The yearly survey by Salomon Bros., New York, of upstream spending by the international petroleum industry shows little change for 1992 from 1991.
A substantial shift from U.S. to non-U.S. exploration and production will continue, the firm's 10th and largest survey--241 companies--shows only a 1.3% increase in worldwide exploration and production spending to $53.7 billion in 1992 from $53.1 billion estimated in 1991.
The amount estimated for last year's spending is less than the sum forecast at midyear 1991. That, in turn, is lower than what was budgeted for 1991 in December 1990. Budgets in 1991 were significantly underspent in the U.S. and Canada but not elsewhere.
The only area of increase in 1992 upstream spending is outside North America, where 80 companies have budgeted $33.576 billion, a gain of 9.1% from 1991. Several companies based outside North America plan significant increases in this area. They include Elf Aquitaine, Total, Norsk Hydro, Royal Dutch/Shell, Agip, Statoil, and BHP.
By contrast, several large companies based in the U.S. are budgeting cuts for upstream spending outside North America in 1992. They include Amerada Hess, Amoco, ARCO, Occidental, and Sun. British Petroleum and Exxon, two of the three biggest spenders last year, are budgeting relatively flat outlays outside North America.
Major oil companies will cut U.S. spending 12.7% to $11.832 billion. Most larger companies plan declines, with Mobil, Pennzoil, Royal Dutch/Shell, and Amerada Hess budgeting particularly sharp drops.
The 136 independents Salomon Bros. surveyed forecast only a 4.2% decline to $3.935 billion in U.S. upstream spending.
Several companies Salomon Bros. classifies as independents-Anadarko, Coastal, Enron, Equitable Resources, Nerco, and PG&E Resources-are budgeting healthy increases. But a number of others--Freeport McMoRan, Maxus, Nomeco, Pacific Enterprises, Presidio, and Wainoco-are budgeting significant declines.
Finally, 103 firms Salomon Bros. surveyed forecast a 4.9% decline to $4.405 billion in Canadian upstream spending. The decline would be much greater were it not for a large increase by Mobil.
OTHER FINDINGS
On other matters, Salomon Bros. said industry's perception of the economics of exploration deteriorated across the board in 1991.
In the U.S., 67% of survey respondents called the economics of oil exploration fair or poor, and 79% termed the economics of gas exploration as fair or poor.
In Canada, 45% classified the economics of oil exploration fair or poor, while 75% made the same judgment for gas.
Outside North America, traditionally a bright spot, 39% judged the economics of exploration fair or poor.
All of those categories showed marked deterioration from a year ago.
For the first time, most respondents-57%-viewed the economics of buying reserves as superior to those of drilling for reserves.
A record high portion of companies-72%-is seeking to buy reserves. The focus is on oil by more than two to one.
Operators are basing their 1992 budgets on an expected $20.40/bbl average oil price for West Texas intermediate in the U.S. and Canada and Brent blend elsewhere. That's off 7.5% from the expected $22.05/bbl a year ago.
The expected average gas price is $1.62/Mcf in the U.S. and $1.30/Mcf in Canada. The prices are about 25 less than those used in industry's 1991 budget.
More than half of respondents said they would increase their upstream spending if oil prices averaged $25/bbl in 1992. More than half also would increase outlays if gas prices averaged $2/Mcf. While slightly more than half of all companies would reduce spending if oil prices averaged $17/bbl, only 30% would cut spending if gas prices averaged $1.30/Mcf.
A significantly greater percentage of companies overspent their cash flow in 1991 than had planned to do so, indicating lower-than-expected cash flows. In 1992, however, a majority of companies plan to spend less than cash flow.
Major oil companies spent less of their budget on exploration and production in 1991 than in the prior year and plan to do the same in 1992.
While the survey for 1990 showed a modest shift to oil exploration from gas, an overwhelming majority of companies shifted their emphasis to oil exploration in 1991. A similarly large percentage plans to do so in 1992.
The U.S. gas surplus limited spending plans of a record high 80% of companies in 1991. Companies remain pessimistic about the length of the surplus, with most expecting it to continue beyond 2 years.
Operators indicate a substantial swing toward development drilling in 1992, with more than twice as many shifting their upstream budgets to development vs. exploration.
While the bloom may seem like it is off the rose for horizontal drilling, Salomon Bros. said, about half of survey respondents plan to increase their horizontal drilling programs in 1992. In addition, another 18 companies plan to begin horizontal drilling.
The firm said while the current outlook may seem tough, an overwhelming majority of companies are optimistic about the future of the industry 3-5 years out.
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
