LARGE COMPANIES PLAN 1995 SPENDING INCREASE

A survey of more than a score of large oil companies shows a solid recovery in capital and exploration spending for 1995.

The rebound is in store "just when it seemed petroleum industry capital spending would never turn up," said Lehman Bros. after surveying 22 companies.

The firms the New York investment firm surveyed plan outlays of $51.9 billion worldwide this year, up nearly 12% from the $46.5 billion they spent in 1994.

Compared with many other industries' planned 1995 capital outlays the electronics industry, for example, this is not an especially impressive growth rate, Lehman Bros. said.

Even so, the petroleum industry's projected 1995 spending growth is impressive on two counts:

World hydrocarbon prices and refining margins remain depressed by the standards of the last decade.
Oil industry capital spending in nearly a decade has not increased as solidly as projected for 1995.

Oil & Gas Journal's survey of industry forecasts a 5.3% gain in total U.S. spending for 1995 (OGJ, Feb. 27, p. 17).

WHY THE INCREASE?

"If hydrocarbon prices remain poor, why do most large petroleum companies plan to spend much more in 1995 than in 1994?" Lehman Bros. asked.

It said the two most important explanations appear to be:

Lower oil and gas finding cost which are improving energy companies' margins and financial return even as oil and gas prices erode.
Strong petrochemical sales volumes, prices, and margins.
Finding costs are being lowered through new or improved technologies, 3D seismic, for example, and recently, improved access to hydrocarbon resources of many developing countries such as Yemen, Colombia Viet Nam, and Myanmar.

Lehman Bros. said, "If the governments of the countries of the former Soviet Union ever provide a stable and rewarding framework for investment within their countries' energy sectors, we could expect to see even greater and long-lasting growth in the overseas capital spending of the major western oil companies."

Companies in the survey plan to boost spending on chemicals 26% in 1995 vs. 1994.

Lehman Bros. said, "We believe chemicals segment capital spending will continue at a high level for the next several years. It is notable, for example, that the increased spending budget by these companies for 1995 involves little construction of new 'building blocks' chemicals capacity: olefins and polyolefins.

"Should currently high building block chemicals' margins remain attractive, we would expect to see spending for new olefins plants take up chemicals segment spending in 1996 and beyond."