Lehman Bros: e&p spending to see slower growth

After “extremely strong growths” of 20% in 2005 and 30% in 2006, global exploration and production spending is expected to rise slower: rate of 9% to $300 billion in 2007, with more emphasis on international rather than US projects, said analysts at Lehman Bros. Inc., New York. That’s based on the company’s latest E&P Spending Survey of some 300 public, private, and government-owned oil and gas companies, “the largest ever” such study since-Lehman-Bros began the semiannual surveys in 1982, said James Crandell, oil service analyst at the firm.

International spending

The surveyed companies said they plan to increase their international E&P spending by 13% to $200 billion in 2007, after a 28% growth in 2006 US spending will grow by 5.1% to $ 75 billion in 2007, following a 40% boost in 2006.

Canadian spending will be down 8% next year however, compared with a 19% increase in 2006. “Deteriorating economics are more pronounced in Canada”, Grandell said. He also noted “the impact of Anadarko [Petroleum Corp.] leaving the region” and “relatively large declines” in the operations of other large companies such as Apache Corp. Canadian Natural Resources Ltd. recently agreed to buy Anadarko Canada Cоrр. for $4.24 billion, but Anadarko maintains interests in the Mackenzie Delta and other Canadian arctic frontier, properties (OGJ Online, Sept., 14, 2006). In 2005 Apache and ExxonMobil Corp. completed a series of agreements for transfers and joint ventures across a broad range of properties in Western Canada, the Permian basin, Louisiana, and the Gulf of Mexico Outer Continental Shelf.

Companies significantly overspent their budgets in 2006; particularly on international projects, where 60% of the surveyed companies said they spent more than 10% over their original E&P budgets. National oil companies will lead the 2007 increase in international spending with the largest spending growth among the Russian companies, Crandell said. The five largest Russian companies are expected to hike their international spending by an average of 42% to $24.3 billion, he said.

Other companies estimated to have double-digit gains in international E&P spending include: Chevron Corp., up 34%; Apache, up 20%, India’s, state-owned Oil & Natural Gas Corp. and Petroleos Mexicanos, up 11% each; Petroleo Brasileiro SA (Petrobras), up 18%; Repsol YPF SA, up 19%; Woodside Petroleum Ltd., up 62%, PetroChina Co. Ltd., Statoil ASA, and Royal Dutch Shell PLC each up 10%. However, several other companies are moderating those international gains with “either small declines or small increases”, Crandell said Among those are: Anadarko, flat, BHP Billiton Ltd., up 4 %; BP PLC, down 2%; ConocoPhillips, up 5%; ЕххоnМоbil, up 7%; Eni SPA, up 8%; Petroleos de Venezuela SA, up 1%; and Total SA, up 7%.

US spending

The surveyed companies plan a substantial slowdown in the growth rate of their US E&P expenditures in 2007 due to concerns about cash flow and perception of lower gas prices. Companies responding to the survey said their plans are based on an average gas price of $ 6.72/Mcf in 2007, “and that’s going to increase concern regarding project economics”, Crandell said.

RepsolYPF, Eni, Murphy Oil Corp., and Quicksilver Resources Inc. will be making some of the larger cuts in US E&P spending, he said. Other companies indicating “above-average declines” in US spending include Anadarko, Cabot Oil&Gas Marathon Oil Corp., Newfield Exploration Co., and Plains Exploration & Production Co. Drilling economics are seen as attractive in the industry but the percentage is down from last year, said Lehman Bros, analysts. “For the long term, E&P companies were very positive on the outlook for oil and natural gas. Over half view the longterm real price, of oil at $ 50-70/bbl, with half expecting the рricе to be $ 50-70/bbl for the long term and half expecting crude to be $ 60-70/bbl. Companies also are overwhelmingly bullish on natural gas with roughly 85% of respondents saying longterm outlook for natural gas drilling is good or excellent” Sedita said.

