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Oil companies adjusting to unpredictable price swings Arthur Anderson annual exploration, production report shows spending rose 5 percent in 1998, despite dip in crude prices Mark Babineck Associated Press Writer
With oil prices volatile as ever, the successful companies are those that can benefit from both the booms and the busts, an industry analyst said in releasing an annual production survey.
Victor A. Burk, managing director of energy industry services for Arthur Andersen, said continued price uncertainty makes betting on the market a risky proposition at best.
“The industry has been on a roller coaster,” Burk said in early August. “The companies that have survived and prospered are those that have learned from both the highs and lows and been able to adapt to the forces that have dramatically changed this industry.”
Capital spending up in 1998 The survey, “Global Exploration and Production Trends,” found that capital spending on 1998 oil and gas projects actually increased 5 percent despite a low-price climate that cut revenues 24 percent and profits 87 percent for 182 publicly traded energy companies.
“On the surface, 1998 was a year of apparent contradictions, with revenues, profits, cash flow and prices down, but spending up despite higher costs,” Burk said.
One explanation is that companies ratcheted up exploration and production budgets when prices were riding high in 1997. Once prices began softening, much of the spending was irreversible.
“In other cases, capital spending continued because companies believed prices would recover during 1998,” Burk said. “However, by mid-year most of those companies made the decision to cut capital spending.” Spending down in 1999 With prices having rebounded to over $20 a barrel, carryover cuts from 1998 has dampened overall 1999, which could be down 20 percent.
According to the Arthur Andersen survey, 100 of the surveyed companies lost money in 1998. Burk warned that companies should not merely count on today’s improved prices to return to profitability.
“Every company reacted in one way or another to the drop in oil prices, but the successful companies reacted proactively, with a plan for not only surviving but creating opportunities during the low-price environment,” Burk said.
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