Most exploration and production companies expect steadily risingU.S. oil and gas demand and continued strong prices will lead toincreased capital spending next year, according to ArthurAndersen’s 12th annual U.S. Oil & Gas Industry Outlook Survey.Survey results were released Tuesday at Andersen’s 20th annualEnergy Symposium in Houston. The survey polled executives of 89companies.

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.”

Of factors affecting capital spending decisions, independentsnamed availability of attractive drilling prospects as No. 1. Themost important to majors was projected crude oil prices followed byprojected natural gas prices. The large independents citedprojected natural gas prices as the second most important factorwhile the other independents cited availability ofcapital/financing as their next most important factor.

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