Worldwide upstream expenditures are estimated to grow moderately in 2007, according to surveys by researchers at two major investment-banking firms.

After canvassing 299 oil and gas companies, the Lehman Brothers survey concludes these firms plan to increase 2007 global upstream outlays 9%, to $292 billion, from the estimated $268 billion they spent in 2006.

"Unlike the past two years, the [spending] gains are expected to be strongest outside North America," says James D. Crandell, managing director, oil-service equity research, for Lehman Brothers in New York. "International E&P expenditures are estimated to rise 13% in 2007, to $196 billion, led by national oil companies (NOCs)."

Among the NOCs, several Russian oil companies show the strongest estimated year-over-year E&P spending increases: Rosneft, 57%; Lukoil, 47%; Surguneftegaz, 43%; and Gazprom, 41%. Comparatively, the major international integrateds show more modest expected increases: Chevron, 34%; Royal Dutch Shell, 10%; and ExxonMobil, 7%.

U.S. upstream spending growth, meanwhile, is forecast to slow substantially this year to 5.1%, or $73 billion, from an estimated $70 billion of outlays in 2006. "With 2007 expenditures based on a lower budgeted natural gas price of $6.71-down 12% from that for the prior year-oil and gas companies are, in the aggregate, taking a conservative stance toward the inventory excess and its potential effect on natural gas prices and cash flows," says Crandell.

Conversely, Canadian E&P spending this year is estimated to decline 7%, to $22 billion, from $24 billion in 2006, partly due to gas-price concerns, deteriorating economics and a decision by some oil companies to de-emphasize upstream spending in that country.

Among those exhibiting the strongest growth in planned U.S. upstream spending this year are domestic independents Exco Resources, 91%; EOG Resources, 23%; Apache Corp., 20%; XTO Energy, 14%; and Dominion Exploration & Production, 9%.

Nonetheless, some U.S. producers are planning a drop in 2007 E&P outlays. They include Newfield Exploration, down 25%; Pioneer Natural Resources, down 20%; Marathon Oil, down 10%; and Anadarko Petroleum, down 7%.

This aside, the Lehman Brothers report notes the average price at which the surveyed companies would consider reducing their E&P budgets is $42.40 for oil and $4.60 for gas.

Meanwhile, Citigroup's survey of 237 oil and gas companies found that global E&P expenditures in 2007 are set to increase for the eighth consecutive year, but concurs that the pace of spending growth is expected to be moderate.

Initial estimates for worldwide E&P expenditures this year represent an increase of 7%, to $282.6 billion, over a 2006 level of $264 billion, says Citigroup analyst Geoff Kieburtz.

U.S. upstream outlays are slated to rise 5.7%, to $71.8 billion, he adds, while Canadian spending is forecast to fall 6.6%, to $26.7 billion. International E&P outlays, meanwhile, are estimated to grow 9.9%, to $184.2 billion.

Kieburtz adds that E&P outlays for 2006 grew an estimated 24.6% versus an initial forecast of 14.1%. He points out that this trend of overspending initial budget plans will likely persist in 2007, although to a lesser degree as oil and gas prices are less likely to exceed expectations as they did in 2006.

"While most oil and gas companies have increased spending, operator concerns about rising oilfield prices have intensified-and all are putting more focus on efficiency and quality of service," says Kieburtz.

From the oilfield-service perspective, he says demand for that sector's services remains favorable and that "superior technology, equipment and personnel, along with higher international exposure, should drive above-average revenue and margin performance."

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