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Amid continued commodity price instability and damaged budgets Barclays has revised its global E&P spending outlook for 2015, now saying such spending could fall 20% this year and up to 8% in 2016.
Operators in North America—especially U.S. E&Ps—are expected to clamp down the hardest; whereas, the Middle East still appears to be the only area where spending could rise as national oil companies accept the low prices.
The midyear 2015 update is slightly lower than the 23% global E&P spending drop Barclays forecasted in February. If the outlook holds true, it would mark the first time since the mid-1980s that the industry has experienced consecutive annual spending declines.
However, “we note that after almost every decline year previously, spending increased by more than 10% the following year,” Barclays said in the report. “Then again, it’s a new oil paradigm we’re facing.”
When the survey was first released in January, Barclays estimated global E&P spending would fall by 9% from the previous year. That was based on an oil price of about $65 per barrel (WTI), a level that hasn’t been reached since early December 2014 despite coming close in May and June 2015. Climbing back from a low of about $38/bbl in August, the price per barrel reached about $46 by 11 a.m. on Sept. 10. Barclays’ updated forecast released this week was based on Brent/WTI prices of $50/$55 per barrel.
“Because E&P cash flow is directly correlated to commodity prices (price times volume less costs), upstream spending is a dynamic exercise and will shift throughout the year,” Barclays said.
The spending survey, which is based on responses from 175 oil and gas companies worldwide, estimates global E&P spending will fall to $521 billion this year, compared to about $654 billion in 2014.
International: Barclays estimates international spending could fall 14% to about $395 billion. That is five percentage points higher than its February estimate, but still twice as much as the 7% fall estimated in January.
“The crucial factor is the influence of the national oil companies (NOCs), which we estimate represents about 58% of international spending and the remainder from international oil companies (IOCs) and international E&Ps, which are less dependent upon cash flow than North American E&Ps,” Barclays said.
The Middle East is the only area that could see more capital spending—up 5.9% to about $43 billion in 2015, compared to 2014, by Barclays’ estimates. The growth was revised down from 15% in January.
While spending by Saudi Aramco is predicted to remain flat, Barclays said Abu Dhabi National Oil Co. and Qatar Petroleum Co. could increase spending by 6% and the Kuwait Oil Co. by 17%.
Elsewhere, Latin America spending is expected to fall by 9%, faring better than other regions that include Asia/Australia/India, Africa, Russia and Europe. These regions could see spending down from 14% to 23%, the Barclays report indicated.
The situation could improve in 2016 with spending forecast to fall up to 5%, though Barclays admitted it has found “very little concrete guidance for international spending in 2016.” However, Petrochina, CNOOC and Sinopec could shell out more money next year.
North America: Estimates are for upstream spending in North America to fall by 35% to about $126 billion in 2015.
“This is slightly worse than 30% decline we estimated back in February, and could fall even more as we note most E&Ps have based their 2015 budget on a $50-60/bbl (WTI) oil price that is higher than current levels today,” Barclays said. “Furthermore, we note E&Ps are stretching their capex dollars through a combination of severe pricing declines and efficiencies across drilling and completion that are allowing E&Ps to do more with less.”
It could be more of the same in 2016. Spending declines are forecast to drop between 10% and 15%. So far, only a handful of E&Ps have offered up information on planned 2016 spending, the report noted. However, some executives shed light on their plans during the Barclays Energy Power Conference this week.
WPX Energy said it would reduce spending in 2016. So did Marathon Oil, which plans to shave 18% off its capital budget next year, Reuters reported. That equates to more than $600 million.
“No cost is too small for us to scrutinize," Marathon Oil Corp. Lee Tillman said. “We continue to be laser-focused on reducing costs across all areas of our business.”
Velda Addison can be reached at vaddison@hartenergy.com.
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