The new year is beginning with big spending bucks, according to E&P spending surveys by Lehman Brothers and Citigroup. The firms' research teams are expecting worldwide spending growth of up to 5.7% in 2005 compared with 2004 budgets. International spending is expected to rise as much as 4.5%; North American, 7.8%; and Canadian, no laggard, may rise 8.6%. The increases are small, however, compared with companies' sometimes doubled or tripled cash flow in 2004. The Lehman survey. The 327 oil and gas companies Lehman's analysts surveyed are planning to boost their worldwide E&P expenditures 5.7% from $167.3 billion in 2004 to $176.8 billion in 2005. Of the 249 U.S.-based E&Ps surveyed, spending is expected to be up 7.8% to $40 billion in 2005. The smaller independents-with capex budgets of less than $100 million-are projecting 24% more spending with a great deal of it slated for North America. Companies that budget more than $1 billion forecast a 4% increase. Among the 75 Canada-based companies surveyed, expenditures are expected to be up 8.6% to $18.6 billion for 2005. In sharp contrast to the U.S., Canadian spending growth is expected to be propelled by companies spending more than $1 billion, up 14%. Smaller producers-those spending less than $100 million-are forecast to show a 2% increase in their 2005 Canadian E&P budgets. In what James Crandell, an analyst with Lehman, calls a "downside surprise," the 87 non-North America-based companies surveyed are estimated to increase capex 4.5%, from $112.2 billion in 2004 to $117.3 billion in 2005. The supermajors-ExxonMobil, up 3%; BP, up 1%; Royal Dutch/Shell, up 3%; and Total, up 3%-are expected to spend only slightly more. And some of the large, government-owned companies that have been significant drivers of spending growth in the past are likely to budget no more than in 2004 and possibly less. Among them, Pemex expects to spend 14% less. The Citigroup survey. The Citigroup survey showed similar results. Geoff Kieburtz and fellow analysts surveyed 184 companies, representing more than $172 billion of global upstream spending, reflecting 2005 spending growth of 5.5%, up 10.3% from 2004. Of this amount, 65% is to be directed at non-North American markets, and 24% at the U.S. and 11% at Canada. The 10 largest spenders account for nearly 45% of total spending. The trend of capex being well above initial estimates is one that should continue into 2005. "The outlooks for pricing, business mix, and individual service sectors are the strongest we have seen since the activity booms of 1997 and 2001," Kieburtz says. "A heightened focus on exploration, particularly offshore, should yield significant pricing improvements for the service and drilling companies." In 2004, there was a 16% spending increase in the U.S.; increases outside of North America amounted to 9%. Spending in Canada, though boosted by the strength of the Canadian dollar, was not as strong as U.S. spending. International spending had longer lead times and a less "commodity-price-sensitive nature of the projects involved." Oil sands have slowly become a noteworthy area of Canadian spending. The companies surveyed plan an increase in this spending of 11%, to $18.7 billion. Kieburtz warns that, due to heavy M&A activity, the Canadian market has become dominated by large independents. He expects spending plans to become more rigid in the future. "U.S. and Canadian operators have planned more aggressive spending programs," says Kieburtz, because they are "emboldened by an increased confidence in the staying power of oil and gas prices and increasing focus on exploration projects." In 2005, two of the largest spending increases-$300 million each-will come from BHP Petroleum and EnCana. Kieburtz names ConocoPhillips, Chesapeake Energy and XTO Energy as others projecting large increases. He anticipates significant declines by Devon Energy. "In the international markets the list of leading spenders has shifted, but the overall forecast remains consistent with our thesis of a prolonged, less volatile upcycle." Before folks get too comfortable rolling the dice with commodity-price predictions, Kieburtz says, "During this period there is no definitive relationship between the trend in oil prices and the subsequent changes in spending plans. More important is whether the average oil price exceeds or falls short of the planning assumption." -Bertie Taylor