While it’s no secret the majors are looking overseas for high returns, a new study by John S. Herold shows a much larger capital spending exodus from the United States than previously thought.

“From our vantage point, the heretofore slow withdrawal from North America by the mega-oils has morphed into a full fledged stampede,” the Herold study stated, regarding the spending plans of BP, ChevronTexaco, ExxonMobil, Shell and ConocoPhillips. The “big five” held U.S. proved reserves of 19.7 billion bbls at the end of 2002 and produced roughly 4.8 million boe/d, which equivalent to market shares of 32% and 29% of domestic reserves and production, respectively.

Herold estimates that the majors will generate more than $32 billion from U.S. upstream assets, including divestiture proceeds, in 2003. However, total plowback of the majors’ cash flow this year comes to only 40% plus the addition of divestiture proceeds, which brings the ratio down to a mere 34%. By way of comparison, Herold estimates that the U.S. plowback ratio of the super majors was 63% in 2002.

ChevronTexaco recently announced a significant divestiture program for its mature North American producing assets. It followed BP, ConocoPhillips and Shell, which have divested U.S. upstream assets in 2003 estimated in value by Herold to be $1.5 billion, $1.3 billion and $1 billion, respectively. “Even ExxonMobil, long the industry’s greatest collector/hoarder of upstream assets, appears to be more active on the divestiture front line,” said Herold.

There have been no sizeable domestic acquisitions in 2003 to balance the flight of capital out of the United States or to stimulate the majors’ upstream reinvestment rates.

“North American production volumes for the super giants are certain to erode further in 2004 and beyond,” said Arthur Smith, Herold CEO. “The North American upstream Golden Goose will be laying ever smaller eggs.”

The implications include an accelerated decline of conventional North American gas and oil volumes, continuing growth of imports, an extension in the tight gas market with thin inventories and strong wellhead prices, increased competition among the majors for international upstream ventures and ongoing divestitures of North American assets.

At the same time, the divestitures of North American assets by the super majors could provide opportunities for financially able independent E&P companies.

The report also indicates that like everything else in the oil and gas business, “the pendulum will eventually swing back the other way,” said a Herold spokeswoman. “With gas prices currently at $7/Mcf, a lot of the gas projects with marginal economics would be quite profitable.” While the capital exodus has been severe, it eventually could turn back the other way given continued robust commodity prices. “We might start to see somewhat of an increased interest by the majors in the United States and possibly maybe even a Renaissance a few years out for North American gas properties and reserves.”

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