Oil and gas companies, dizzy from the run-up in commodity prices, spent a whole lot of money on unproven properties last year in their quest to find new reserves, only to be left with a lot of nonproducing assets and no capital to develop them when oil and gas prices tanked and the easy credit disappeared last fall
That's the gist of the oil and gas exploration and production benchmark study just released by accounting and advisory firm Ernst & Young LLP. The firm presented its findings -- which pretty much confirmed what analysts have been saying -- over breakfast Wednesday morning at the Petroleum Club atop the 44-story ExxonMobil tower in downtown Houston, where oilmen used to wine, dine, wheel and deal in the heady 1970s.
The 40 companies in its study -- which ran from Anadarko Petroleum Corp. (NYSE:APC) to XTO Energy Inc. (NYSE:XTO) -- spent only $19.9 billion on acquiring proven properties versus $22.8 billion the previous year, but a whopping $31.8 billion on unproven properties versus $10.7 billion the previous year. By comparison, they spent $15 billion on exploration, versus $12.9 billion last year, and $65 billion on development, versus $51.1 billion.
"Independent oil companies were focused on acquisitions given a strong price environment and their efforts to find new reserves," Charles Swanson, managing partner of Ernst & Young's Houston office, said after the presentation. "By midyear, everything stopped."
So what's the outlook for this year? Swanson said spending on unproven properties will virtually disappear, as companies pick up only producing properties and spend wisely on exploring and developing the properties they already have.
Still, E&Y is optimistic about the industry's future. Swanson noted:
Compared to the recovery of the last major collapse in the 1980s, today's oil and gas industry is much leaner, more efficient and better-positioned to take advantage of opportunities during an economic recovery. When the commodity prices stabilize, the industry should be in a good position.The big question, of course, is when. -
Claire Poole
Join Corporate Dealmaker's LinkedIn forum
Juergen Lasowski
And the winners are...
