Posted on 06/10/2007 8:16:57 AM PDT by thackney
Lehman forecasts increased worldwide spending in ’07, beyond despite high costs
Exploration and production companies worldwide are expected to boost capital spending by 13 percent on average in 2007 compared to 2006, a 4 percent increase from a prior forecast of a 9 percent increase, with deepwater projects in the Gulf of Mexico helping to lead the way in U.S. spending this year, according to Lehman Brothers’ 2007 mid-year E&P spending report.
However, Canadian spending is expected to drop 11 percent in 2007 compared to a 7.5 percent decline reflected in Lehman’s December survey.
Lehman’s survey results partly square with three other upstream surveys conducted earlier this year by Grant Thornton, KPMG and Energy Intelligence.
Lehman’s survey of 350 companies, released to the news media on June 4, indicates that the overall increase in spending this year is largely expected to come from areas other than the United States and Canada. In fact, international spending likely will rocket to 20 percent from the 13 percent increase predicted in Lehman’s December report.
“The growth expected in 2007 is broad-based by region and by company type, with the strongest growth coming from the national oil companies based in Russia, Asia and Latin America,” Lehman said in its report, noting that U.S. companies planning to boost international spending this year include Apache Corp., with a 65 percent increase and Murphy Oil Corp., with a 61 percent increase.
U.S. E&P spending expected to grow 5 percent
Lehman’s survey found that E&P spending in the United States this year is expected to increase 5 percent from 2006, unchanged with the December forecast of about $77 billion. In addition to deepwater Gulf of Mexico, shale, coalbed methane and other unconventional natural gas plays are expected to help lead the spending increase in the United States. Lehman also found that smaller companies are budgeting larger percent increases in spending in the United States. Grant Thornton, an accounting, tax and business advisory firm, polled more than 80 energy company executives in the United States. Of the total, 65 percent anticipated an increase in domestic capital spending this year, compared to 89 percent in 2006, which partly explains the relative softness of U.S. spending vs. international spending in the Lehman’s survey.
Top concerns among those executives polled in the Thornton survey included uncertainty about the future of oil and natural gas prices and replacing an aging workforce. Thornton’s survey specifically targeted senior executives of independent oil and gas operators and service companies throughout the United States. Released in early March, the survey covered the period from December 2006 through mid-January 2007. Forty percent were public companies and 60 percent private.
“The findings show an industry that is generally optimistic and strong, but somewhat apprehensive about projecting increases in capital spending and drilling activities when the prices of natural gas and oil remain uncertain for the most part,” Thornton’s Reed Wood concluded.
Survey confirms some nightmares
The KPMG survey confirmed some of industry’s worst nightmares, in particular the fact company executives now overwhelmingly believe the world oil supply is being consumed faster than it can be replaced. “These executives are deeply concerned about declining oil reserves, a situation they see as irreversible and worsening,” said Bill Kimble of audit, tax and advisory firm KPMG, which polled 533 financial executives in April on a number of energy-related issues.
When executives were asked about their upstream capital spending in a 2006 KPMG survey, the majority indicated that investment would be a factor in helping them manage declining oil reserves. Sixty-nine percent?said that it would increase by more than 10 percent, a jump of 49 percent over 2005. However, KPMG’s 2007 survey suggests that increases in spending are flattening, with 35 percent saying they expect an increase of more than 10 percent, 19 percent saying they expect an increase of up to 10 percent, and 38 percent saying it would stay the same. Seven percent expected to see a spending decrease.
Energy Intelligence survey finds production exceeds replacement
Meanwhile, news publication Energy Intelligence published results of a survey that discovered the world is currently producing more oil annually than it is replacing with new reserves. That sobering conclusion was based on an accounting of global liquids reserves. In contrast to the gradual rise in global oil reserves that have been reported annually in most surveys based on public sources, the new assessment shows that the trend in worldwide liquids reserves “is actually one of stagnation and modest decline.” High oil prices and sharply increased upstream spending budgets of many oil companies have not yet provided any significant improvement in global additions to reserves, but more time may be needed, Energy Intelligence said, adding that the main reason for the poor performance in growing reserves is a lack of additions to reserves from new discoveries, which account for 20 percent or less of additions in the last few years.
Canadian investment different than U.S.
Lehman’s survey results of E&P spending in the United States, while largely positive, tell a different story about Canada which fell victim this year to an early thaw and weakness in natural gas prices. Despite the less-than-stellar outlook for Canada, U.S.-based natural gas producer EOG Resources Inc. plans to increase Canadian spending 39 percent in 2007, Lehman noted, adding that strong oil and natural gas prices have prompted energy producers to spend heavily to increase output over the past three years.
Higher costs for oilfield services, equipment and labor have also pushed up spending, according to the Lehman survey, which also showed that E&P spending worldwide is expected to be about $308 billion in 2007, up an overall $10.7 billion from the December survey. Survey results showed that 62 percent of the companies responding to the survey expected to increase their exploration and spending budgets in 2008, and 73 percent said the increases would be more than 10 percent next year.
Oil service companies expected to benefit from the increased spending in international markets include major oilfield service companies Weatherford International Inc. and Schlumberger Ltd. Contract drillers which are likely to benefit include major offshore drilling companies Transocean Inc. and Diamond Offshore Drilling Inc., according to the Lehman report.
Looks like the Law of Supply and Demand is once again VALIDATED!
Want more ethanol? Make it from ozone and natural gas...clean up urban pollution while freeing up our corn to EAT. C2H6 + O3 = C2H5OH +O2. QED.
Why not just legalize CFC’s again and open up the ozone holes and say goodbye to greenhouse gases?
What is the energy balance for that equation? Will it consume even more energy than the ethanol from corn?
The answer to your question is beyond the scope of my chemistry knowledge. It would probably depend on what catalyst is used. However, it WOULD be a net economic waste, yes...my point is that ethane from corn is, too!
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