Worldwide exploration and production (E&P) spending in 2011 is expected to rise to 16 percent to $529 billion, compared with $458 billion in 2010, with strong year-over-year improvement in spending driven by large increases inside and outside North America, Barclays Capital today reported in its global E&P capital spending update.
E&P spending in North America is now forecast to be up 16.2 percent in North America and 15.5 percent outside of North America, compared with forecast increases in December 2010 of 11 percent globally, including seven percent in North America and 12 percent outside of North America. Barclays reports budgets have been revised dramatically higher in the U.S. and internationally for U.S. and European based independents, Southeast Asian companies and companies focused on the Middle East.
Spending increases this year will be led by North America, where high oil prices and the continued shift towards drilling in oil and liquids rich plays have resulted in solid growth. E&P capital spending for North America is expected to increase by 16.2 percent from $127.6 billion in 2010 to $148.3 billion in 2011.
Latin America, Europe and the Middle East are expected to be the strongest regions internationally for E&P spending. Petrobras' multi-year pre-salt development offshore Brazil and ambitious plans by Colombian state energy company Ecopetrol are driving the forecast increase in capital spending by Latin American companies, with spending in the region expected to be up 26 percent in 2011 to $65.5 billion from $52.1 billion in 2010, Barclays reported.
Spending increases of roughly 23 percent are anticipated both in Europe and the Middle East, with spending estimated at $39.9 billion this year in Europe and $22.1 billion in spending in the Middle East. India, Asia and Australia spending will be up 15 percent this year to $79.3 billion. Russian spending is expected to rise by three percent to $36.1 billion this year from 2010.
Capital expenditures for North Africa, where the "Arab Spring" of political demonstrations and civil war across the region has affected government and the economy, are anticipated to be down by over 16 percent to $25.2 billion this year due to sizable spending reductions by Egyptian General Petroleum Corp. and National Oil Corporation, as well as a reduction by Sonangol and lower spending for Nigeria National Petroleum Corp. as an election cycle concludes in Nigeria.
The U.S. continues to attract the majority of worldwide E&P spending at 21 percent; however, this percentage has continued to fall each cycle. Internationally, the India, Asia and Australia region absorbs the largest share of spending, which is being driven by large investments by Chinese national oil companies and Southeast Asian companies such as Malaysia's Petronas and Indonesia's Pertamina. In India, ONGC and Reliance are making significant investments in the region.
U.S. and European independents are stepping up spending internationally, with U.S.-based independents now forecasting international spending increases of 23 percent, up from four percent in December, while the European independents are anticipating spending growth of 23 percent versus 12 percent at the end of 2010. "We believe this is in part due to higher oil prices, higher cash flows, new exploration programs, and recent exploration success," Barclays said.
Spending among supermajors is expected to rise by 16 percent this year, led by Total, BP and Shell, compared with average spending growth of eight percent over the past five years. This increase is due to engineering and construction-related spending for several large liquefied natural gas projects, increasing Iraq spending, and increased deepwater drilling, especially in West Africa and Brazil.
While ExxonMobil remains the largest capital spender worldwide for oil and gas this year, Petrobras is quickly catching up; Petrobras and PetroChina may overtake ExxonMobil in spending in the next few years. Ninety percent of the top 20 spenders are expected to increase capital expenditures this year, with the exception of Russia-based Gazprom, which Barclays believes is primarily currency-related due to currency fluctuations in 2012, and Sonangol in Angola.
Barclays noted that the correlation between increased E&P spending and inflation-adjusted oil prices is significant, and expects a higher oil price environment to persist over the next several years driven by accelerating decline curves, continued difficulty finding and developing large reserves, increased demand in emerging markets, and tight spare capacity.
"Based on our view of a continued high oil price environment, we expect 2011 to mark the first year of multi-year double-digit spending growth internationally," Barclays said.
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