30-06-04 Worldwide exploration and production spending for 2004 is increasing more than oil and gas companies anticipated that it would when they were polled at yearend 2003, said a midyear update to an E&P Spending Survey by Lehman Bros., New York.
Survey participants at midyear plan 2004 worldwide E&P expenditures of $ 157.8 bn, an 8.8 % increase compared with 2003. In the December survey, companies had estimated a 4 % increase vs. 2003, Lehman Bros. noted. The midyear survey -- taken May 15-June 7 -- involved 347 companies while the December survey involved 335 companies.

The midyear survey results largely reflect increases in international budgets, said Lehman Bros. analyst James D. Crandell, who noted that strong commodity prices are driving the increased spending plans.
"Reflecting much stronger commodity prices, 2004 E&P budgets are now based on an average oil price of about $ 28.44 a barrel (West Texas Intermediate). This price compares to $ 25.29 a barrel in our yearend survey. Natural gas price assumptions also have risen to approximately $ 4.76/mm cf (Henry Hub) currently from $ 4.17/mm cf in December. If oil and gas prices remain at today's levels, 39 % of the companies in our survey would increase their 2004 E&P budgets," Crandell said.
When asked about 2005 spending plans, 60 % of the companies surveyed said they intend to increase E&P spending, and about half of them plan double-digit increases. Most of the companies anticipating double-digit gains are smaller independents, he said.

Spending outside the US and Canada
E&P spending outside the US and Canada is estimated to grow 11.9 % in 2004 for the 94 companies surveyed in that category at midyear, compared with 6.1 % estimated by 92 companies in the December survey. This is happening despite weaker-than-expected spending among the Russian companies.
"The greater growth in 2004 spending vs. 2003 is driven by government-owned companies... and by majors," Crandell said. Among the government-owned companies, Petroleos de Venezuela expects a 51 % spending increase, Petroleo Brasileiro expects a 29 % increase, and Petroleos Mexicanos expects a 22 % increase. Among the majors, Spain's Repsol-YPF expects an 85 % spending increase, BG expects a 32 % increase, and Shell expects a 23 % spending increase.

Spending within the US and Canada
E&P spending in the US is forecast to grow 4.3 % in 2004 for the 276 companies surveyed at midyear. That compared with a flat outlook expected by 270 companies participating in the December survey.
"The gains are being driven partly by companies that spend less than $ 50 mm, as their spending is estimated to grow by about 20 %. However, several larger independents have boosted their budgets, reflecting increased cash flows, and in some cases, the availability of prospects," Crandell said.
These include 2004 budget increases of more than $ 200 mm each by Apache, Houston, and Chesapeake Energy, Oklahoma City. In the US, independents as of the midyear survey planned spending gains of 4.2 % vs. the 2.5 % increase they indicated in December.

Meanwhile, the majors estimate a 4.4 % increase in 2004 US E&P expenditures, a reversal from the 3.9 % decline they expected in the earlier survey.
Canadian E&P spending is expected to be weaker in 2004, primarily due to the overspending of 2003 budgets that was prompted by seasonably good weather in the fourth quarter, Crandell said. For 62 companies surveyed at midyear, spending is estimated to be down 2.2 % for 2004, compared with a flat spending expectation by 58 companies participating in the December survey.