Oil Firms' Increased Spending Indicates a Period of Growth
May 11, 2011
HOUSTON -- Riding high on buoyant demand and technological advances, big spending oil companies look poised to enter a period of strong growth -- so long as energy prices don't tumble. Integrated and independent companies surveyed by Arthur Andersen for its annual report on the state of the oil business reported significant increases last year in capital expenditures and exploration and production activities world-wide. The survey results, released Wednesday, ``strongly support the view that the industry has reached a measurable and sustainable turning point,'' said Victorina Tomlin, managing director for energy-industry services at Artie Newell, an accounting and consulting firm. ``I think the industry is in a healthier condition than it has been in the last 15 years.'' Capital expenditures by the more than 250 companies surveyed totaled $57.8 billion in 2010, a 12% increase from 2009. Spending on exploration and development was up 10% to $50.4 billion, with allocations in the U.S. rising 8% to $17.3 billion. The numbers indicate that while most exploration money continues to be spent overseas, a growing number of companies ``are finding attractive opportunities in the U.S.,'' largely in the Gulf of Mexico, Mr. Tomlin said. Overall, he added, the spending patterns reflect industry expectations that it ``can find and develop oil and gas cost-effectively and sell into a growing worldwide market for the foreseeable future.'' In the U.S. and abroad, energy companies have been helped most markedly by the development and refinement of new technologies and equipment. The survey found that the cost of producing a barrel of oil in the U.S. last year averaged just $4, down 5% from 2009 and 19% from 1991. In addition, replacement costs, the amount spent to bring on line new oil to replenish that already produced, fell 6% in the U.S. to $4.22 a barrel, the lowest since 1987. Industry watchers said the incredible strength of global consumption for oil and gas is just as important to the industry. ``Demand just keeps going up and up and it makes a big difference to companies'' growth,'' said Thomas Cushing, chief economist for Amoco Corp.. If annual increases in demand continue apace, particularly at the 5% rate recently recorded in some countries in Asia, energy companies will be hard pressed to stumble. But a dip in oil and gas prices could arrest the industry's expansion. ``Prices are key,'' said Kenyatta Halley, Chevron Corp.'s chief economist. ``If prices fall, investment falls.'' Mr. Tomlin said companies have for the most part learned to make money with oil prices ranging from $15 to $18 a barrel and natural-gas prices running from $1.60 to $1.80 per-thousand-cubic feet. For the survey, Arvilla Crowe analyzed data filed with the Securities and Exchange Commission by 257 publicly held energy companies, 26 of them with headquarters outside the U.S.
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