* Oil investment growth slows sharply
* Onshore investments seen hurting most
* Ultra-deepwater segment seen best placed for growth
By Henrik Stolen, Gwladys Fouche and Balazs Koranyi
OSLO, Sept 5 (Reuters) - Oil and gas firms are cutting backon investments to try and improve profits and save cash fordividends, perhaps signalling an end to a decade-long boom incapital spending.
Companies seeking to bring oil fields into production havesplashed out on new drilling, equipment or pipelines, supportedby rising oil prices.
But suppliers and analysts expect investment growth to slowsharply this year and in 2014, in line with a projected fall inoil prices. The spending boom has squeezed budgets and forcedcompanies to sell assets and issue debt to pay dividends.
Onshore spending will be hurt the most, including thesaturated U.S. shale segment. New ultradeep markets, such asBrazil, West Africa and Mexico, will still flourish, however, asthey offer the rare opportunities for big finds.
"Oil firms have a dilemma: They still need to grow theirproduction, which is virtually flat and even declining, so theyhave to spend but will have to become much more selective,"Magnus Lundetrae, the chief financial officer of Seadrill, the world's biggest offshore rig operator said.
"In total they'll spend around $700 billion (this) year...Iexpect spending to be flat (from next year) ... with onshoredeclining and offset by deepwater."
Many companies prefer to quietly delay projects but therehave been a few high profile casualties already this yearincluding Statoil delaying its $15 billion JohanCastberg project in Norway's Arctic and BP reconsideringits $10 billion Mad Dog project in the U.S. Gulf of Mexico.
Nordic bank SEB, a major lender to the sector, has cut itsestimate of exploration and production spending from a rise of12 percent this year, broadly in line with 2012, to 7 percentthis year and 4 percent next year.
Deutsche Bank said growth could be even lower, falling to 5percent this year and 1 percent next year. Norway said onThursday it expects capital spending in its offshore market torise just 1 percent next year after growing 18 percent in 2012.
"A balanced oil market with stable to slightly lower oilprices, rapid growth in U.S. tight oil production and lower freecash flow have a dampening effect on budgets," SEB analyst TerjeFatnes said.
Capital spending has grown by more than 10 percent a yearsince 2003 and oil prices have risen nearly four-fold to $115per barrel but energy firms have not reaped major benefitsbecause they have not become more efficient, analysts say.
Their return on average capital employed, a measure thatshows profitability on investments, fell from over 15 percentsix years ago to just 9 percent now, analysts say.
Credit Suisse estimates that capital spending per barrelrose by around 14 percent between 2005 and 2012 while productionis expected to rise just over 1 percent this year and next.
LOW VALUATION
Spending is so high that cash flow from operations cannotcover dividends so the net cash flow has been negative since2009 and expected to stay in the red for several more years.
"The oil price has not boosted earnings in the explorationand production sector. Oil companies make money but not as muchas expected," Ole Henrik Bjoerge, the CEO of brokerage Paretosaid. "The largest oil companies have no free cash flow in 2013.Their cash flow is the worst in the last four years."
Shares have also suffered as oil and gas stocksunderperformed the broader market by over 25 percent since thestart of 2012 as profits fell, cash flow declined and thesector's return on investment fell, analysts said.
Major oil companies trade at a price to 2014 earning ratioof 8.9, below their own long term average, while Shell and BP both trade at about 1.1 times their book value,both among the lowest on the FTSE 100.
"What has happened over the past year, is that a certainnumber of projects, for various reasons, were no longereconomically profitable for our clients," Thierry Pilenko, theCEO of French oil services group Technip said. "Someof them were because of costs increase that were not taken intoaccount, but were real, like the Australian projects."
Woodside Petroleum this year shelved its $45billion Browse LNG plant off Australia due to rising costs.
Seismic explorers, considered bellwethers in the industrybecause they gauge exploration appetite, have warned recentlythat energy firms are pushing out contract awards, delayingspending, moving some projects into next year to reduce budgets.
Shares in seismic firm EMGS tumbled 32 percentover the past 3 months while Polarcus is down 25percent and TGS fell 10 percent.
"There are warning signals," Oeyvind Eriksen, the acting CEOof oil services group Aker Solutions said. "It is acombination of a stable oil price and increased costs and thatputs pressure on net cash flow. Projects that were profitable inthe past become marginal today."
Technip's Pilenko says another major issue is that there arefewer mega projects around and oil firms are struggling toadjust to the smaller scale, resulting in some cost blowouts.
The ultradeep market is likely to be one of the few brightspots in the next few years because it offers the chance oflarge finds. Charter rates for deepwater rigs are holding steadyat around $600,000 a day, near their historic high.
BP (BP.)
