World Growth of Oil Expenditures to Exceed 10% in 2008 - Lehman Brothers

Oil&Gas Materials 10 December 2007 14:25 (UTC +04:00)

Azerbaijan, Baku / Trend corr A. Badalova / Worldwide exploration and production expenditures are expected to show another year of double-digit growth in 2008, driven by spending outside North America, according to a report released Friday by the equity research branch of Wall Street investment bank Lehman Brothers.

According to a Lehman Brothers survey of 344 oil and gas companies, worldwide exploration and production expenditures are slated to increase by 11% to an estimated $369 billion in 2008 from $332 billion in 2007 -- marking the sixth consecutive year of double-digit growth.

Exploration and production spending outside North America is forecast to grow by 16% in 2008 to $267 billion, driving overall exploration and production growth for the second year in a row. Meanwhile, US exploration and production expenditures are expected to increase by a modest 3.5% to $81 billion next year, from $78 billion in 2007.

Unsurprisingly, Canadian spending is forecast to drop by about 12% to $20.3 billion in 2008 from $23.2 billion in 2007, reflecting continued weak economics and a recently announced increase in royalties. The companies that plan to cut Canadian spending most include Canadian Natural Resources (-30%), EnCana (-27%), Nexen (-56%), and Talisman (-40%).

Additionally, some companies have recently exited Canada altogether, such as Anadarko, Pioneer Natural Resources and Plains Exploration & Production, Lehman noted. The report said the decline in Canadian spending is even greater than the percentage indicates due to the strength of the Canadian dollar.

Lehman said two groups of companies are driving the increase in upstream spending in the US: those that each spend less than $100 million annually -- which showed a combined 23% gain in capital expenditures -- and those companies spending over $1 billion, in particular the majors.

Majors with large increases in projected spending next year include BP (21%), Chevron (7%), Hess (15%), Royal Dutch Shell (15%) and Total (25%). Several companies are expected to cut their spending in 2008, including Chesapeake (-6%), Marathon (-12%), Newfield (-10%), Nexen (-62%), Pioneer Natural Resources (-19%) and Plains Exploration & Production (-14%).

On the international side of the picture, the increases are spread across a number of groups, with companies from Russia and the Middle East and Africa, as well as the North American independents, showing the strongest overall spending growth.

The survey found that most North American independents are shifting funds from domestic to international operations. Nexen and Anadarko are leading the pack with projected increases of 102% and 100%, respectively. Other large increases in international spending include Apache (15%), Canadian Natural Resources (13%), Noble Energy (33%) and Talisman (27%).

Russia's six major companies -- Gazprom, Gazpromneft, Lukoil, Rosneft, Surgutneftegaz and TNK -- are estimated to have raised upstream spending by a combined 28% this year, but their spending is expected to slow to a growth rate of 21% in 2008.

Middle East-Africa companies are expected to increase their spending by 25% overall, with several companies, including Sonangol ( Angola), Sonatrach ( Algeria) and Nigerian National Petroleum Corp., up by more than 30%.

The survey found that the largest of the majors continue to show solid growth in international spending, with BP expected to ramp up spending by 11%, Chevron by 19%, ConocoPhillips 19%, Exxon Mobil 10%, Royal Dutch Shell 15% and Total 25%.

Taken together, the Latin American companies surveyed have increased their 2008 budgets by 16%. Pemex and Petroleos de Venezuela dominate the group with increases of 23% and 19% respectively.

The larger European-based companies are forecast to raise their upstream spending by 9%, with BG turning in by far the biggest increase at around 40%, followed by Eni (13%) and OMV (13%). By contrast, Repsol YPF is expected to cut its spending by 16%.