North America takes oil and gas industry capital spending hit

Gary Park

Petroleum News Calgary correspondent

A dramatic shift in global exploration spending is taking place as the industry shifted from upstream North America to less expensive plays in Asia, the Pacific, Africa and the Middle East, according to a report by the firms of John S. Herold and Harrison Lovegrove.

The study of 200 oil and gas companies showed capital investment in these new “frontiers” made double-digit increases from 2000 to 2002, while the United States slumped by 20 percent and Canada by 10 percent.

“Capital is increasingly being directed to regions that have significant growth opportunities and higher profit margins” regardless of whether those regions have higher perceived economic or political risks, said Arthur Smith, chairman of John S. Herold.

Finding and development costs in North America soared to $11.85 per barrel of oil equivalent in 2002 from $4.76 in 1999, while costs averaged $3.31 in the Asia-Pacific and $3.33 in Africa and the Middle East.

Reserve growth overall has been a mere 2.6 percent a year since 1998, with gas additions outpacing crude oil, which the study said indicated the world’s petroleum base can support growth in production but at a slower pace.

Reserve replacement has shifted in recent years from exploration to proved acquisitions.

Martin Lovegrove, managing director of Harrison Lovegrove, said that given the maturing of the worldwide oil industry, it is now assumed that to achieve growth companies “are going to have to do more acquisition than exploration.”

Global mergers and acquisitions dropped by one-third last year, but the industry still led all sectors,