Oil Majors Raise Exploration Budgets - Survey
Rising crude prices boost spendings
By Mike Oduniyi, with Agency report
With crude oil prices some $5 per barrel higher than in last December, many oil companies are bumping up exploration and production (E&P;) budgets midway through 2004.
Spending increases were not unexpected, given that oil company cash flows remain high thanks to the continued strong commodity prices. However, plans for second-half spending remain conservative for fear that oil prices have peaked and a significant price correction is imminent.
According to two surveys released last week,oil companies - driven mainly by smaller independents and large national oil companies - have collectively increased 2004 E&P; budgets by approximately eight percent mid-year. Lehman Brothers - spending survey found the sharpest rise in spending outside North America,with 2004 international spending expected to rise 11.9% versus 2003 spending - roughly double the increase planned six months ago.
The second survey,released by Smith Barney Citigroup, concluded that expenditures outside North America are expected to jump 10.2%,up from a planned 6.4%rise in their year-end 2003 survey.
First-quarter spending was sharply higher for big oil companies versus a year ago.
ConocoPhillips' upstream spending was up 20%, Royal Dutch/Shell was up 15% and ChevronTexaco was 9%higher.But as 2004 rolls on,the majors' mid-year budget bumps are not dramatic.
According to Lehman's findings, US spending by the 11 majors participating in its survey is expected to total $13.2 billion in 2004. Six months ago, the companies said they planned to spend a collective $12.7 billion in the US this year. Independents with exploration programmes in the US expect 2004 spending to be 3.6% higher than 2003 spending versus the 2.5% rise indicated in December 2003.
While oil companies are reluctant to funnel huge chunks of cash into E&P; projects for fear that today's high oil prices could come crashing down,they are also finding it harder to find smart upstream investments,as good exploratory prospects are tougher to come by.
Worldwide, 38%of the respondents in the Smith Barney survey are directing more money to exploration in 2004. That figure is consistent with 2003 spending, but lags behind the 45% seen four years ago.
The Gulf of Mexico - long among the top exploration hot spots - is expected to witness a spending slowdown,as 79%of the Smith Barney respondents expect spending in the US Gulf to be less in the second half of 2004 versus the first half of the year. North Sea spending is expected to witness a similar decline.
For the majors,share repurchases have been the favored way to spend cash. BP, Chevron and Shell recently followed Exxon Mobil � a frequent buyer of its own stock - in embarking on share buybacks.Dividend increases have also become more common as companies continue to generate piles of cash. So far this year,it's been the US- based independents who have been the big spenders on acquisitions,and those companies with a heavy presence in the North American gas market seem most comfortable boosting budgets. Last week,Calgary-based Petro-Canada snapped up US Rocky Mountain gas producer Prima Energy. Numerous other deals,mainly in the gas-rich Rockies, have been announced in recent months.
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