Domestic Oil, Gas Companies Reducing Exploration Plans / for 1986

By Lee A. Daniels, N. Y. T. N. S. | THE JOURNAL RECORD, January 4, 1986 | Go to article overview
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Domestic Oil, Gas Companies Reducing Exploration Plans / for 1986

Lee A. Daniels, N. Y. T. N. S., THE JOURNAL RECORD

NEW YORK - Domestic oil and gas companies are substantially paring their 1986 exploration plans, particularly within the United States, industry executives and analysts say.

Beset by the continuing decline in energy prices, and worried about losing tax provisions they consider necessary to spur investment, most energy companies have trimmed plans to search for natural gas, become more selective in choosing and continuing oil exploration projects and increased their efforts to buy reserves from other companies.

Besides having ominous implications for the future survival of some smaller independent producers, the cutbacks in exploration could result in the ""worst year yet'' for the beleaguered drilling industry, according to James D. Crandell, an analyst for Salomon Brothers Inc.

Energy industry experts said the moves were part of a broad reaction to declining prices that have roiled energy companies since 1980, resulting in mergers, restructurings, debt repayments and stock buyback programs.

In addition, disappointment over the results at numerous highly touted oilfields in offshore areas has sapped many American companies of the will or the cash to maintain current drilling levels.

""Anyone in exploration has to be apprehensive now,'' said Allen E. Murray, president of the Mobil Oil Corp.

Nonetheless, Murray said that although Mobil was reducing its exploration budget for 1986, it would not ""rigidly adhere'' to a cutback. He added, ""If opportunities come, we'll move quickly. But we have to be cautious. That's just good business sense.'' Murray declined to disclose budgetary figures.

Mobil's strategy is shared by apparently all the major oil companies, whose sizable financial resources should help them weather the downturn until an expected price rebound appears by the end of 1987.

However, many smaller independent companies and oilfield-services firms, already heavily in debt, probably will not survive, analysts say. These companies work almost exclusively in the United States, where analysts predict the decline in exploration activity will be the sharpest.

As a result, ""we expect to see more joint ventures, restructurings, bankruptcies, sales of divisions and companies attempting to leave the business,'' Crandell said.

A recent Salomon Brothers study found that 20 major oil and gas companies and 127 smaller independent producers plan to reduce their 1986 exploration and production budgets for the United States byaverages of 6.1 percent and 6.7 percent, respectively. Most of that decline will come from reduced exploration budgets, which were not listed separately.

Among the majors, only Chevron plans to increase its domestic exploration and production budget, from $2 billion to $2.1 billion, and that is a result of increases in production spending, accordingto Larry W.

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