INDUSTRY'S E&P FOCUS IS OUTSIDE N. AMERICA

Salomon Bros.' midyear update of industry's 1991 exploration and production budgets confirms large spending increases outside of North America planned in December 1990. The New York financial firm reported its latest survey of 235 operators, its most extensive sample, reveals a 13.9% increase in worldwide E&P budgets to $56 billion from $49.2 billion in 1990. The advance is in line with the 13.7% increase indicated in its December 1990 survey (OGJ, Jan. 21, p. 24).

July 8, 1991

3 min read

Salomon Bros.' midyear update of industry's 1991 exploration and production budgets confirms large spending increases outside of North America planned in December 1990.

The New York financial firm reported its latest survey of 235 operators, its most extensive sample, reveals a 13.9% increase in worldwide E&P budgets to $56 billion from $49.2 billion in 1990. The advance is in line with the 13.7% increase indicated in its December 1990 survey (OGJ, Jan. 21, p. 24).

The update also shows that many companies cut spending in the U.S. and, to a lesser extent, in Canada in the first 6 months of this year.

Reductions in North American E&P spending coincide with decreased U.S. and Canadian natural gas price forecasts. Respondents reduced their U.S. gas price projection by 23/Mcf during the past 6 months to $1.63/Mcf and trimmed their Canadian natural gas price estimate by 1O/Mcf to $1.41/Mcf, all in U.S. currency.

"In general," Salomon Bros. said, "we are concerned with the underspending of E&P budgets in North America. Although the majority of companies in the U.S. and Canada are roughly on target with their plan, 24% of the respondents are underspending their U.S. plans and 20% are underspending their Canadian budgets.

"With a significant number of companies stating that more reductions are likely if natural gas prices remain depressed, 1991 spending is likely to fall below current plans.

"Meanwhile, international spending (outside North America) is running pretty much in line with plans, with 39% of respondents underspending their budgets and 28% overspending their plans."

BREAKOUTS

In Salomon Bros.' latest survey, 82 companies estimate a combined spending increase of 23.3% to $30.756 billion outside North America this year.

That's up from the 19.7% spending hike indicated by the 72 companies surveyed last December.

Companies planning to raise their 1991 outlays above their projections of 6 months earlier include Chevron, Enterprise, Kerr-McGee, Mobil, Royal Dutch/Shell, Total, Union Texas Petroleum, and Unocal.

Among those trimming outlays outside North America, Occidental cut spending by nearly 50% year to year, mainly reflecting the sale of North Sea properties.

More companies (32%) boosted their international expenditure plans relative to those of 6 months ago (28%).

In the U.S., survey respondents now plan a year to year increase in E&P spending of only 2.1% in 1991, down from the 5.5% advance budgeted 6 months ago.

Spending cuts were made mainly by independents. The 140 independents surveyed at midyear now estimate a 1.7% decline in E&P spending from last year, compared with the 6.4% gain budgeted by 138 companies at yearend 1990.

Several large independents now indicate significantly lower spending plans than they planned 6 months ago, Salomon Bros. said. Those include Apache, BHP Petroleum, Burlington Resources, Columbia Gas System, Enron, Enserch, Freeport-McMoRan, Sonat, and Union Texas Petroleum.

Each attributed spending cuts to low natural gas prices, except for Union Texas Petroleum, which cited the sale of its Gulf of Mexico leases, and BHP Petroleum, which noted a shift in strategy.

The 19 major companies covered in the latest survey indicate a 3.5% year to year increase in their 1991 E&P budgets to $14.827 billion, down from the 5.2% hike budgeted in December.

Exxon led the advances, indicating substantially higher spending plans as a result of large development projects in the Gulf of Mexico and off Alaska and California. Nevertheless, more majors reduced their spending plans (32%) than increased them (26%).