Thursday, April 17, 2014

This Week in Petroleum: Activities spending on the rise

by U.S. Energy Information Administration 

Annual reports by oil and natural gas companies show that spending on exploration and development activities increased by 5% ($18 billion) in 2013, while spending on property acquisition continued to decline by $17 billion. Total upstream spending was relatively flat after a period of strong growth (averaging 11% per year) from 2000 to 2012.

In the past two years, flat oil prices and rising costs have contributed to declining cash flow for this group of companies. Continued declines in cash flow, particularly in the face of rising debt levels, could challenge future exploration and development. However, reduced spending levels could be offset by rising drilling and production efficiency.

EIA reviewed data from 42 recently released financial statements for public oil and natural gas companies. The reports, required by the U.S. Securities and Exchange Commission, show that the slight increase in spending was driven by expenditures to develop fields acquired in previous years. Expenditures to buy new property fell in 2013, and spending on production activities was flat.

Companies report expenditures related to oil and natural gas production activities in three categories: property acquisition, exploration and development, and production, collectively referred to as the upstream. Property acquisition includes costs incurred to purchase proved and unproved reserves. Exploration and development includes expenditures related to searching for and developingthe facilities and infrastructure to produce reserves. Production includes costs associated with extracting oil and natural gas from the ground once the field has been developed.

Composition of the 0.4% increase in upstream spending in 2013 included the following: exploration and development expenditures rose 5% ($18 billion) in 2013 (Figure 1), while production expenditures grew by just 0.6% ($1.4 billion) and acquisition expenditures decreased 33% ($17 billion). Acquisition expenditures can fluctuate, spiking when there are large mergers and acquisitions. After a large increase in 2010, driven by ExxonMobil's acquisition of XTO, an independent oil and gas producer, acquisition expenditures have declined steadily and in 2013 were the lowest since 2009.

Gasoline prices mostly up, diesel fuel prices down slightly
The U.S. average price for regular gasoline increased by six cents this week to $3.65 per gallon as of April 14, 2014, 11 cents higher than the same time last year. West Coast and Gulf Coast prices increased by 10 cents and 8 cents, to $3.98 and $3.47 per gallon respectively. The Midwest gasoline price rose by six cents to $3.63 per gallon, while the average gasoline price on the East Coast increased three cents to $3.61 per gallon. The Rocky Mountains saw the only price decline, by a penny to $3.44 per gallon.

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