Canadian upstream capital spending expected to increase this year

Oil and gas executives are expecting their companies' US upstream capital spending (excluding acquisitions) to increase this year and are optimistic that a comprehensive US domestic energy policy will be reached within the next two to five years, according to the results of a survey by KPMG. These same executives expect Canadian upstream capital spending to increase although not as aggressively as in the US and elsewhere in the world.
In the KPMG study, which polled 126 global corporate and technical executives from oil and gas companies in March and April of 2004, 79 % of the respondents stated that their upstream capital spending in the US would be either at the same level or increase in FY'04. Some 80 % of the respondents indicated that their Canadian expenditures would be the same or increase in FY'04. 91 % of the respondents indicated that their "outside North America" expenditures would be the same or increase in FY'04.

On the other hand, when asked if they thought that their expenditures would increase by more than 10 %, only 4 % responded positively with respect to Canadian expenditures. This is considerably lower than the 20 % and the 35 % positive responses for US and outside North America expenditures, respectively.
"According to the results, it appears that while there is a positive outlook for Canadian upstream capital spending, there are greater capital spending expectations elsewhere in the world," said Wayne Chodzicki, National Industry Leader for KPMG's Canadian Energy and Natural Resources practice. Pending sales of Canadian reserves by ChevronTexaco and Murphy Oil, US based oil companies support the survey's suggestions that there are other opportunities elsewhere in the world.

When asked if the US federal acreage now off-limits to producers were to become available for leasing and permitting, 35 % of the respondents said they would increase their US share spending by 10 to 30 %. However, respondents cited two major constraints to US oil field activity in 2004:the lack of high-quality prospects and not enough qualified people to handle available opportunities.
In the survey, 56 % of the respondents are optimistic that a comprehensive US domestic energy policy will be reached within the next two to five years. However, one-third of the respondents, 31 %, believe a policy is unlikely to happen.

Most of the respondents surveyed are also expecting mergers and acquisition activity in North America to increase. Some 54 % expect consolidation among small independents, while 52 % expect to see super and large independents acquiring smaller independents.
"While the respondents were not surveyed with respect to Canadian oil and gas trusts, it would be expected that this merger and acquisition activity would include consolidation within the Canadian oil and gas trust sector," says Chodzicki.
The survey also found that current high natural gas prices continue to be a concern: 24 % of the respondents said that today's current natural gas prices are having a "significantly negative effect" on industrial production; 60 % say high prices are having a "modestly negative" effect on consumer spending; and 59 % indicated that high prices are having a "modestly negative" effect on inflation.

KPMG is the global network of professional services firms whose aim is to turn understanding of information, industries, and business trends into value. With nearly 100,000 people worldwide, KPMG member firms provide audit and risk advisory, tax, and financial advisory services from more than 750 cities in 150 countries.