Due to significantly higher revenues from producing activities, brought on by strong oil and natural gas prices, capital expenditures doubled and exploration and development activity increased by 73% in North America during 2000, compared with a capital spending decline of 14% throughout the rest of the world, according to Andersen’s recently released 2001 Global E&P Trends.
“This year’s report reflects the boom the oil and gas industry has experienced over the past 18-24 months and the actions of the global energy industry to vigorously and efficiently react to marketplace changes and opportunities,” said Victor A. Burk, managing partner of Andersen’s energy and utilities industry practice. “Although we can be virtually certain these trends do not signal the beginning of a period of predictability in energy markets, we can see signs that companies are positioning themselves better to manage successfully and sustainably through the cycles.”
The study showed that North American capital spending jumped 116% to $70.0 billion in 2000 from $32.5 billion in 1999, while capital spending outside North America declined 14% to $54.1 billion. Andersen said the U.S. capital spending accounted for 88% of the survey companies’ U.S. pretax operating flow, compared to 45% of pretax operating cash flow for non-U.S. companies. Exploration and development spending in North America, driven by high natural gas and crude oil prices, increased 72% to $36.2 billion while the rest of the world’s total rose by just 1% to $44.9 billion.
Burk said that because North American drilling activity remains “relatively high,” it is likely that North American exploration and development spending will continue to increase in the remainder of 2001 and into 2002.
“There also is renewed interest among the majors and independents in exploration and production investments in North America,” Burk added. “Mergers and acquisitions, although not at the levels of the ‘mega-deals’ of 1999 and 2000, will continue to be a strategy for many companies to create value, increase production and reserves, and achieve cost savings.”
The study revealed that worldwide upstream capital spending in 2000 increased 30% to $124.1 billion on increases in all categories, led by proved property acquisitions, which rose 41% to $43.0 billion. Andersen found exploration and development spending increased 24% to $81.1 billion, including a 21% rise in development spending to $53.2 billion.
U.S. upstream capital spending, on the other hand, experienced much larger increases, doubling to $55.8 billion in 2000, with a fourfold rise in unproved property acquisition costs (283%), as well as increases in exploration (49%) and development (57%). Andersen said, “Proved property acquisition costs more than tripled to $27.8 billion, with transactions by BP ($9.2 billion), Phillips Petroleum Co. ($5.2 billion) and Occidental Petroleum Corp. ($3.7 billion) accounting for more than three-fourths of the activity.”
Worldwide revenues from oil and gas producing activities increased 63% in 2000 to $270.6 billion, following 1999’s 38% increase to $166.5 billion, the study showed. Upstream after-tax profits more than doubled to $89 billion from $39.5 billion in 1999. Of the 155 survey companies, 151 reported after-tax income. U.S. revenues from upstream activities once again posted stronger results, increasing 81% to $78 billion, reflecting a 72% rise in average wellhead prices for oil to $26.73/bbl and a 66% increase in average wellhead prices for natural gas to $3.60/Mcf. “As a result, U.S. upstream after-tax operating results rose to a record $27.7 billion in 2000–more than triple the 1999 total of $8.9 billion,” Andersen said.
The company said the increases in exploration and development activity produced the highest reserve levels of the survey period, both in the U.S. and worldwide. Natural gas reserves increased 9% worldwide to 402.7 Tcf and were up 18% in the U.S. to 114.5 Tcf. New gas discoveries and reserve extensions added more than 36 Tcf of reserves worldwide. Oil reserves also rose 7% worldwide to 93.4 billion barrels and 19% in the U.S. to 19 billion barrels.
Even though strong revenue increases were posted both worldwide and in the United States, upstream investment performance measures improved in every measure in the U.S., but deteriorated on all but one measure worldwide, the study showed. However, the cost to find and develop reserves outside the United States remained lower than in the United States.
Andersen said that for only the second time in five years, survey companies replaced more than 100% of U.S. production through the drill bit: 130% of oil production and 128% of gas production. Worldwide in 2000, companies replaced 96% of oil production and 133% of gas production by drilling.
The 2000 study marked the benchmark Andersen survey’s 22nd year. It tracks 155 publicly traded companies with proved oil and natural gas reserves of more than 5 million boe. As a group, these companies account for an estimated 87% of total U.S. crude oil and natural gas liquids reserves, and 68% of total U.S. natural gas reserves. The group includes 34 companies headquartered outside the United States.
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