Analysis: Revival Seen in Upstream Capital Spending

Wood Mackenzie's analysis of companies' investment plans reveals that global upstream capital spending in 2010 is likely to exceed US $380 billion, indicating that confidence has returned to many regions and sectors of the upstream industry; however, recovery is not uniform.

Iain Brown, Wood Mackenzie's Regional Upstream Research Manager, says, "It is clear from our understanding of operators' plans in the autumn of 2010, that confidence has returned to many regions and sectors of the industry, although this effect is far from consistent across the world. We estimate that total upstream spending will recover to around US $380 billion in 2010 – US $19 billion higher than in 2009 but still 10% lower than the historical high of 2008. This revival is set to continue over the next three years and global spending could recover to 2008 levels by 2012 or 2013.

"The economic crisis of late-2008 shook the foundations of the global upstream business. Many higher cost capital projects were delayed, shelved or abandoned, and annual spend dropped by over US $55 billion. Now, just one year on, the industry has proven remarkably resilient. Many plans have been restored or expanded, in the expectation that demand and commodity prices will remain relatively robust over the longer-term," Brown continues.

Wood Mackenzie's latest research report, 'On the rebound – global upstream spending returns to growth' shows the most spectacular recovery has been in the US, where total spend should return close to peak levels by 2011. "This is primarily due to restored confidence and an impressive renewal of activity in unconventional resources, particularly shale gas. Leading growth areas include the northeastern US - where spending could exceed US $11 billion in 2013, from around US $3 billion in 2009 - and in the US Gulf Coast, as operators aggressively develop the Haynesville and Eagle Ford shales using horizontal drilling," Brown expands.

The report notes that record growth in capital spending is already under way in Australia, where new project approvals and major gas developments will see capital expenditure grow three-fold by 2013. And in Iraq, upstream investment is likely to climb rapidly to US $10 billion in the next three years.

But investment levels will take much longer to recover in some other countries warns Brown, "Two of the world's largest producers, Canada and Russia, were most deeply affected by the global crisis, and upstream spending was reduced by around one-third through 2009. Both countries have experienced a modest recovery, but current plans suggest that spending will not return to 2008 levels until towards the end of the decade."

The report says that more than half of future upstream investment will come from the multi-national majors and a range of prominent national oil companies (NOCs). Brown notes, "PetroChina has by far the largest upstream commitment amongst the NOCs, and its spending plans rank with the largest of the international majors. It has pursued an international expansion strategy in the past ten years, but still spends only 5% of its upstream budget on overseas projects."


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