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Gold/Mining/Energy : Strictly: Drilling and oil-field services
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To: Douglas V. Fant who wrote (70853)8/14/2000 7:39:20 AM
From: Big Dog  Read Replies (2) of 95453
 
From Frost this morning:

E&P spending on oilfield services should increase significantly through 2001. Year-end 1999 surveys of E&P companies
suggested that E&P spending in 2000 would be up 10% to 12% in 2000. At that time we strongly believed those estimates to be
conservative. More recent surveys of E&P capital budgets suggest overall exploration and development spending for 2000 may be in
the range of 18 to 20 percent. Now, just past the mid-point of the year, numerous E&P companies have announced plans to revise
their original capital spending budgets for 2000 upward. Many of the announcements from the U.S. independents suggest increases in
the range of 25 to 30% over original budgets. Additionally, since spending during the first half of the year was based on the original
budgets, second half spending is likely to be aggressive in order to reach end of year targets.
More importantly, we expect E&P spending in 2001 to be higher still. The major and super-major integrated oil companies and
international state oil companies have been hesitant to increase their capital spending during the first half of 2000. We expect these
larger oil companies will accelerate their spending levels in 2001. Many of these companies were focused on mergers and internal
cost reductions throughout the period from 1998 through 2000 in an effort to generate return on capital and earnings growth. Clearly,
there is a limited extent to which a company can generate earnings through cost cutting.
The managements of these major oil companies have a responsibility to their shareholders just like any other public company.
These companies are now essentially backed against a wall. After several years of reserve depletion, we believe each of the majors
have little choice but to re-invest capital into growing their reserves and production as a means of generating shareholder value,
albeit assuming a reasonable return on capital. Our point is, these companies essentially MUST spend money on oilfield services,
and we believe at higher levels than that of the past few years. In short, even considering the expected moderate decline in oil
prices, we believe E&P capital spending on oilfield services worldwide will be up substantially in 2001. In fact, next year could
easily see oilfield activity levels higher than any time over the past decade.
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