GAS PRICES SPARK E&P SPENDING

Salomon Bros. Inc.'s midyear survey of 1993 oil and gas exploration and production spending shows significant spending hikes in the U.S. and Canada.

They are prompted mainly by higher wellhead gas prices, the New York investment firm said.

Outside North America, spending levels are still slated to dip slightly from 1992 levels.

Overall, Salomon Bros.' survey suggests a moderate year to year increase in worldwide spending vs. roughly flat spending levels indicated 6 months earlier (OGJ, Feb. 8, p. 79).

In the firm's largest survey, 277 companies registered a combined 4.9% advance in 1993 world oil and gas E&P spending to $54.3 billion. In its yearend 1992 survey, 260 companies planned a 0.3% advance in world spending year to year.

Spending hikes in North America accounted for the entire increase, posting a 14.9% advance in the midyear study vs. only a 2% rise indicated 6 months earlier.

U.S. E&P spending will climb by 12%-up 22.4% to $4.702 billion by independents and 7.9% to $10.508 billion by majors-compared with a 2.6% increase-6.5% by independents and 1.1% by majors-in Salomon Bros.' 1992 yearend survey.

Spending in Canada will surge 25.8% vs. flat projections in December 1992. Spending outside North America will dip a mere 0.1%, compared with the 0.6% decline suggested 6 months ago.

In total, the 156 independent oil and gas companies Salomon Bros. surveyed raised their 1993 exploration and production budgets 22.4% year to year, more than three times the 6.5% increase suggested in its December 1992 survey of 147 independents. Overall, 37% of the participating companies increased to U.S. E&P budgets by midyear, while 20% cut their budgets.

INDEPENDENTS, MAJORS

Many large independents boosted their U.S. E&P spending plans from 6 months ago.

Anadarko attributed its increase to Midcontinent development and a pickup in South Texas. Enserch and Maxus cited higher natural gas prices. Gerrity Oil & Gas raised additional funds through the capital markets. Louisiana Land & Exploration shifted funds back to the U.S., citing higher natural gas prices. National Fuel noted a horizontal drilling program and offshore drilling opportunities. Sonat pointed to greater Austin chalk activity.

By contrast, Columbia Gas System reduced its planned spending from 6 months ago, citing financial constraints, and Nerco Oil & Gas cut its expenditures because the company is up for sale.

U.S. spending by major oil companies will rise 7.9% from last year's level, a gain from the 1.1% increase suggested by the same companies 6 months earlier. Amerada Hess, British Petroleum, Conoco, Texaco, and Total Minatome were among companies that increased their budgets, while Chevron, Exxon, and Mobil cut theirs. Exxon cited a continued shift toward spending outside North America.

CANADIAN OUTLAYS

Canadian exploration and development spending plans, covered by responses from 109 companies, will surge 25.8% year to year.

A resounding 52% of the companies boosted spending estimates from those indicated 6 months ago, far outnumbering the 15% that reduced them. Higher than expected natural gas prices was the common theme for the increases.

Anderson Exploration, Talisman Energy (formerly BP Canada), North Canadian Oils, and Saskatchewan Oil & Gas were among companies that said better natural gas prices fueled their spending hikes.

Canadian Natural Resources cited higher cash flow and production levels as well as a more optimistic outlook. Noranda (Canadian Hunter) noted project success and additional cash flow, and Sceptre Resources and Talisman said additional spending stemmed from asset acquisitions.

OUTSIDE NORTH AMERICA

Spending outside North America, covered in responses from 92 companies, will slip 0.1% year to year, showing an improvement from the 0.6% decline indicated by a group of 88 companies in December 1992. A moderately larger percentage of companies trimmed (31%) than raised them (28%).

Among companies that reduced their 1993 budgets from the amount suggested 6 months ago were Bow Valley Industries, which cited the unanticipated U.K. petroleum revenue tax changes. Conoco cited a stronger U.S. dollar as well as a moderate shift in spending to the U.S. Elf attributed its reduction to lower revenue expectations and delayed projects.

Largely offsetting these reductions were increases by companies such as Chevron, which raised spending in Indonesia, West Africa, and Russia. Exxon cited a continued shift internationally, driven by its higher return on capital outside North America.

In addition, Maxus mentioned better success in Bolivia, Murphy acquired an interest in the U.K. North Sea, Occidental noted an incremental investment in Congo, Pennzoil allocated funds for development in Azerbaijan, and Saga boosted spending as a result of acquisitions.

U.S. and Canadian independents are largely on target with their budgets, but a significant number of U.S. majors and international companies are underspending theirs.

Worldwide, 26% of respondents is underspending budgets vs. only 10% that is overspending them. The underspending is concentrated outside North America, where 32% of the respondents underspent budgets at midyear vs. only 7% that overspent them.

OUTLOOK

Independent operators raised their 1993 U.S. natural gas price forecasts by 16.7% to an average $2.03/Mcf, while majors lifted their forecasts 10.3% to $1.92/Mcf from $1.74/Mcf 6 months earlier.

Canadian companies raised their 1993 natural gas price forecasts 16.5% to an average $1.55 (Canadian)/Mcf $1.33.

Overall, 1993 world oil price expectations were trimmed 3.2% to $19.75/bbl from $20.40.

Preliminary figures suggest higher 1994 world E&P expenditures.

Overall, 47% of Salomon Bros.' respondents indicated higher spending next year vs. only 11% that indicated lower outlays. Anticipated increases once again are concentrated among U.S. independents and companies in Canada. Canadian spending expectations were the most optimistic, with 55% of respondents indicating spending increases, compared with less than 7% suggesting declines.

In the U.S., nearly a five-to-one ratio of independents responding expect an increase in spending vs. Spending in the U.S. by majors is expected to be relatively flat next year, with no companies in this category anticipating lower 1994 budgets.

Outside North America, 33% of respondents pointed to higher spending levels in 1994, compared with 19% that suggested lower levels.

Copyright 1993 Oil & Gas Journal. All Rights Reserved.