Oil and gas expenditures

The worldwide market for plant-level expenditures in the oil and gas industry, which totalled more than US$196 billion in 2003, will reach almost US$218 billion by the end of 2008, expanding at a Cumulative Annual Growth Research (CAGR) exceeding 2%, according to a study by the ARC Advisory Group.

"Oil and gas companies spend enormously on exploration every year to ensure steady supply of crude oil and natural gas for the future," according to Senior Analysts Dave Clayton and Ravi Murthy, authors of ARC's Oil & Gas Industry Plant-Level Expenditures Worldwide Outlook. They continue, "Although there are several factors driving up operation and maintenance costs in the refining industry, the bulk of the money spent is still in the exploration and production phase."

Oil and gas companies must invest heavily in exploration and production to hit upon new sources of crude reserves. As current reserves are used, companies must dig deeper to reach new supplies and the cost associated with obtaining new wells continually increases.

The refining industry also depends heavily on capital expenditures to control the large, continuous processes used to produce refined oil and gas from crude. Major oil companies, however, have become more cautious about the pace of their capital spending and capital markets are scrutinising oil and gas CapEx more thoroughly than during the previous cyclical upturn.

Based on recent consolidations, restructuring, and cost cutting programs, the oil and gas industry is expected to be more adaptable to fluctuations in upstream spending.