slightly to $17.76/bbl in June from $17.43 in December. Gas price assumptions, on the other hand, dropped to $1.67/Mcf at the Henry Hub from $1.81.

Almost 53% of independents expect second half 1995 spending to exceed first half expenditures, and only 15% expect to see a drop. More than 87%, expect their budgets to be fully spent or overspent for the year.

More than half of the independents sustained spending levels that exceeded operating cash flow in 1994, and more than 40% expect to do the same in 1995. Although this relationship cannot continue indefinitely, Salomon Bros. said, more than half those surveyed expect to schedule another spending increase in 1996.

Word of significant increases in 1995 spending plans came from MCN (more aggressive), BHP (expanded Gulf of Mexico presence), Union Pacific Resources (increased West Texas development), and Enserch (new programs as a result of acquisitions).

Several other companies cited more opportunities for increased spending resulting from seismic surveys or from acquisitions. These included Burlington Resources, Newfield Exploration, Stone Energy, Gulfstar Energy, and Chesapeake Energy.

Weaker wellhead gas prices were by far the most often mentioned reason for reductions in budgets. In this category were Mark Resources, Parker & Parsley, Nuevo Energy, Murphy Oil, Louisiana Land & Exploration, HS Resources, American Exploration, and others.

MAJORS

Among 15 major companies Salomon Bros. surveyed, six reported higher U.S. E&P budgets than they planned last December vs. four that had their sights set on lower levels of spending.

Atlantic Richfield, Chevron, Exxon, Occidental, Pennzoil, and Texaco increased spending plans for 1995, while Amerada Hess, Dupont/Conoco, Unocal, and USX/Marathon reduced their budgets.

Salomon Bros. said commodity price outlooks appeared to play little role in the changes. Average oil price expectations slipped a little among major producers, and natural gas price expections remained flat.

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