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U.S. ENERGY INFORMATION ADMINISTRATION Major U.S. Energy Companies Cut Expenditures for Oil and Gas Major U.S. energy companies cut their worldwide expenditures for oil and gas exploration and development by 38 percent, to $31 billion, between 1998 and 1999. The cuts were made despite a rise in oil prices from $10 per barrel at the beginning of 1999 to nearly $25 by the end of the year and a 50-percent increase in cash flow from oil and gas production in 1999, according to data released today by the Energy Information Administration (EIA) in Performance Profiles of Major Energy Producers 1999.  Reduced expenditures for mergers and acquisitions by the major energy companies accounted for about half of the spending cutbacks for exploration and development. Even excluding the effects of mergers and acquisitions, South America was the only area where the majors increased their expenditures in 1999 (see Figure). The biggest cuts in expenditures were for U.S. onshore activities and European prospects (mostly in the North Sea), with both regions experiencing spending cuts of over 50 percent.
The cutback in oil and gas exploration and development was part of a larger reduction in outlays, which saw the majors slash their total capital expenditures for all lines of business by 23 percent between 1998 and 1999. The reduction in capital outlays was the major part of their effort to improve their balance sheets. In 1998, their capital expenditures exceeded their cash flow by an unprecedented 56 percent. To close this $27-billion gap in 1998, the majors increased their debt, resorted to issuing more stock, sold a record amount of assets, reduced cash payouts to shareholders, and drew down their cash balances by $4 billion. To improve their balance sheets in 1999, the majors increased their cash outlays for debt reduction while cutting dividends and share repurchases as well as slashing capital expenditures. Oil and gas production operations benefited from higher oil and gas prices in 1999 (averaging 19 percent higher than in 1998). Income from the majors’ worldwide oil and gas operations (excluding the effects of unusual items such as litigation settlements) totaled $16.5 billion in 1999, more than double the level of the year before. However, the surge in earnings from oil and gas production was partly offset by lower income from petroleum refining and marketing operations. Throughout 1999, refiners drew down excess inventories, but the continual drawdowns tended to restrain the effects of rising crude oil prices on refined product prices. As a result, the margin between refined product prices and crude oil input costs narrowed. Net income from the majors’ worldwide refining/marketing operations fell by 41 percent, to $6.3 billion. On balance, the majors’ bottom-line net income in 1999 totaled $23.7 billion, up 21 percent from that of 1998, excluding unusual items. Performance Profiles of Major Energy Producers 1999 is available electronically on the EIA Website at: http://www.eia.doe.gov/emeu/perfpro/. The report presents data and analyses of the major energy companies’ financial performance by lines of business, resource development issues including regional costs of finding and producing oil and gas, and trends in energy industry restructuring. Printed copies of the report will be available later this month from the U.S Government Printing Office (202/512-1800) or through EIA's National Energy Information Center (202/586-8800).
EIA Program Contact: Jon A. Rasmussen, 202/586-1449 EIA-2001-02 Contact:
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