Oil companies are expected to increase spending on exploration and production by 25 percent worldwide next year, hoping to bring more oil on line and benefit from sharply higher crude prices.
Some oil companies are already lifting spending this year, particularly in areas where additional output can be brought to market quickly.Back in December, many oil companies were betting that oil prices would average around $17 a barrel this year and budgeted modest spending increases in their capital budgets. But since Iraq invaded Kuwait on Aug. 2, the price of oil has just about doubled to a near 10-year high. Crude oil was trading at $38 a barrel Wednesday.
San Francisco-based Chevron Corp., the nation's fourth-largest oil company, recently said it will spend an extra $100 million this year drilling for domestic oil and natural gas, on top of a worldwide budget that already stands at $2 billion.
Will Prices, president of Chevron's U.S. operations, said the company will drill about 130 new oil wells in existing fields in the Gulf of Mexico, Colorado and California.
Smaller independent oil companies are also reacting to the new environment. Arkla Exploration Co., based in Shreveport, La., plans to raise its 1990 drilling budget by 27 percent to $70 million.
James Crandell, an oil drilling analyst with Salomon Bros. in New York, sharply revised his expectations of industry spending next year.
Prior to the Iraqi invasion of Kuwait, Crandell estimated a 1991 growth rate of around 12 percent in exploration and production budgets. He recently lifted the figure to 20 to 25 percent.
"I'd say oil companies will be budgeting on a base case oil price in the low 20s," Crandell said.
Many industry officials said they are adopting a more cautious approach to next year's budgets and would prefer steady prices to the volatile price swings that now dominate the oil market.
"While prices are certainly higher, it's still not a sure thing that they will hold," one company official said. Conoco Inc., the Houston-based oil subsidiary of Du Pont, recently raised its 1990 exploration and production budget by $10 million to $540 million. Just over half of the 1990 budget is dedicated to overseas projects, said company official Michael O'Connor.
Analysts said the trend toward greater international spending is likely to continue.
"In order to find the kinds of reserves that are within our budget we need the large discoveries," O'Connor said. "And the only places that are left that are allowing companies to explore are overseas."