Slider: Here are my answers (Part 1). Better late, than never. <g>
Allow me to preface my case with the following professional analyses:
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Note this key statement: ''Exploration programs have already been deferred - and now companies must reassess their budgets, prioritize land leases, and become active again,'' said the API official.
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And again: “Analysts are now saying that companies are revising upstream budgets and beefing up spending”
Message 10742909
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The Wall Street consensus seems to be well expressed by the SSB analyses (re new exploration and drilling projects) that Major Oil companies will NOT expand their capital expenses until well into the year 2000. The bases for these claims are as follows:
1. The current consolidation among the majors will not allow it.
2. Pre-established capital budgets will not allow it.
3. The majors will not expand budgets for exploration projects until the price of oil stays at X price for Y amount of time. Note: these variables are usually ill defined.
With respect to arguments number two and three, the budgets where based on fallacious assumptions. They were based on the following:
1. Asian economic growth would not exceed 2% in 1999.
2. OPEC would not substantially cut its production.
3. Oil prices would not exceed a trading band of approximately $12 to $16 a barrel.
All three of these assumptions have proven to be demonstrably wrong. It is my contention, that these budgets will have to be adjusted in real time, in any way possible, to compensate for the radical changes that have occurred on the ground and in real time. Those companies that realize the above salient facts and adjust accordingly will have a SUBSTANTIAL competitive advantage of their rivals. Since these are not cartelized state companies – COMPETITION COUNTS.
With respect to argument number one, the consolidation process has now been going on for a good period of time. While I recognize the companies in question are extremely large, I do believe that some degree of pre-planning was involved. These companies are well along in the process and will not be entirely precluded from taking substantial actions (i.e. capex) that benefit them as market conditions change – as they ALWAYS do. Further, I believe the CEO's of these companies fully understand the extremely cyclical nature of their businesses. The oil cycle must be taken advantage of WHEN IT OCCURS, not when budgets based on faulty assumptions dictate. If they wait 6 or 7 months they will probably miss a substantial portion of this cycle. Do they really want to do that based on something written on a flimsy piece of paper?
Examples:
P's Bohai Bay China discovery:
“Immediate plans are to drill as many as five more appraisal wells prior to year-end to delineate the productive area of this large feature…”
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UCL become leader in Brazil EXPLORATION:
“A Petrobras spokesman said Friday the company had now secured partnership ventures for 20 exploration areas for a total investment of $2.48 billion and it was still finishing negotiations on other contracts that should be signed before the end of August.”
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Anadarko to EXPLORE 82 blocks in GOM:
“Anadarko's interest in new prospects that it drills will depend on Texaco's current partners, which number about 15 and range from majors to smaller independent companies. The deal is expected to close by the end of this week.”
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AHC to have five NEW wells in North Sea by Jan.:
“The first oil was pumped up from the northern part of Amerada"s South Arne offshore field on July 25 and the firm expects to have five wells in production in the area in January next year.”
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MOB makes heavy commitment to Brazilian EXPLORATION:
“RIO DE JANEIRO, July 19 (Reuters) - U.S. oil and gas giant Mobil Corp (NYSE:MOB - news) said Monday it would spend $90 million in two inaugural exploration projects with Brazil's Petrobras, making the country its top investment priority”
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And lets not forget that big new find in the GOM.
Part 2 Will be Wall Street reaction. So much typing, so little time.
Bull
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