Andersen Survey sees U.S. Solidly in Independents' Camp
According to a survey completed last month, most exploration and
production companies expect steadily rising U.S. oil and gas demand
and continued strong prices will lead to increased capital spending
next year. That's one finding of Arthur Andersen's 12th annual U.S.
Oil & Gas Industry Outlook Survey.
However, just like the weather, the market can change. In the
last month gas prices have come down $1, and at this point,
"winter" is just a word on the calendar page. For right now at
least, the outlook for producers is not nearly as bright as it was
just a month ago, and analysts are lowering some earnings
projections. Still, things could start looking up as the mercury
starts dropping down.
The Andersen survey results were released Tuesday at Andersen's
20th annual Energy Symposium in Houston. The survey polled
executives of 89 companies.
Survey respondents were slightly more optimistic in their
outlook for natural gas prices this time around than last year when
they predicted Henry Hub spot prices would average $2.30/Mcf in
2000 and rise to $2.49/Mcf by 2003. In this year's survey, they
predicted median spot prices per Mcf of $2.50 in 2000 through 2002,
rising to $2.60 in 2003 and $2.70 by 2004.
Nearly two-thirds (64%) of executives surveyed plan to boost
spending on exploration in the United States, compared with just
29% who planned increases a year ago. Three-fourths (76%) also
expect increased spending on U.S. development projects in 2000.
Outside the United States, almost twice as many companies plan to
increase foreign exploration spending compared with year-ago plans
(29% versus 16%), and 30% intend to increase foreign development
However, executives of major oil companies are notably less
bullish on the United States than their independent counterparts.
While 77% of large independents and 66% of other independents plan
increased domestic capital spending for exploration next year, only
29% of majors are planning increased domestic exploration spending.
Similarly, only 14% of majors plan increased spending for domestic
development projects in 2000, compared with planned increases among
92% of large independents and 69% of other independents.
"The E&P industry has undergone a major turnaround since we
released our last survey a year ago. Demand is robust and prices
for oil and natural gas are strong," said Victor A. Burk, Andersen
managing director of energy industry services. "But majors and
independents have different outlooks of the industry as indicated
by their plans related to capital spending.
"While the independents rank the U.S. and Canada as the most
attractive areas for exploration and development investment, the
majors who responded to our survey rated West Africa and the Middle
East ahead of the U.S. The majors are focusing their domestic
exploration and development activities in a few select areas, such
as the Deepwater Gulf of Mexico."
While all E&P companies were hurt by weak oil prices from
late 1997 through early 1999, the independents, in general, were
hurt more than the majors. Independents cut their capital spending
in 1999 to a greater degree than the majors. "Many independents
have now decided to significantly ramp-up exploration and
development spending in response to improved prices. But both
majors and independents are more cautious today as a result of the
lessons they learned when oil prices collapsed in 1998."