The level and composition of the petroleum industry's capital expenditures over the coming decade will be critically determined by a number of interrelated factors. One is the unabating growth in energy demand, both in the U. S. and abroad, and increasing contribution likely to be made by petroleum to supplying this demand. The Free World is thus expected to consume more oil over the coming decade than it has in its entire history to date. other critical variables are expectations concerning private and social rates of return on investment and, for the private companies, the availability of funds private companies, the availability of funds including willingness and ability to resort to external financing. Most important, however, in their implications for outlays are the striking structural changes ahead in the world oil economy.

In the U. S., these changes will center on the continuing decline in excess producing capacity in the lower 48 states, the correlative peaking of crude production in the lower 48 by 1973–74, the parallel production in the lower 48 by 1973–74, the parallel problems in gas supply, the longed-for development problems in gas supply, the longed-for development of oil and gas potentials on the North Slope, and the nation's increasing dependence on imported crude and gas supply. Meanwhile, the federal government will become increasingly enmeshed in all major phases of the companies' operationsexploration/production, refining, product specification, marketing, and the programming of domestic and imported supplies. This growing intrusion will reflect the social concern over pollution, the security of our energy sources, energy costs and inter-fuel competition, and the necessary emergence of a coordinated national energy policy.

In oil operations outside the U. S., the whole compass of extant concessionary arrangements in the Near East and in Venezuela is clearly under attack. Far-reaching consequences will attend the resolution of the tumultuous price and tax negotiations with the nations involved in the organization of Petroleum Exporting Countries (OPEC).

Success or failure in structuring some sort of working "tax petroleum" through 1975 will bear importantly upon capital expenditure policies for years to corn" Trends in concessionary arrangements rising per barrel taxes, relinquishments of choice acreage, government participation in production look to be working against the major oil companies. It is only a matter of time before the principal producing nations in the Middle East (Iran, Saudi producing nations in the Middle East (Iran, Saudi Arabia, Kuwait) move to bring their concession terms in line with the newer concessionary arrangements. Such government participation in programming decisions and in production could impair the companies' flexibility in response to marketing opportunities and logistical problems; it also suggests that national oil companies may be drawn to downstream investment and, in any event, to compete vigorously for "third-party" outlets, including national oil entities in oil-importing nations.

Our analysis shows that maintenance of recent rates of return on integrated oil operations in the Eastern Hemisphere will depend increasingly on building and defending refining/marketing positions in the major oil-importing nations. However, the concern of the governments of the importing nations to attain greater control over the security and diversification of their crude supplies may undercut the position of the international majors as crude suppliers and product marketers. In growing numbers since 1967, these governments have encouraged a search for indigenous crude resources and, if located, their rapid development. They are also found, on their own behalf or on behalf of their independent refiner/marketers, entering into concessionary agreements and/or long-term crude purchase contracts with the national oil companies in various oil-exporting nations.

In their continuing quest for diversification, the American and foreign-owned oil companies will probably have little choice but to turn with renewed probably have little choice but to turn with renewed interest to exploration/development potentials outside the Middle East and North Africa - to the Far East to Oceania and to the Western Hemisphere.

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