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Andersen Survey sees U.S. Solidly in Independents' Camp

December 13, 1999
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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 project outlays.

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."

Joe Fisher

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