Worldwide exploration and production budgets will increase by 10.2% in 2000 vs. those for 1999. This increase will be largely driven by US and Canadian independents stepping up their natural gas E&P activities through increased drilling in 2000, much the same as was seen during the second half of 1999. In addition, spending outside North America will illustrate only modest gains in 2000-a projected 5.7%-compared with 1999.
These were some of the findings of Lehman Bros.' semiannual E&P spending survey, which polled 320 firms worldwide, including privately held US and Canadian independents and several state-owned oil and gas firms. The state-owned firms, in aggregate, will account for an estimated 15-20% of all E&P spending worldwide, says Jim Crandell, oil service and drilling analyst for Lehman Bros.
Only 36% of the major and diversified companies surveyed said they would spend more on E&P, while 18% said they would spend the same, and 46% said they would spend less. And of the E&P companies questioned, 68% said that their spending would be equal or greater than their cash flow in 2000 vs. 60% who said so in 1999.
The companies surveyed based their 2000 budgeting on an average West Texas Intermediate crude oil price of $19.25/bbl, with independent firms budgeting slightly higher than this and majors and European companies budgeting somewhat lower, Crandell says. For example, BP Amoco PLC and Royal Dutch/Shell based their budgets on $14/bbl Brent crude. If the price of oil stayed at its present level throughout 2000, 35% of the survey respondents said they would increase spending.
The companies surveyed based their budgets on the average US Henry Hub natural gas price assumption of $2.38/Mcf.
The economics of drilling was viewed more favorably than purchasing reserves by 72% of US companies surveyed, vs. 76% of Canadian firms and 84% of companies based elsewhere. And, seismic technology was recorded as the most important technology affecting E&P companies. This was followed by horizontal and directional drilling, completions technologies, and developments and stimulation and fracturing technologies.
Most disappointing for investors, Crandell says, are the minimal gains budgeted for non-North American E&P spending in 2000. "The primary reason that international expenditures are projected to be up just a modest amount is that three large companies were involved in mergers, either just concluded or pending," he said.
The decrease is also fueled by certain European major firms maintaining a cautious outlook on oil prices, says Crandell, as well as "sluggish" spending increases, or even decreases, by certain large state firms, with the exception of Brazil's Petroleo Brasileiro SA.
Internationally, Lehman Bros. pegs several majors as having decreased spending plans for 2000 vs. 1999: ExxonMobil Corp., down 7% to $5.5 billion; BP Amoco's combine with ARCO, down 17% to $2.9 billion; and TotalFina SA's combine with Elf Aquitaine SA, down 19% to $4.3 billion.
Other decreases are projected for several large international spenders in 2000: Malaysia's state-owned Petronas, down 11% to $1.6 billion; Statoil AS, down 3% to $2.07 billion; Amerada Hess Corp., down 17% to $500 million; and Enterprise Oil PLC, down 9% to $630 million. Meanwhile, Repsol-YPF SA shows no increase, at $1.175 billion.
Expecting modest increases, but depressing overall results, are: Petroleos Mexicanos, up 3% to $3.85 billion; Petroleos de Venezuela SA, up 7% to $4.9 billion; Royal Dutch/Shell, up 4% to $4.95 billion; and Norsk Hydro AS, up 6% to $1.2 billion.
Petrobras, says Crandell, drove spending increases outside North America, given its plans to increase outlays 70% to more than $4 billion. Firms showing increases of 20-70% were Texaco Inc., Phillips Petroleum Corp., Conoco Inc., Italy's ENI, Occidental Petroleum Corp., and Unocal Corp.
North American spending
"In direct contrast to the minimal gains internationally," Crandell said, "the North American gain appears much more promising." Of the 215 US independents surveyed, many indicated plans to bolster E&P spending-overall showing a "robust" 22.5% gain in 2000. "Independents, large and small, are looking for substantial increases in 2000," Crandell said.
Noble Affiliates Inc. and Forcenergy Inc. will each more than double spending next year vs. 1999. Other planned increases are: CNG Producing Co., up 54%; Apache Corp., up 50%; Ocean Energy Inc., up 38%; and Kerr-McGee Corp., up 36%. Those increasing spending by 20-30% include Union Pacific Resources, Vastar Resources Inc., Unocal, and Barrett Resources Corp.
The gains expected in the US, however, are "muted" by the slight (8.4%) rise in spending expected by the 15 majors surveyed, says Crandell. "While certain majors planning significant gains overseas are also planning healthy gains domestically-[such as] Chevron [Corp.], Conoco, Phillips, [and] USX Marathon-and while BP Amoco is earmarking a greater share of its budget for the US, several sizable majors are planning flattish spending in the US."
Lehman Bros. sees Canadian firms as the industry's "bright spot" as a result of plans to increase E&P spending by 28% in 2000. Among the Canadian companies planning to boost outlays are: Shell Canada Ltd., up 47% to $700 million; PanCanadian Petroleum Ltd., up 21% to $510 million; Canadian Natural Resources Ltd., up 47% to $470 million; Anderson Exploration Ltd., up 98% to $381 million; and Rio Alto Exploration Ltd., up 94% to $300 million. Many other Canadian firms reported 40-60% gains in their spending plans, says Crandell.