While global E&P spending is expected to ratchet up by 7% next year – the fourth consecutive year of growth to a record-setting US $644 billion – North American capex will lag the international pace, according to Barclays 2013 Global E&P Spending Outlook.
“We continue to believe we are in the early stages of a multi-year, double-digit growth spending upcycle internationally, characterized by increased drilling in complex geologies on land, and exploration and development of traditional and emerging deepwater basins,” James West, Barclays oil services and drilling analyst, said summarizing the global picture.
But, he added, “After several years of high-speed growth in North American capex, spending growth in 2012 slowed and 2013 spending budgets are expected to be roughly flat with 2012 levels.”
The Barclays report, which was released Dec. 4, was conducted in November and is based on surveys of 322 oil and gas companies worldwide.
Pausing To Breathe
While North American spending rose 27% and 31%, respectively, in 2010 and 2011, it took a breather in 2012, leveling to 4%. Barclays estimates North American E&Ps will spend $185 billion in 2013, compared with $183 billion in 2012, West said.
In the US, Barclays anticipates $139.6 billion in E&P capex in 2013, compared with $138.7 billion in 2012, a tepid 0.7% growth. In Canada, $44.7 billion is projected in 2013, up 0.6% from $44.4 billion in 2012.
West credits the growth pause to lower natural gas prices, reduced West Texas Intermediate prices, weak natural gas liquids prices, differentials in Canadian basins, logistical challenges in emerging plays, and a desire to spend within cash flow.
Within this context, independent E&Ps are broadcasting that they will decrease budgets next year, he said, totaling about a 1% drop, being more dependent on cash flows that have softened with commodity prices.
But this spending decrease will be offset by majors and national oil companies (NOCs), which are less affected by cash flow constraints, and which now have a more dominant position in North America, drawn by the oil renaissance here.
“The major US, European, and Asian international oil companies (IOCs) and NOCs are helping drive growth in the US market and are increasing spending as a percentage of total US upstream capex as a result,” West said. “We estimate these global majors will constitute roughly 32% of total US spending in 2013, including offshore, up from 27% in 2007.”
He calculates global majors will spend some $43.5 billion domestically this year. “They’re becoming a much bigger part of the North American spending picture.”
ExxonMobil and Chevron together represent some 12% of North American spending, and plan an additional $1 billion combined this year. International spenders such as CNOOC, BHP Billiton, and Statoil are expected to increase US expenditures as well.
On the upside, West noted North American independents base their spending projections on an average oil price of $85 per barrel for West Texas Intermediate, and $3.47 per Mcf Henry Hub, a conservative estimate in his view that could lead to budgets being increased if prices trend upward.
“We see many of these issues as transitory and believe that spending will trend higher throughout the year. An acceleration of growth in 2014 is likely.”
Independents already bucking the trend: Apache Corp., Encana Oil & Gas, and Halcon Resources are ramping spending, he reports.
Internationally, spending is forecast to reach $460 billion, a 9% year-over-year increase and shared judiciously across the globe. This is driven by continued high oil prices, sanctioning of major projects, and the delivery of a large number of offshore rigs in 2012 and 2013, West suggested.
“Spending is rising in every market around the world.” Barclays looks to Latin America, Asia, and the Middle East to push the upcycle in E&P spending growth with double-digit gains.
“Once again, Latin American companies are expected to lead the way in 2013,” with capital spending in the region to increase 15%, compared with 17% in 2012. Mexico’s Pemex (21%), Venezuela’s PDVSA (46%), and Brazil’s Petrobras (8%) are all stepping up activity with capex increases.
Close behind, spending by companies based in India, Australia and within Asia is expected to grow by 11%, led by PetroChina (11.5%), Inpex (27%), Petronas (7.7%), and Sinopec (14%).
“We think the coming development of Chinese shale gas could be the next leg up for Asian upstream investment,” West said. Also, “Asian companies are investing heavily in international joint ventures, particularly in deepwater projects.”
The investment bank projects capital spending will increase by 4.5% in Africa, 6% in Europe, 11% in the Middle East, and 7% in Russia.
“Iraq remains the largest E&P spending growth story over the last decade,” he said. About 80 rigs are currently drilling there, and could surpass 300, he forecast. “Kurdistan particularly is one of the most attractive international exploration opportunities.”
As a group, supermajors will increase spending by 9% this year worldwide, or $100 billion of E&P capex, led by active drilling programs for Chevron with a 17% increase, and ConocoPhillips, Shell, Total and ExxonMobil, all sporting more than 5% increases.
“We believe continued high spending levels for the supermajors is being driven by years of flat spending and underinvestment in the early to mid 2000s, resource nationalization which has resulted in the expansion of deepwater drilling activity, particularly in Brazil and West Africa, and the need to find and replace large pockets of reserves and increase production.”
Internationally, the top 20 largest E&P spenders account for 57% of the overall 2013 forecast. ExxonMobil leads the spend with $35 billion planned, followed by Chevron, Royal Dutch Shell, PetroChina, Petrobras, and Pemex.
Contact the author, Steve Toon, at email@example.com.