Worldwide exploration and production spending in 2007 will increase 13%, up from 9% estimated at 2006 year-end, according to the Lehman Brothers analysts James Crandell and Angeline Sedita. Total 2007 expenditures could reach $308 billion by year-end, their 350-company survey shows.

E&P capex spending growth in the U.S. is up a modest 5% in 2007, totaling $77.2 billion, and smaller companies are most aggressive. "The smaller companies are budgeting stronger percentage gains in 2007 than their larger counterparts," the analysts report.

"Companies spending less than $100 million indicate that 2007 spending levels will increase by 15%. However, this amount is down from the 31% increase in 2007 expenditures these companies expected at the time of our December 2006 survey."

On average, companies with spending budgets between $100 million and $1 billion, including most of the publicly traded U.S. independents, report a 10% growth in their 2007 spending plans for the U.S., compared with the 7% growth they reported in the December survey.

This group includes Range Resources (up 32%), Statoil (23%), Plains Exploration & Production (16%), St. Mary Land & Exploration (39%), Denbury Resources (21%), Mariner Energy (10%) and Ridgewood Energy (26%).

Several other companies are cutting their U.S.-based spending plans, including Pioneer Natural Resources (down 7%), Cimarex Energy (14%), Norsk Hydro (5%), Petrohawk Energy (7%) and Questar (8%).

Increased spending throughout 2008 is expected by 62% of the 350 producers surveyed, and 73% of that group expect budget increases as high as 10% while 20% of those companies expect to increase their spending in 2008 by more than 20%, the analysts report.

Meanwhile, the producers' average 2007 oil-price assumption is $56.90 per barrel, up from 2006's $55.14, and their average gas-price assumption is $6.74 per thousand cubic feet in 2007, up from 2006's $6.47.

Producers in Canada forecast spending declines of 11% versus the 7.5% decline expected at 2006 year-end. The decline is due mainly to overspending in 2006. In total, E&P companies overspent 2006 budgets by $1.6 billion, but do plan to increase 2007 budgets in Canada by $610 million. The survey excludes oil-sands spending that is not directly related to drilling and oil-service activity.

Some of the Canadian E&Ps surveyed who report reduced spending in 2007 include Canadian Natural Resources (down 28%), Nexen (14%), EnCana (11%), Talisman (11%) and Husky Oil (1%). Other companies planning cutbacks in Canada include Apache (down 29%), Imperial Oil (24%), ConocoPhillips (17%), Devon Energy (17%), ExxonMobil (11%) and Royal Dutch Shell (9%).

The largest outlay decreases in Canada are expected from companies that spend more than $100 million. Companies that budget more than $1 billion indicate their 2007 spending will drop 13% from 2006. (All dollar figures in this report are U.S.)

Alternately, a few companies have increased their spending plans in Canada, including EOG Resources (up 39%), PetroCanada (20%) and Penn West Petroleum (14%).

International producers' spending, driven by Asian (up 30% on average) and European companies, is estimated to grow 20%, up from 13% forecast last December. Aggregate international capex for 2007 is forecast to be $206 million by the 87 companies surveyed in that group. While the most-increased spending forecasts are reported by Asian and European companies, the survey shows the largest aggregate increases continue to be from the national oil companies.

Some of the major Asian oil companies driving spending growth include Korea National Oil Corp. (up 87%), Inpex (67%), PTT Exploration & Production (63%), ONGC (33%) and Pertamina (25%).

Russian companies forecasting spending increases in 2007 include Gazprom (up 41%) and TNK (36%).

Latin American E&P spending growth (up 26% on average) will be driven by companies with sizable spending gains over 2006, including PDVSA (up 60%), Petrobras (32%), Ecopetrol (11%) and Pemex (10%).

Some U.S. companies plan increased international investments in 2007, including Apache (up 65%), Murphy Oil (61%), Occidental Petroleum (30%) and Chevron (23%).

Almost all regions and company types, with the exception of Canada, report increased spending budgets this year. "Some oil and gas companies underspent their 2006 budgets by $1.9 billion, or 1%, and boosted their 2007 expenditure plans by $10.7 billion, or 6%," the analysts report.





E&P Expenditures ()

Year/Companies

2007E2006Year Change Surveyed

U.S.$77,276$73,7144.8%274

Canadian$24,557$27,595-11.0%72

International$205,872$171,39320.1%87

All$307,705$272,70112.8%350

Source: Lehman Brothers



U.S. Spending by Budget Size ()

Year/Companies

2007E2006Year Change Surveyed

<$50MM$2,212$1,88717.2%174

$50-$100MM$1,539$1,37711.8%20

<$100MM$3,751$3,26414.9%194

$100MM-$1B$26,981$24,47110.3%61

>$1B$46,544$45,9791.2%19

Total$77,276$73,7144.8%274

Source: Lehman Brothers