Following a contraction in outlays during 1999 that was the second worst in the last 40 years, worldwide E&P spending will increase 11.4% in 2000, Salomon Smith Barney Inc. predicts in its 18th annual E&P survey. "The results indicate that Canada will lead the recovery, with spending up 23.2%, followed by an 11.2% increase in the United States," say Geoff B. Kieburtz, who follows service and supply companies, and Mark S. Urness, who follows drilling contractors for the investment banker in New York. They note that the U.S. rebound is more dramatic, considering the 1999 decline of 31.6% that compared with a more modest 2.4% spending reduction in Canada last year. The survey of 177 oil and gas producers found that the independents and major oil companies plan to spend $92.6 billion worldwide in 2000, 11.4% more than their estimated $83.1 billion of 1999 outlays. Approximately 67% of the total planned spending will be directed outside North America, 23% will occur in the United States (13% for the 112 independents and 10% for a list of majors that has been reduced to 11) and the remaining 10% will be spent in Canada. Kieburtz and Urness found that spending has grown more concentrated. "The 10 largest spenders account for about 53% of the total spending and the top 50 for approximately 89%," they note. "Merger and acquisition activity has reduced the number of respondents with meaningful investment programs, and the influence of large national oil companies is increasing." The two oil-patch analysts expect overseas expenditures by 81 producers to reach $62.0 billion, 9.9% more than the group's $56.4 billion in estimated 1999 outlays. "The direction of spending trends outside North America is clear, but the magnitude of change remains particularly dependent on several large operators," they said. The survey found only two more respondents planning increases of more than $100 million than producers intending to reduce spending by more than $100 million this year. It identified Petrobras, Pemex and ENI SpA's Agip division as companies planning to increase spending by more than $1 billion in 2000. Texaco Inc., PDVSA, Phillips Petroleum Co., BG Plc, Chevron Corp., Lasmo Plc, Burlington Resources Inc., BP Amoco Plc and Perez Companc also plan to increase spending substantially this year. Companies that were involved in significant mergers dominate the list of producers planning large E&P spending cuts in 2000. Domestically, the 112 independent producers in the survey plan to spend a total of $12 billion in 2000, 15.3% more than the estimated $10.4 billion that they spent in 1999. "Spending by this group now is expected to be down 32.6% in 1999, more severe than the 22.8% reduction that was originally forecast at this time last year, but less dramatic than the 35.9% contraction estimated in our midyear survey," Kieburtz and Urness say. An overwhelming number of independents cited higher oil and gas prices and their associated cash flow as the reason for increased investment, with drilling success and expanded opportunities on recently acquired properties also mentioned, they add. Independents planning to increase U.S. spending significantly in 2000 include Noble Affiliates Inc., Consolidated Natural Gas Co., Apache Corp., Union Pacific Resources Group Inc., Vastar Resources Inc. and Anadarko Petroleum Corp. The suvey identified British Borneo Plc, Coastal Corp.; Sonat Exploration Co., which became part of El Paso Energy Corp. last year, and Agip as independents planning to reduce their U.S. spending meaningfully this year. The 11 majors plan to increase their U.S. expenditures 6.5% to $9.6 billion in 2000 from $9.0 billion in 1999. Among them, BP Amoco, Chevron and Occidental Petroleum Corp. plan to increase their U.S. outlays the most year-over-year. "Overall, the number of respondents planning increases for U.S. spending outnumber those planning decreases by almost five to one. However, among respondents with forecast spending changes of more than $100 million, increases only outnumber decreases by two to one," the two analysts say. The survey found 59 producers in Canada that plan to increase their expenditures 23.1% to $9.0 billion this year from an estimated $7.3 billion in 1999. "The planned increase in 2000 appears to be broad-based, with very few significant reductions planned and multiple operators planning increases in Canadian expenditures of more than $100 million," Kieburtz and Urness indicate. -Nick Snow