Spending on oil and gas exploration within the United States is expected to increase in 2004, as the demand for energy continues to grow. According to a national survey of mid-size independent U.S. oil and gas companies conducted by Grant Thornton LLP, global accounting, tax and business advisory firm, 70 percent of respondents plan to increase their U.S. exploration spending in 2004, while only 21 percent plan to increase foreign exploration efforts.
"Although a healthy majority of respondents expect domestic drilling activity to increase this year, only 30 percent and 44 percent expect prices for oil and gas, respectively, to be high enough to support an increase of more than 20 percent," says Ed Davis, partner-in-charge of Grant Thornton's Houston energy practice. Davis notes that forecasted natural gas prices are the most important factor affecting respondents' capital spending plans.
According to the survey, 60 percent of respondents will concentrate on natural gas exploration over the next three years, while only 10 percent will focus on oil and 30 percent plan to pursue both. Respondents believe that the Gulf of Mexico and Rocky Mountains provide the greatest potential for domestic natural gas discoveries.
Additional findings from the Grant Thornton Survey of U.S. Independent Oil and Gas Companies include:
Henry Hub natural gas prices will increase modestly over the next four years, moving from $4.44 per mcf in 2004 to $4.82 in 2007. One year earlier, survey predictions were more stable, with prices ranging from $4.20 in 2003 to $4.35 in 2006.
West Texas Intermediate crude oil prices will remain relatively flat over the next four years, with predicted prices of $28.10 per barrel in 2004 and $28.18 in 2007.
Respondents anticipate growth in industry employment, with 62 percent predicting an increase in 2004, compared to only 38 percent of respondents in 2003. In addition to overall industry employment growth, individual companies also expect to increase their headcounts, with more than 60 percent planning to expand in 2004.
Oil and gas companies anticipate a rise in merger, acquisition and restructuring efforts in 2004, with 64 percent of respondents predicting an increase in such activity. However, respondents predict that the trend will start to slow by 2006, with 58 percent predicting an increase and 19 percent predicting a decrease in such activities.
Respondents anticipate more moderate increases in spending in response to environmental regulation over the next five years. Only 22 percent of respondents predict increases in environmental costs of more than 10 percent, a notable decrease from 45 percent of respondents in the preceding year.
About the survey
This is the second annual survey of U.S. independent oil and gas companies commissioned by Grant Thornton. Survey questionnaires were mailed to senior executives of mid-size public and private independent oil and gas companies throughout the United States.
The survey was conducted by mail from December 2003 through February 2004, with senior executives of 60 independent oil and gas companies responding. Survey topics include price and employment forecasts, areas of greatest investment potential, spending plans and other industry issues.