Wednesday, November 4, 2009

Exploration spending on the rise?

The drop from a $100 oil environment and a $10 gas environment to a $50 or $60 oil environment and a $3 or $4 gas environment forced most E&P companies into a hibernation of sorts. Cash flows were cut in half, if not more, and companies hunkered down in hopes of making it through the winter.

Spring came and went and things looked no better, in fact, in many cases, things got worse. Now, the summer has passed and 3Q09 numbers are starting to peek out from under the leaves. While earnings are still wobbly, it appears conditions may be right for an increase in exploration spending.

As recently reported in the November issue of Oil & Gas Financial Journal, capital spending among the Top 20 publicly-traded US companies in 2Q09 jumped more than 47.5%, nearly doubling the $28.1 billion spent in 1Q09.

On the international front, SMH Capital recently raised its 2009/2010 earnings per share estimates for oil service giant Schlumberger to $2.74/$2.85 from $2.71/$2.70, as the firm expects “a shallower downturn internationally given 3Q09 results and a higher forecasted international activity given rising oil prices.”

Oil prices are holding steady and many operators, both domestic and international, have “under-spent” first half ‘09 budgets after operating in survival mode for most of the year. With the much talked about boom in M&A activity upon us, perhaps too, is an uptick in exploration spending.

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Anonymous Wes Hines said...

I am glad to see the uptick in spending and commitment by E&P companies for developing new plays. However, there is a 6 month lag for oil field automation providers like myself. There may be a slow start to 2010.

January 28, 2010 at 5:29 AM  

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