Questions

1. What is the main tendency of global exploration and production spending?

2. Will growth rate be quicker or slower in 2007 as compared to that one in 2005 and 2006?

3. Who made E&P Spending Survey?

4. Does Canada keep to this growth tendency?

5. What companies will have the largest spending growth?

6. What companies showed insignificant change in E&P spending?

7. Why will US E&P expenditures slow down in 2007?

8. What is the expected oil price range?

Words and expressions

global exploration production spending emphasis semiannual surveyed boost in deteriorating to be pronounced impact relatively decline to maintain interest frontier transfer joint venture to hike double-digit gain to moderate substantial slowdown cash flow perception to respond crude overwhelmingly bullish roughly

мировое исследование, разработка затраты на проризводство внимание, ударение полугодовой проанализированные повышение в, подъем ухудшение быть резко выраженным влияние относительно спад сохранить интерес граница передача в собственность совместное предприятие внезапно подниматься двойная выручка сдерживать, уменьшать существенное замедление движение денежной наличности восприятие отвечать сырой, неочищенный очень, чрезвычайно играть на повышении приблизительно, ориентировочно

Exercise 15. Talking Point

Imagine that you are an oil and gas analyst. Prepare a short report on the problems and perspectives in oil and gas industry development.

Exercise 16.  Listening

Discuss the following with your partner before listening

An embargo happens when a country stops trading with another. In 1973, there was an embargo on oil. What effects do you think this had on the world’s economies?

Listen and complete the notes

1. After …………, industrial nations enjoyed economic growth.

2. They used huge amounts of .……….

3. A lot of oil came from countries in the ………….

4. The embargo began on the …………, 1973.

5. Prices of oil rose to …………times higher than before.

6. The New York Stock Exchange lost …………dollars in a few weeks.

7. The embargo ended in ………….

Exercise 17. Discuss.

1. What well-know foreign oil and gas companies have you heard of? Can you give any names? What countries were they set up? What countries do they operate in?

2. What Russian oil and gas companies do you know? What regions of the country do they operate in? What are their main activities? Do you know any facts from their history?

Key words: global energy provider, listed company, shareholder, petroleum refining, drill bit, down hole tool, joint venture, lubricant, cost-cutting program, licence, stake, proven reserves.

Exercise 18. Read the text.

Total

Total at a Glance (2005 figures)

A global multi-energy provider

• World’s fourth-largest integrated listed oil and gas company

• Largest market capitalization on the Paris Bourse and the Euro zone: 130.5 billion at December 31, 2005

• 95, 000 employees (1)

• Operations in more than 130 countries

• Exploration and production operations in 41 countries

• Producer in 29 countries

• More than 500,000 shareholders

• 2005 sales: ˆ143.2 billion

Total’s operations span the entire oil and gas chain, from exploration, development and production to midstream gas, refining and marketing, and crude oil and petroleum product trading and shipping. Total is also a world-class chemicals producer, as well as having interests in coal mines, cogeneration and power generation. In addition, Total is helping to secure the future of energy through its commitment to developing renewable energies, such as wind, solar and photovoltaic power.

A leader in each of the core businesses: 2005 key indicators

• Exploration & Production: - Production: 2.49 million barrels of oil equivalent per day - Reserves: 11.1 billion barrels of oil equivalent as of December 31, 2005

• Refining & Marketing: No. 1 European Refiner-Marketer and No. 1 in Africa- Refining capacity: approximately 2.7 million barrels per day- Retail network: nearly 17,000 service stations - Sales: approximately 3.9 million barrels per day - Brands: TOTAL, Elf, Elan, AS 24

• Chemicals: Total is one of the world’s largest integrated producers and a European or global leader in each of our markets - Petrochemicals and Fertilizers, Specialties.

Shareholder base

• Predominantly European (75%), held in particular by investors from France (33%), the United Kingdom, Germany, Switzerland and Belgium. Strong shareholder base in North America.

• Institutional shareholders (87%), employees (4%) and other individual shareholders (9%).

• Total S.A. is a French société anonyme (limited company) created in March 1924.

• Total is listed on the CAC 40, Dow Jones Stoxx 50, Dow Jones Euro Stoxx 50

and Dow Jones Global Titans 50 indices and the FTSE4Good, DJSI World, DJ STOXX SI, FTSE ISS CGI and ASPI Sustainable Development and Governance indices.

Words and expressions

integrated listed market capitalization shareholder to span midstream gas trading shipping commitment renewable photovoltaic power key indicator approximately fertilizer predominantly limited company

объединенный, единый перечисленный рыночная капитализация акционер охватывать газ в середине потока торговля транспортировка обязательство возобновляемый, заменяемый фотоэлектрическая энергия основной критерий оценки приблизительно удобрение особенно, преимущественно общество с ограниченной ответственностью