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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: BigBull who wrote (48801)	8/4/1999 9:21:00 AM
From: Tomas	Respond to of 95453

Survey: '98 wasn't so great in Oil Patch. Report details toll taken by low prices Houston Chronicle, August 4 By MICHAEL DAVIS Last year is proving to be a paradox for anyone trying to make sense of one of the worst 12 months in the history of the energy industry. Low oil prices slashed revenues and profits, but companies still spent more to search for oil and gas or buy reserves, according to an annual survey of exploration and production trends released by Arthur Andersen & Co. on Tuesday. Worldwide capital spending for oil and gas rose 2 percent to $100.6 billion in 1998, despite a fall in oil prices that cut revenues 24 percent and net profits 87 percent, according to the survey. That shows it's hard for companies to quickly reverse long-term plans. "Exploration and development spending cannot be turned off and on like a faucet," Burk said, explaining why companies continued to spend last year while oil was fetching $12 a barrel and lower. With oil prices now up to where most companies can go back to making money, the chief lesson to be learned from 1998 is to be prepared for prices to drop again, said Victor Burk, managing director of the energy industry services group of Arthur Andersen in Houston. For some independents, however, the price recovery came too late. Houston-based Southern Mineral Corp. said late last month that it was restructuring by selling a controlling interest in the company to an energy financing firm, EnCap Investments. But it added that bankruptcy is an option if it cannot reach a deal with its bondholders. Before choosing to take equity capital from EnCap, Southern Mineral approached about 170 companies seeking a merger partner or some company willing to buy assets. Not a single company offered an acceptable proposal, said Steven Mikel, president of Southern Mineral. "Although prices are back up, the asset marketplace has yet to catch up," Mikel said. The Arthur Andersen survey shows how low the business sank last year. Crashing oil prices forced the 182 companies surveyed by the accounting firm to take $17 billion in write-downs to the value of their oil and gas properties in 1998. The biggest such write-down, more than $2 billion, was taken by Royal Dutch/Shell Group, parent of Houston-based Shell Oil Co. Low oil prices caused majors to shift spending away from the United States. Of the 14 major oil companies surveyed, 10 increased capital spending outside of the United States in 1998. Independent oil companies moved in to fill the gap, increasing their spending in the United States by 7 percent, according to the survey. While oil prices were below break-even levels for many oil producers, especially smaller ones, natural gas prices remained relatively strong, lessening the blow for firms that depend on gas. Many of the companies that slashed spending in 1998 already have begun to increase their budgets for the second half of this year. That trend is expected to continue when budgets for 2000 are unveiled in January. That is, if oil prices remain around $18 or so. Latin America was hit hardest by last year's depressed prices. Capital expenditures there dropped 30 percent in 1998 compared with the previous year, to $3 billion. It was the first such decline in the two decades the survey has been conducted. Canada was not far behind with a 26 percent drop in oil and gas spending. In the United States, capital expenditures dropped by only 2 percent to $37.2 billion in 1998.