Oil Companies Spent More, Earned Less In 1998

Worldwide capital spending by publicly traded energy firms increased in 1998 even though falling oil prices sent revenues and profits plummeting, according to an Arthur Andersen report. The increased spending reflected optimism in late 1997 that oil prices would remain firm in 1998, when in fact they dropped to near record lows, according to Arthur Andersen's managing director of energy industry services, Victor Burk. "Exploration and development spending cannot be turned off and on like a faucet," he said. The report said the 182 U.S. and foreign firms included in the study spent a total of $83 billion on exploration and production last year, up five percent from 1997. At the same time, revenues dropped 24 percent to $124.6 billion and operating profits fell 87 percent to $4.6 billion, the report said. Spending in the U.S. was flat at $29 billion, the report said. Burk said major oil companies cut their U.S. expenditures by 15 percent, while raising worldwide spending by 22 percent. Independents went in the opposite direction, increasing domestic spending by seven percent and cutting international expenditures by 13 percent. Burk said the industry's 1999 capital spending may have decreased by as much as 25 percent because of last year's low oil prices. Prices have rebounded to near $20 a barrel in recent months, which means companies will likely step up spending in 2000, he said. Burk warned while mergers bring economies of scale, the layoffs that accompany them have led to "an erosion of the industry's knowledge capital with the exit of many highly experienced, skilled employees. "In just four of the combinations announced recently - BP-Amoco, BP Amoco-ARCO, Exxon-Mobil, and Total-Fina - managements have announced they expect pre-tax savings of more than $6 billion with the layoff of 18,000 employees," he said