Worldwide E&P spending by 320 producers will increase to $86.5 billion in 2000 from $78 billion last year, Lehman Brothers Inc. says in its latest E&P spending survey. Investors may find the 10.2% increase disappointing, since the industry is coming off a year of depressed spending, according to James D. Crandell, who follows drilling contractors and service and supply companies for the investment banking firm in New York. "Given the sharp recovery in oil prices over the course of 1999, investors were hoping for much more. We believe that the consensus gain for expenditures in 2000 is 15% or more," he says. Crandell suggested that growth could be less than anticipated because expenditures for 97 major oil companies, independent producers and national oil companies with operations outside North America will rise only 5.7% year-to-year to $54.08 billion in 2000 from $51.16 billion in 1999. By comparison, the Lehman Brothers survey found that U.S. E&P spending for 230 majors and independents will climb 15.9% to $24.36 billion in 2000 from $21.02 billion in 1999. The 215 independents in the group plan to increase expenditures 22.9% to $13.40 in 2000 from $10.91 billion, compared with the 15 majors' anticipated 8.4% rise in E&P outlays to $10.96 billion in 2000 from $10.11 billion. Estimated Canadian spending by 78 Canadian companies will jump 28.0% to $8.03 billion in 2000 from $6.27 billion in 1999. But the survey's inclusion, for the first time, of several large national oil companies, which spent more than $15 billion in international E&P in 1999, meant that overseas expenditures will account for 63% of all the survey's projected worldwide outlays. "The primary reason that international expenditures are projected to be up by only a modest amount is that [spending by] the three large companies that have just completed mergers or are now going through mergers are expected to be down," Crandell says. An example is Exxon Mobil Corp., which the survey projects to decrease total upstream spending by 7% from the combined $5.9 billion they spent in 1999. Assuming that BP Amoco Plc and Atlantic Richfield Co. complete their combination, Lehman Brothers expects them to spend 17% less than their combined $3.5 billion in 1999. And Crandell says TotalFina SA is projected to spend $1 billion, or 19%, less on overseas E&P than Total and Petrofina spent in 1999. "The companies that are driving the increase internationally are, first and foremost, Petroleos Brasileiros, which is budgeting a staggering 70% increase to more than $4 billion in 2000." Other majors projected to substantially increase their E&P outlays in 2000 are Texaco Inc., up 67% to $2 billion; Phillips Petroleum Co., up 42% to $895 million; Conoco Inc., up 49% to more than $1 billion; ENI SpA, up 16% to $3.3 billion; Occidental Petroleum Corp., 48% higher to $488 million, and Unocal Corp., up 22% to $560 million. "The picture in North America appears far more promising," says Crandell. "Just as the independents in the United States and Canada drove the increases in the second half of 1999, they are expected to do so again in 2000." The larger increases include Noble Affiliates Inc., which Lehman Brothers expects to more than double its 1999 expenditures to $254 million in 2000; Forcenergy Inc., which also is expected to more than double its outlays to $164 million, and Apache Corp., which the survey indicates will increase its domestic outlays by more than 50% to $325 million. -Nick Snow