Lehman Bros: E&P firms make midyear expenditure increases

A survey of exploration and production firms around the world has revealed that expected upstream spending for 2000 has risen since the first of the year. Lehman Bros. Inc. polled 326 firms for its analysis of midyear spending plans. The surveyed companies are planning on a 18.2% increase in worldwide E&P expenditures in 2000 vs. 1999, compared with the 10.2% rise that was expected last December.


A survey of exploration and production firms around the world has revealed that expected upstream spending for 2000 has risen since the first of the year.

Lehman Bros. Inc. polled 326 firms for its analysis of midyear spending plans. "Companies we surveyed are planning on a 18.2% increase in their worldwide E&P expenditures for 2000, vs. a 10.2% rise for 2000 budgeted in December," said Lehman Bros. "US E&P expenditures are budgeted to advance by 17.6% in 2000, compared with a 15.9% gain in 2000 in our December 1999 survey."

The firm says its results indicate that nearly $6 billion has been added to 2000 worldwide exploration budgets since December 1999. The increase is largely the result of higher, and more stable, oil and gas prices.

The US spending increase is almost entirely driven by independents, says Lehman. "In our survey, 227 independents indicated E&P spending growth in 2000 of 26.1% vs. a 22.9% increase budgeted for 2000 in December 1999."

Among the larger independents logging significant midyear spending increases are Anadarko Petroleum Corp., Apache Corp., BHP Petroleum Pty. Ltd., HS Resources Inc., McMoRan Exploration Co., MDU Resources Group Inc., Mitchell Energy & Development Corp., Santa Fe Snyder Corp., Stone Energy Corp., and Titan Exploration Inc. Significant reductions are expected by Barrett Resources Corp., Belco Oil & Gas Corp., Burlington Resources Inc., Coastal Corp., Forcenergy Inc., Houston Exploration Co., Kerr-McGee Corp., Mariner Energy Inc., and Williams Production Co.

"The 14 majors, however, are budgeting a similar gain for 2000 as they were in December, up 8.8% [compared with 1999 spending] vs. an increase of 8.4% [reported in December]," said Lehman Bros. Majors planning midyear US spending increases are Amerada Hess Corp., Conoco Inc., Occidental Petroleum Corp., and TotalFinaElf SA. Those who have scaled back their US spending plans include ENI SPA, Royal Dutch/Shell Group, and Texaco Inc.

Canadian E&P outlays are estimated to rise by a staggering 44.7% in 2000, based on the responses of 85 companies. A gain of 28.0% was expected in December 1999. Of the firms surveyed, 41% have increased estimated spending by 10% or more since December. Talisman Energy Inc. has made "a huge increase" since December, said Lehman.

E&P expenditures outside Canada and the US also are slated to rise by significantly more than estimated 6 months ago, says Lehman, with 99 companies budgeting a 14.9% increase compared with a December projection of 5.7%. Firms who have materially stepped up spending outside the US and Canada are Texaco, Petroleo Brasileiro SA, Petroleos Mexicanos SA, and Repsol YPF SA. Firms logging declines in this category are BHP, Burlington, ENI, Unocal Corp., and USX-Marathon.

The budgets are based on an average oil price expectation of $22.04/bbl for West Texas Intermediate in 2000 and a Henry Hub natural gas price of $2.58/Mcf. "These are well below current prices and Lehman Brothers' estimates of $28/bbl and $3.30/Mcf, respectively," said the firm.

"Budgets are being underspent year-to-date in all areas�particularly internationally.

A substantial majority of companies are planning increases in E&P spending in 2001 in the US, in Canada, and internationally.

"The [survey] results were highly encouraging among US independents and in Canada," said Lehman. "Not only did over 70% of the companies surveyed believe that their spending would be higher, but 60% thought it would be up in double digits [vs. 2000].

"The international results were also encouraging, with over half of the companies predicting an increase, and more than 40% expecting a double-digit increase."

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