Industry E&P spending plans for 2000 reflect renewed optimism

Dec. 20, 1999
The US exploration and production industry is planning to increase capital spending in 2000 vs. 1999.

The US exploration and production industry is planning to increase capital spending in 2000 vs. 1999.

The desire to raise budgeted outlays is due largely to the availability of attractive drilling prospects, expectations for a steady increase in US oil and natural gas demand, and continued strength in oil and gas prices, says Arthur Andersen in its US outlook survey for 2000, which was released earlier this month at its annual energy symposium in Houston.

This anticipated boost in spending plans is expected to spark a renewed interest in hiring, says Arthur Andersen: 50% of the surveyed respondents indicated that they expected to see an increase in industry employment in 2000.

Overall, the survey pegs independent firms as having a more bullish outlook on the coming year than the major integrated companies.

"The E&P industry has undergone a major turnaround since we released our last survey a year ago," said Victor A. Burk, Arthur Andersen's managing director of energy industry services. "But majors and independents have different outlooks of the industry, as indicated by their plans related to capital spending."

Expected spending

Arthur Andersen's survey included 89 companies: 7 majors, 13 large independents, and 69 smaller independents. Sixty-four percent of the firms are planning to increase their US exploration spending in 2000 vs. their 1999 budgets. By company size, this breaks down as 29% of majors, 77% of large independents, and 66% of smaller independents.

This is quite a turnaround from last year's survey, which recorded only 29% of those surveyed contemplating increased US exploration spending for 1999, compared with plans for 1998.

Meanwhile, 67% of those surveyed said they plan on increasing their budgets for development within the US. A sizable majority of large independents-about 92%-plan to bolster development spending in 2000. Looking at 1999 vs. 1998, only 46% had said they would increase US development spending in 1999.

About 29% of those surveyed expect to increase spending for exploration outside the US in 2000, compared with the 16% that intended to do so in 1999. Meanwhile, 30% plan to increase non-US development spending in 2000 vs. 1999, according to Arthur Andersen.

"Consistent with last year's survey," the firm said, "the respondents continue to rate the US as the most attractive area for investment for the exploration and development of oil and gas, followed closely by Canada, West Africa, and the Middle East."

Initial indicators support Arthur Andersen's findings, as US companies have begun to release their capital spending plans this month.

Among the majors planning to increase budgets for 2000 is Conoco Inc. Conoco Chairman and CEO Archie Dunham told reporters at the Arthur Andersen symposium that the major intends to boost its capital outlays in 2000. Although not yet before the board, the plan will consist of a total budget of at least $2 billion and maybe as much as $2.4 billion vs. the $1.8 billion budgeted in 1999, Dunham said. The plan roughly breaks down into $400-500 million for downstream activities and the remainder for upstream ventures.

Several other companies have announced increased budgets for 2000. Burlington Resources Inc. plans to spend $1 billion in 2000 vs. $800 million in 1999. Other planned increases include: Murphy Oil Corp., $457 million vs. $387 million; Equitable Resources, $166 million vs. $118.6 million; Chieftain International Inc., $86 million vs. $55 million; and Remington Oil & Gas Corp., $37 million vs. $26 million.

Phillips Petroleum Co. is holding overall spending steady at $1.79 billion. Excluding acquisitions, however, its spending is expected to increase 23%.

Other survey results

According to Arthur Andersen, about 55% of the respondents expect mergers and acquisitions to increase in 2000 vs. 1999. And 87% of those surveyed think that significant natural gas reserves remain to be discovered in the US, compared with 89% in 1998. Regarding oil, only 54% of respondents believe there are significant reserves to be found in the US vs. 59% in 1998.

"The two top areas cited for having the greatest potential for new natural gas discoveries were the same for majors, large independents, and other independents," said Arthur Andersen. These areas are the deepwater Gulf of Mexico and Alaska.

Independents and majors concur that new US oil reserves are most likely to be found in these two areas, as well.