?Worldwide E&P spending in 2008 will increase 20% to $418 billion, from $349 billion in 2007, according to the Lehman Brothers analysts in their midyear E&P capex report.
The 398-company survey shows a major acceleration in North American planned spending in 2008 with international budgets showing considerably greater gains than six months ago, according to oilfield-service analysts James D. Crandell and fellow Lehman Brothers analysts James C. West, Lisa R. Hackman, Nicholas McLean and Anthony Walker.
“Our December survey had forecast an 11% increase in 2008 expenditures to $369 billion. Strong commodity prices and cash flows have contributed to the budget expansion in North America, and we anticipate that new offshore rig deliveries will help fuel continued strong international growth in 2009 and 2010,” Crandell reports.
Most of the increased capex is planned for the U.S., where spending is expected to increase 15% to $98 billion for the 286 companies surveyed who have U.S. capex budgets. In the December survey, their 2008 spending in the U.S. was to rise by only 3.5%.
“This represents a record percentage increase over a six-month period from December to June since we began conducting these surveys,” Crandell says. The budget increases are being driven by higher commodity-price expectations.
“In addition, oil and gas companies overspent their 2007 budgets by $3.5 billion or 4%. We think 2008 budgets could be overspent by even more and that it is likely that the gains will be in the 20% to 25% area in 2008.”
The survey also shows that E&P spending will rise 22% outside North America to $293 billion and 11% in Canada to $27.5 billion. This is a major increase from the December 2007 survey, which showed international capex budgets increasing 16% internationally and a 16% reduction in Canada.
While U.S. companies of all sizes added to their 2008 spending plans, the largest increase was by the larger companies. Those companies with budgets of $100 million to $1 billion are now indicating major gains in 2008 E&P spending—up 22% versus the modest 2% increase they reported in the December survey. The companies with the largest capex budget growth in this group include Talisman Energy Inc. (up 329%), W&T Offshore Inc. (up 122%), Exco Resources Inc. (up 73%), Continental Resources Inc. (up 62%), Mariner Energy Inc. (up 35%) and privately held HighMount E&P (up 102%), which was formed last year by Loews Corp.’s purchase of Dominion E&P assets.
In addition, producers with capex budgets of more than $1 billion are now budgeting an 11% increase in their E&P spending, compared with a forecasted 3% increase in the December survey. In this group, the largest increases in 2008 capex budgets over 2007 spending are those of Hess Corp. (up 134%), Chesapeake Energy Corp. (up 20%), EOG Resources Inc. (up 28%), Royal Dutch Shell (up 19%), EnCana Corp. (up 39%) and Anadarko Petroleum Corp. (up 20%).
Growth in E&P expenditures is anticipated to continue into 2009 by 70% of the companies surveyed with gains of at least 10% expected by 80% of these companies, Crandell says. “The survey results support our positive stance on the oil service and drilling group.”
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