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Exploration and production activity is paving the way toward the surge in capital expenditures worldwide, according to natural resources analyst GlobalData.
A rise in the number of discoveries across the world has fueled E&P activity, making the sector one of the largest contributors to an expected surge in oil and gas capital expenditures for 2012.
Capex, expected to rise 13.4% compared to 2011, could hit the US $1 trillion mark this year, according to a recent GlobalData study. The prediction comes as companies hit major finds and bountiful plays, spurring investor confidence and potential for lucrative outcomes. Pushing the drive are shale gas plays in the US and oil sands discoveries in Canada along with operations offshore Arctic Circle, Brazil, and the Gulf of Mexico.
“The basic factor driving rising capital expenditures in oil and gas is growing demand from developing nations such as China and India. They are requiring more and more crude to fuel their growth and more and more refined products to improve their lifestyles,” said Matthew Jurecky, director of energy research and consulting for GlobalData.
The number of oil and gas discoveries in 2011 reached 242, serving as evidence that investors have confidence in new upstream projects. However, the number of discoveries is down substantially from 2009 when there were more than 430, according to GlobalData figures.
Despite the drop, Jurecky noted several key development trends have emerged since then.
“For example, few discoveries have been made onshore over the last 10 years; however, one of the most important growth stories in oil and gas in recent history has occurred in the development of shale gas and tight oil,” Jurecky said. “Similarly, with the discovery of the sub-salt play in offshore Brazil, a limited amount of discoveries were made, but the size and impact of the discoveries were significant.”
The discoveries, combined with high oil prices and new technology, have given companies access to deep offshore reserves that were previously unviable.
North America’s capex is expected to be the highest, reaching $254.3 billion, or 24.5% of the 2012 worldwide total, GlobalData reported. North America could see a 15.7% capex growth, higher than the 13.4% global average growth rate.
“Unconventional resources such as tight oil and shale gas have rejuvenated the domestic oil and gas industry and are driving capital expenditure in a major way in North America,” Jurecky said. “Globally, the United States leads in onshore capital expenditure with over $110 billion spent.”
For example, in the Texas Eagle Ford shale play, gas well production soared to 290 Bcf in 2011 up from 3 Bcf in 2008, according to the Railroad Commission of Texas. Oil production grew to 40.8 MMbbl in 2011, compared to only 787,000 bbl in 2004.
Following close behind North America in planned spending is the Asia-Pacific region, where capex could reach $253.1 billion by year-end. Again, the story is the same – more upstream spending.
“National oil companies are looking to transfer technology and expertise from other regions to domestic territories. Onshore projects, notably coalbed methane, dominate the landscape as regional sources of gas are sought and developed.”
Overall, the big spenders are believed to be national oil companies (NOCs), including Petroliam Nasional Berhad (Petronas), China Petroleum & Chemical Corp. and Petroleo Brasileiro S.A. (Petrobras), with the latter leading the pack when reviewing 2012-16 expenditures. In August alone, Petrobras has announced oil finds in Brazil’s Sergipe-Alagoas and Santos basins along with the frontier Ceará basin off Brazil’s northeastern coast. The NOCs could make up about half of the worldwide capex total.
GlobalData expects ExxonMobil Corp. to be the top international oil company.
Considering the hefty expenditures, a question that remains is how these companies could fare on revenue. That depends on the oil-weighting in their portfolio versus natural gas and the cost of production, Jurecky said.
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