According to a survey completed last month, most exploration andproduction companies expect steadily rising U.S. oil and gas demandand continued strong prices will lead to increased capital spendingnext 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 thelast month gas prices have come down $1, and at this point,”winter” is just a word on the calendar page. For right now atleast, the outlook for producers is not nearly as bright as it wasjust a month ago, and analysts are lowering some earningsprojections. Still, things could start looking up as the mercurystarts dropping down.

The Andersen survey results were released Tuesday at Andersen’s20th annual Energy Symposium in Houston. The survey polledexecutives of 89 companies.

Survey respondents were slightly more optimistic in theiroutlook for natural gas prices this time around than last year whenthey predicted Henry Hub spot prices would average $2.30/Mcf in2000 and rise to $2.49/Mcf by 2003. In this year’s survey, theypredicted 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 boostspending on exploration in the United States, compared with just29% who planned increases a year ago. Three-fourths (76%) alsoexpect increased spending on U.S. development projects in 2000.Outside the United States, almost twice as many companies plan toincrease foreign exploration spending compared with year-ago plans(29% versus 16%), and 30% intend to increase foreign developmentproject outlays.

However, executives of major oil companies are notably lessbullish on the United States than their independent counterparts.While 77% of large independents and 66% of other independents planincreased domestic capital spending for exploration next year, only29% of majors are planning increased domestic exploration spending.Similarly, only 14% of majors plan increased spending for domesticdevelopment projects in 2000, compared with planned increases among92% of large independents and 69% of other independents.

“The E&P industry has undergone a major turnaround since wereleased our last survey a year ago. Demand is robust and pricesfor oil and natural gas are strong,” said Victor A. Burk, Andersenmanaging director of energy industry services. “But majors andindependents have different outlooks of the industry as indicatedby their plans related to capital spending.

“While the independents rank the U.S. and Canada as the mostattractive areas for exploration and development investment, themajors who responded to our survey rated West Africa and the MiddleEast ahead of the U.S. The majors are focusing their domesticexploration and development activities in a few select areas, suchas the Deepwater Gulf of Mexico.”

While all E&P companies were hurt by weak oil prices fromlate 1997 through early 1999, the independents, in general, werehurt more than the majors. Independents cut their capital spendingin 1999 to a greater degree than the majors. “Many independentshave now decided to significantly ramp-up exploration anddevelopment spending in response to improved prices. But bothmajors and independents are more cautious today as a result of thelessons they learned when oil prices collapsed in 1998.”

Joe Fisher

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