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Andersen: Revenue-Spending Contradiction in 1998

Andersen: Revenue-Spending Contradiction in 1998

While for a third consecutive year U.S. gas reserves stood flat at around 107 Tcf, Canadian reserves grew 8% to 32.2 Tcf in 1998, according to Arthur Andersen. That's just one finding of the consultant's 1999 edition of Global E&P Trends, released last week.

Seemingly contradictory price, profit and capital spending trends have pointed upstream oil and gas companies in different directions during 1998 and early 1999, the Andersen report said. The survey found 1998 worldwide capital spending increased despite plunging prices that cut revenues 24% and after-tax profits 87%. Companies were forced to take more than $17 billion in write-downs.

"Worldwide revenues from oil and gas producing activities declined by 24% to $124.6 billion in 1998 as a result of the collapse of crude oil prices and weak natural gas prices. This decrease occurred despite a 4% increase in oil and gas production," said Victor Burk, managing director of Andersen's energy industry services. "As a group, the major companies in the survey had a 28% decline in revenues, while independents' revenue fell 14%."

One reason for the contradictory findings is exploration and development spending can't be turned off and on like a faucet, Burk said. "In other cases, capital spending continued because companies believed prices would recover during 1998. However, by mid-year most of those companies made the decision to cut capital spending. And in other instances, particularly involving major companies with strong balance sheets, management took a long-term view of prices that in hindsight may be correct."

Of 14 major producers in the survey, 10 increased capital spending outside the United States in 1998 and four of those also increased U.S. capital expenditures.

On the domestic gas side, production increased 3% from 11.6 Tcf in 1997 to 11.8 Tcf in 1998. Gas production has increased 12% since 1994. BP Amoco had the largest production of companies in the survey with 897 Bcf, followed by Exxon, 832 Bcf; Royal Dutch/Shell, 674 Bcf; Chevron, 635 Bcf; and Texaco, 633 Bcf.

The companies with the largest ending U.S. reserves were BP Amoco, 11.3 Tcf; Exxon, 9.9 Tcf; Burlington Resources, 5.9 Tcf; ARCO, 5.1 Tcf; and Royal Dutch/Shell, 4.7 Tcf. Extensions and discoveries decreased 9% from 12 Tcf in 1997 to 11 Tcf in 1998. Anadarko led the survey companies with 1 Tcf of extensions and discoveries in 1998, followed by Burlington, 636 Bcf; Conoco, 625 Bcf; Texaco, 599 Bcf; and Coastal, 518.5 Bcf.

The U.S. had downward reserve revisions of 845.6 Bcf in 1998 compared to downward revisions of 1.2 Tcf in 1997.

Purchases of U.S. gas reserves increased 5% from 5.6 Tcf in 1997 to 5.8 Tcf in 1998. Among the leaders, Occidental Petroleum bought 710 Bcf; Coastal, 575.9 Bcf; Chesapeake, 444.7 Bcf; and Cross Timbers Oil, 311.3 Bcf.

Canadian gas reserves grew 8% from 30 Tcf in 1997 to 32.2 Tcf in 1998. PanCanadian Petroleum, 2.7 Tcf; and Alberta Energy, 2.4 Tcf; had the largest ending gas reserves. The booking of 4.4 Tcf of extensions and discoveries contributed most of the overall increase, Andersen said. Alberta Energy, Canadian Natural Resources and PanCanadian all booked extensions and discoveries exceeding 300 Bcf. Canadian gas revisions declined from upward revisions of 355.9 Bcf in 1997 to downward revisions of 476.4 Bcf in 1998. Renaissance Energy and Royal Dutch/Shell booked the largest downward revisions at 122 Bcf and 100 Bcf, respectively.

Joe Fisher, Houston

©Copyright 1999 Intelligence Press, Inc. All rights reserved. The preceding news report may not be republished or redistributed in whole or in part without prior written consent of Intelligence Press, Inc.

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