SALOMON BROS. SURVEY SHOWS BUDGET MIX

The latest annual survey by Salomon Bros. Inc. of world exploration and production spending plans by the oil and gas industry shows some diverging trends for 1991. On the plus side, the New York financial firm said, another strong year lies ahead for overseas spending, and Canadian exploration and production outlays are budgeted at levels well above those of 1990. However, strong gains experienced in the U.S. in 1990 appear likely to ease significantly in 1991.

Jan. 21, 1991

4 min read

The latest annual survey by Salomon Bros. Inc. of world exploration and production spending plans by the oil and gas industry shows some diverging trends for 1991.

On the plus side, the New York financial firm said, another strong year lies ahead for overseas spending, and Canadian exploration and production outlays are budgeted at levels well above those of 1990.

However, strong gains experienced in the U.S. in 1990 appear likely to ease significantly in 1991.

In Salomon Bros.' largest survey, 222 companies said they plan a combined increase of 13.7% in their world exploration and production budgets for 1991 to $52.1 billion from $45.8 billion.

Total outlay for 1990 is slightly higher than that indicated by the companies at mid-1990, adjusting for a slightly different size of sample.

Original and midyear budgets for 1990 were moderately overspent in the U.S. for independents and majors and in Canada.

Overseas exploration and production budgets were modestly underspent.

OVERSEAS ACCENT

For 1991, the largest increase in exploration and production spending is indicated outside North America, where 72 companies are budgeting a combined increase of 19.7% to $27.026 billion.

A number of major companies are raising their overseas budgets by more than 25%. They include Amoco, Elf Aquitaine, Lasmo, Mobil, Oryx, Petrofina SA, Phillips, Texaco, Unocal, and Marathon.

However, Exxon plans only a small gain, and Royal Dutch/Shell intends to spend less in this region.

Exploration and production outlays in Canada are budgeted by 96 companies to show a 17.4% advance to $5.336 billion.

Chevron and Mobil, along with Canadian companies Gulf Canada, Norcen Energy, PanCanadian, and Shell Canada, plan lofty increases.

In the U.S., the 19 majors Salomon Bros. surveyed are budgeting only a 5.2% increase in exploration and production outlays. Eight of the 19 plan reduced spending in the U.S.

For the 138 independents surveyed, 1991 U.S. exploration and production expenditures are up only 6.4% at $5.601 billion. While certain large independents plan gains of more than 20%-Anadarko, BHP Petroleum, Burlington Resources, Enserch, Grace Energy, Petrofina SA, Public Service Enterprise, and Sonat--several large independents' 1991 U.S. budgets are relatively flat--Apache, Arkla, Ashland, Enron, Equitable Resources, Freeport McMoRan, Kerr McGee, and Maxus.

A number of large independents plan lower U.S. exploration and production expenditures--Adobe, Columbia Gas System, Consolidated Natural Gas, Forest, Noble Affiliates, Pacific Enterprises, and Transco.

PRICE OUTLOOK

Companies are budgeting based on an average oil price expectation for West Texas intermediate in the U.S. and Canada and Brent blend outside North America of $22.05, or 20% above the $18.37 of a year ago.

Companies in the U.S. are budgeting based on an average wellhead gas price in the U.S. of $1.86/Mcf, slightly above the $1.77/Mcf used last year and $1.78 the year before.

In Canada, companies are budgeting on an average wellhead price of $1.52 (Canadian)/Mcf.

If oil prices average only $20/bbl in 1991, only 19% of the companies surveyed would cut their exploration and production budgets. If prices average $30/bbl in 1991, 35% of the companies surveyed would increase their budget.

Canadian companies, which cited cash flow as the most critical determinant of spending, would be more inclined to cut spending under a $20 price and more inclined to increase spending under a $30 price, Salomon Bros.' survey determined.

DRIVING FORCE

Increases in 1991 exploration and production budgets were driven mainly by higher cash flow, attractive prospects, and increased development drilling.

The majority of companies said the Middle East crisis is having no effect on 1990 and 1991 spending. For 1990, 77% of the companies surveyed said the crisis had no effect on the amount of money they will spend. For 1991, 72% said it will have no effect. Companies that shifted U.S. budgets to oil drilling in 1990 were about equal in number to those that shifted their budgets to gas. A year ago, a sizable majority indicated their intention to shift to more gas activity.