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 long-term 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 long-term outlook for natural gas drilling is good or excellent” Sedita said.

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?

9. Do you consider the economic perspectives in oil and gas industry favourable?

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.

UNIT 5 Who Are the Main Players?

Text 1

Pre-reading task

a) Discuss the following questions before reading the text.

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?

b) 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.

Look up the key words in the dictionary to find out the exact meaning. Write them out.