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Lehman: U.S. E&P Spending Expected to Rise 7.8% in '05

Lehman: U.S. E&P Spending Expected to Rise 7.8% in '05

Oil and natural gas companies will increase 2005 spending on exploration and production (E&P) by 5.7% on average, according to a survey unveiled by Lehman Brothers last week. Worldwide expenditures are expected to reach $176.8 billion from $167.3 billion this year, according to the survey of 327 companies.

Lehman's "Original E&P Spending Survey" found that in the United States, overall spending for 249 companies surveyed is expected to rise 7.8% to $40.9 billion, compared with $37.9 billion this year. However, small, independent producers will increase their spending 24%, the survey found. Canadian E&P spending is expected to increase 8.6% to $18.6 billion from $17.1 billion this year.

"Spending in the United States is led by a strong increase (up 24%) by smaller independents (those spending less than $100 million), offset by only a 4% increase by companies with spending more than $1 billion," said the survey. "Canadian E&P expenditures are forecast to be up 8.6% for 2005 by the 75 companies that we surveyed. The growth is expected to be driven by companies spending more than $1 billion in Canada (up 14%), while those spending less than $100 million are forecast to show a 2% increase in 2005 expenditures."

Lehman found that many of the majors will only post slight spending increases, and state-owned E&P spending will actually be flat to lower.

This year, worldwide spending was up 12.4% over 2003, well ahead of an 8.8% Lehman forecast in June. A year go, Lehman had forecast worldwide E&P spending to grow 4% over 2003. The largest spending increases this year have been in the United States, which saw spending up 16.5% a year ago, followed by Canada, where spending was up 13.5%.

In 2005, the largest U.S. spending increases will be by independent producers, including Apache Corp., Burlington Resources Inc., Chesapeake Energy Corp., Dominion Resources Inc., EnCana Corp., Kerr-McGee Corp., Marathon Oil Corp., Plains Exploration & Production Co., St. Mary Land & Exploration Co., Unocal Corp., Williams Cos. Inc. and XTO Energy Inc.

In Canada, the biggest spending next year is forecast to be by Burlington, Canadian Natural Resources Ltd., Devon Energy Corp., Husky Energy Inc., Nexen Inc., Penn West Petroleum Ltd., Petro-Canada and Shell Canada Ltd.

The companies' 2005 budgets are based upon an average oil price expectation of $35.81/bbl (West Texas Intermediate) and $5.39/Mcf for natural gas (Henry Hub).

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