As oil prices continue to fall, it is no surprise that oil and gas companies are exercising fiscal discipline. But everyone is not expected to reduce spending this year.

The Middle East appears to be the bright spot, according to analysts.

“To us, the Middle East is the lone source of international strength. We have spending up almost 15%,” Dave Anderson, oilfield services and equipment analyst for Barclays, said during a media call today about the firm’s Global 2015 E&P Spending Outlook.

The figure was based on planned increased spending by not only Saudi Aramco, but also Abu Dhabi National Oil Co. (ADNOC) and Kuwait Oil Co. “Saudi Arabia has not made any changes to any of their programs. We think that will continue to be the case for a certain amount of time.”

Barclays, which has been putting out the annual outlook for 30 years, forecast E&P capital spending in the Middle East to rise to about $46 billion this year, leading growth in the Eastern Hemisphere.

But the firm forecasts international spending to drop 6.7% to about $451 billion this year compared to 2014. International oil companies are expected to reduce spending by 13.1% in 2015

Lower Volatility

National oil companies (NOCs) are budgeting only a 1% decline, Anderson said. This follows OPEC's decision to leave production targets unchanged.

“In reality, this is really about Saudi Arabia, Kuwait and the UAE’s decision to keep activity at elevated levels, but it’s also reflective of lower volatility in NOC spending,” Barclays said in the outlook. “First, the substantial size of the NOC capital programs makes it difficult to meaningfully shift spending dollars from one year to the next, particularly as development projects have become more complex and take longer to finish (not just drilling and completion, but also infrastructure). Second, the NOCs need the oil revenue both to support state budgets and to fund subsidies that have increased following Arab Spring. Therefore, even though the call on OPEC crude has dramatically fallen in recent years, spending must be maintained to offset any social issues that may arise.”

In North America, E&P capital spending is predicted to fall 14.1% to about $168 billion. Other regions forecast to see double-digit falls include Europe, 16.7%, to about $38 billion; and Russia/former Soviet Union, 13.1%, to about $44.6 billion.

Positive Outlook

A peek into the Saudi market, as described by Barclays, showed an overall onshore rig count in the 200 to 210 range, which is up from 170, with another 30 to 40 rigs expected in 2015.

“Spending and rig count growth is driven by two factors: 1. Offsetting decline rates to maintain oil capacity (additional 10-20 rigs per year), and 2. Natural gas production to displace international consumption of oil, estimated at around 3 [MMbbl/d],” the outlook said. “Although most service companies operate on long-term contracts, pricing on incremental work or new bids in the Kingdom have improved over the past 12 months. Many accounts suggest Aramco is preparing for a further build in activity, requesting more equipment and technical talent to be brought into the country.”

Barclays does not know how long Saudi Arabia will be willing to absorb $50 oil. But considering Anderson said it has almost three-quarters of a trillion dollars in cash reserves, it is well equipped to weather this storm for quite some time.

“Saudi Aramco and ADNOC are defiantly moving ahead with activity levels on projects largely unchanged as both are prepared to accept lower oil prices in the near term with the expectation of improvement toward the end of the year,” according to the outlook.

Besides the Middle East, the outlook appeared positive for Africa. The E&P capital spending for Africa was predicted to increase by 5.5% to about $27.7 billion.

Nigerian National Petroleum Corp., Sonangol, Sonatrach and Tullow were listed among the leading African spenders.

However, Anderson warned that the outlook provided only a snapshot of what the industry was thinking in December. At the time Barclays and the 225 companies surveyed for the outlook assumed oil prices of about $70/bbl (Brent) and $65/bbl (WTI). Today, prices are hovering around $50/bbl (Brent) and $48/bbl (WTI). “So we clearly see some downside here,” Anderson said, potentially 30% downside if oil prices stay in the $50 range.

Barclays plans to update its 2015 E&P spending outlook quarterly.

Contact the author, Velda Addison, at vaddison@hartenergy.com.