U.S. ENERGY INFORMATION ADMINISTRATION
WASHINGTON DC 20585

FOR IMMEDIATE RELEASE
January 12, 2000

Major U.S. Energy Companies' Capital Spending at Near Record
Despite Oil Price Collapse in 1998

Capital expenditures of U.S. major energy-producing companies totaled $75.1 billion in 1998, the second highest level since 1974. Expenditures were up 21 percent from the prior year, despite a 25-year low in world oil prices, according to data released today by the Energy Information Administration (EIA) in Performance Profiles of Major Energy Producers 1998.

Capital expenditures related to mergers and acquisitions, which totaled $20.7 billion in 1998, accounted for 57 percent of the growth in outlays between 1997 and 1998 (see Figure). Oil and gas production was the primary investment target among the majors' lines of business. Capital expenditures for worldwide oil and gas production were $48.4 billion in 1998, up 30 percent from 1997 expenditures. The majors tended to push ahead with ongoing projects that have relatively long lead times. For example, the number of development wells completed by the majors in Europe (almost all in the North Sea), hit a record high in 1998. Also, the search for new oil and gas fields continued as the majors increased their expenditures for exploration in all regions except Europe.

The majors' continued upswing in expenditures for their oil and gas production operations yielded 8 billion additional barrels of oil equivalent to their worldwide oil and gas reserves in 1998, a record amount for the 25 years spanned by these data. Excluding already discovered reserves gained through mergers and acquisitions, the majors added 6.1 billion barrels of oil equivalent through the drill bit to worldwide oil and gas reserves, the third highest level over the same period.

However, the 1998 collapse in oil prices had a devastating effect on the cash flow and bottom-line financial results of the major energy-producing companies. Total net income was down 61 percent from 1997's all-time record, and cash flow generated by operations was at the lowest level since the last oil price collapse in 1986. The majors' capital expenditures exceeded their cash flow by 56 percent in 1998. This disparity was highly unusual for this group, as their capital expenditures have generally been less than cash flow, averaging 14 percent less. The disparity required them to make wrenching adjustments to their corporate balance sheets. They closed the financing gap by increasing their debt loads, selling a record amount of producing assets, cutting dividends and stock repurchases, and drawing down cash balances by over $4 billion. These adjustments ran counter to the majors' programs of debt reduction and increased payouts to shareholders evident in the 1990's. Repairs to balance sheet damage could include cutbacks in capital expenditures despite the sharp turnaround in world oil prices in 1999.

Other key points:

• The majors' cost of adding to their worldwide oil and gas reserve base (termed "finding costs") was up 18 percent or by nearly $1 per barrel in 1998. An analysis of finding costs over the last five years revealed that cost increases were clustered in the United States, Canada, and Europe. Finding costs were largely unchanged in Africa, the Middle East, and South America and declined in the Asia Pacific region.

• The profitability of the majors' U.S. petroleum refining and marketing operations rose for the third consecutive year, reaching a 9-year high in 1998. The companies were able to offset a narrowing of the margin between refined product prices and crude oil input costs in 1998 through strategies such as trimming operating costs and expanding the scope of petroleum marketing activities.

Performance Profiles of Major Energy Producers 1998 is available electronically on the EIA Website at: http://www.eia.doe.gov/emeu/perfpro/. Printed copies of the report will be available later this month from 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, jon.rasmussen@eia.doe.gov
EIA Press Contact: National Energy Information Center, 202/586-8800, infoctr@eia.doe.gov

EIA-2000-02

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