E&D outlays, revenues hit 5-year high in '96

Worldwide exploration and development spending and revenues reached 5-year highs in 1996.

That's the main finding to be gleaned from Arthur Andersen LLP's 1997 Oil & Gas Reserves Disclosure survey (OGJ, Sept. 1, 1997, Newsletter).

"The global oil and gas industry is now realizing a return on its years of investment in productivity improvements and new technologies, sweetened in 1996 by stable, relatively strong prices," said Arthur Andersen Managing Director Victor Burk.

"The significant increase in capital spending in 1996-which is continuing in 1997-is an indicator of the renewed commitment by both majors and independents to the exploration and production business, both in the U.S. and abroad."

Spending

Expenditures by publicly held oil and gas companies increased to $65.9 billion in 1996 from $57.7 billion in 1995. Outside the U.S., 1996 spending rose to $38.7 billion from $35.3 billion.

U.S. upstream spending climbed to $27.2 billion in 1996 from $22.4 billion in 1995-a 21% increase. Of the U.S. total, $21.6 billion was spent on E&D-up 24% from 1995.

The gap between majors and independents is continuing to close in the U.S., says Arthur Andersen.

In 1996, integrated oil companies accounted for just over half of E&D spending. Their portion of total spending has declined since 1992, when it was 61%. Majors' spending was $11.1 billion last year vs. $9.8 billion the previous year-a 13% increase.

Independents increased upstream spending more dramatically last year, when U.S. spending by these companies increased to $10.5 billion from $7.6 billion in 1995. The 1996 total is a 37% increase from 1995 and a 107% rise since 1992.

The majors that led U.S. E&D spending in 1996 were: Royal Dutch/Shell $1.9 billion (up $378 million from 1995), Texaco Inc. $1.3 billion (up $243 million), and Amoco Corp. $1.2 billion (up $108 million).

Independents' leading spenders were: Union Pacific Resources Group Inc. $694 million (up $196 million from 1995), Burlington Resources Oil & Gas Co. $432 million (down $11 million), and Enron Oil & Gas Co. $384 million (up $102 million).

Companies continue to spend a majority of their E&D dollars outside the U.S. (61% in 1996). Non-U.S. E&D spending increased to $34.3 billion in 1996 from $33 billion the previous year.

Majors leading non-U.S. spending were: Royal Dutch/Shell $3.6 billion (down $98 million from 1995), Exxon Corp. $3.1 billion (down $21 million), Mobil Corp. $2.6 billion (up $758 million), and BP $2.5 billion (up $549 million).

Non-U.S. independent spending was led by: Renaissance Energy Ltd. $578 million (up $130 million), Enterprise Oil plc $566 million (up $152 million), and Canadian Pacific Ltd. $508 million (down $156 million).

Replacement costs, rates

U.S. reserves replacement costs increased in 1996 for the first time in 5 years, says Arthur Andersen.

Reserve replacement costs from all sources rose to $5.26/boe in 1996 from $4.18/boe in 1995. The massive expenditures associated with the many deepwater projects in the Gulf of Mexico contributed to this increase.

U.S. replacement costs averaged $5.30/boe for majors and $5.24/boe for independents.

The U.S. trend contrasts with that of non-U.S. replacement costs, which reached a 5-year low in 1996. All-source replacement costs decreased to $3.72/boe from $4.78/boe for non-U.S. reserves. Non-U.S. replacement costs averaged $3.85/boe for majors and $3.27/boe for independents.

Oil production replacement rates from all sources increased for both U.S. and non-U.S. operations in 1996. In the U.S., overall production replacement was 112% in 1996 vs. 100% in 1995. Majors achieved a rate of 76% and independents, 251%. The high rate for independents reflects a 154 million bbl increase in net crude purchases, says Arthur Andersen. Outside the U.S., oil production replacement reached 159% in 1996 vs. 128% in 1995. The rate was 150% for majors and 223% for independents, who purchased a net 296 million bbl last year.

Reserves replacement rates for gas production from all sources declined in the U.S. but increased elsewhere. In the U.S., companies achieved a gas production replacement rate of 97% in 1996 vs. 133% in 1995. The rate for majors was 49% in 1996, reflecting net sales of 892 bcf. Independents' rate for U.S. gas reserves replacement was 158% last year. Elsewhere, all-source gas production replacement was 192% in 1996. Majors' non-U.S. rate was 178% vs. 271% for independents. Independents' high rate resulted in part from net gas reserves purchases of 1.3 tcf.

Production costs, revenues

U.S. production costs increased in 1996 for the first time in 5 years to $4.12/boe. Despite the 1-year increase, overall U.S. production costs have declined 11% since 1992.

In the U.S., majors' 1996 production costs averaged $4.28/boe, and independents' costs were $3.80/boe. Elsewhere, 1996 production costs averaged $4.76/boe ($4.71/boe for majors and $5.06/boe for independents).

Worldwide, upstream revenues increased to $156.3 billion in 1996. These revenues generated $35.9 billion in results of operations-more than double 1995's results.

For U.S. production, companies surveyed by Arthur Andersen received an average $14.87/boe vs. $11.61/boe in 1995. Non-U.S. production generated $17.94/boe vs. $15.61/ boe the previous year.

"The revenue increase reflected rising average oil and gas prices received by the survey companies," said Arthur Andersen. "The primary reason for the increase in results of operations in 1996 relates to the increase in oil and gas revenues, coupled with $6.6 billion in impairment writedowns taken in 1995."

Reserves

U.S. oil reserves increased slightly during 1996 to 19.4 billion bbl, 80% of which is held by majors. Non-U.S. oil reserves rose 7% to 34.6 billion bbl.

U.S. gas reserves were essentially flat for the year, at 109.7 tcf vs. 110.1 tcf in 1995. Elsewhere, gas reserves increased 7% to 177.8 tcf.

Purchases of U.S. oil reserves increased 41% to 613 million bbl in 1996. Independents dominated the activity, says Arthur Andersen, increasing their purchases 34% to 492 million bbl.

"The increase relates primarily to Nuevo Energy's purchase of California reserves from Unocal and Torch Energy," said Arthur Andersen.

Majors increased purchases in 1996 to 121 million bbl, with Unocal Corp. accounting for 23% of the total.

Purchases of non-U.S. oil reserves increased 49% in 1996 to 921 million bbl. Independents increased their non-U.S. purchases to 426 million bbl in 1996 from 216 million bbl in 1995.

Purchases of U.S. gas reserves were relatively flat at 5.4 tcf, with independents accounting for 88% of the activity. Non-U.S. gas reserve transactions increased 200% to 3.7 tcf in 1996, with independents accounting for 2.4 tcf.