Big Oil Boosts Domestic Exploration Increased Activity Reverses Slide Over Previous Five Years

Big Oil spent more to find petroleum deposits in North America last year, reversing a five-year trend toward overseas projects.

Spending by 108 major oil companies in the U.S. rose 8.6 percent last year to $18.54 billion, outpacing a 3.1 percent rise in spending worldwide, according to John S. Herold Inc., a petroleum engineering and geological consultancy.

The U.S. attracted 37 percent of the companies’ spending last year, up from 34 percent two years ago.

The figures upset one of the oil industry’s paradigms: That the biggest companies don’t want to work in the U.S. because the biggest fields are in decline and environmental restrictions prevent finding new prospects of worthwhile size. Instead, the study shows the U.S. still is an economical place to work.

“We’ve heard from all of the larger companies the opportunities are a lot better elsewhere, but they’re not putting their money where their mouth is,” said Robert Gillon, an analyst with John S. Herold in Stamford, Connecticut.

Other studies also show the major oil companies are more interested in the U.S. Arthur Andersen & Co., a consultant, found that spending by 30 companies to acquire proved oil and gas reserves rose 17 percent to $2.3 billion in 1994, the highest level in five years. Strevig & Associates, a Houston brokerage focused on acquisitions, said Texaco Inc. was the only major company selling U.S. fields in the first quarter.

An intense focus on cutting costs is at the center of the trend. Companies are squeezing more production out of known prospects rather than launching costly exploration forays overseas. And U.S. prospects are still attractive because their proximity to markets and pipelines makes them cheaper to develop.

“The great beauty of the U.S. is that you have this established infrastructure of pipelines so that if you find something you can bring it on line very quickly,” said Arthur Smith, chairman of John S. Herold. “It makes a big difference.”

The John S. Herold study estimates the cost to replace a barrel of petroleum reserves was $4.63 in the U.S. last year, nearly 1.3 percent below the average cost of $4.69 worldwide. U.S. costs are down 7.2 percent from a year ago. The figures reflect how efficiently an oil company is spending its money.

One of the companies investing more in the U.S. is Phillips Petroleum. The company boosted its spending to develop U.S. fields 7.4 percent to $261 million last year. Jerry Fetters, manager of U.S. operations, said the Bartlesville, Okla., oil company is getting better at wringing oil and gas out of old assets.

Anecdotal evidence suggests the trend toward more U.S. work may continue for at least a few years.

Companies like Texaco Inc. and Amoco Corp. were active bidders in a recent auction of leases to drill in the Gulf of Mexico. Others, such as Atlantic Richfield Co., are boosting spending to squeeze more out of aging fields.

“What’s been going on in the executive suites at the oil companies is a recognition that they’ve got to work their assets harder,” Smith said.

Arco, for example, is seeking to replace falling production from its 26-year-old Prudhoe Bay field with new sources mainly overseas. That doesn’t mean it’s abandoning the U.S., though.

On the frozen tundra of Alaska’s North Slope, Arco plans to boost its spending 3 percent to $155 million this year to keep oil flowing from the fields. While three-quarters of the oil found at Prudhoe Bay already have been pumped, Arco has begun an “enhanced oil recovery” project to prolong the field’s life.

Much of the new interest in the U.S. reflects a stronger emphasis among major oil companies on finding natural gas.

The attraction to the U.S. also reflects a trend away from risky wells to explore for uncharted oil reserves and toward development of well-known fields.