Barclays Survey Finds Higher E&P Spending in 2011

Global exploration and production (E&P) spending is forecast to rise 11 percent in 2011 to $490 billion from $442 billion in 2010, according to 402 companies surveyed by Barclays Capital for “The Original E&P Spending Survey” released Wednesday.

The increase will be driven by spending gains in Latin America, the Middle East/North Africa and Southeast Asia, and the supermajors are likely to show the largest increases in spending, unlike previous years when national oil companies (NOCs) accounted for the majority of spending gains.

Barclays anticipates that the big six supermajors, including BP, Chevron, ConocoPhillips, ExxonMobil, Royal Dutch/Shell and Total, will increase international spending by about 18 percent in the aggregate. This follows a year in which spending for the group was virtually unchanged from 2009 levels, Barclays said, with BP, Total and ConocoPhillips expected to show the largest increases in spending.

“The substantial increase in E&P capital budgets for 2011 is due in part to a number of factors including engineering and construction related spending for several large LNG [liquefied natural gas] projects expected to move forward next year, increased spending in Iraq and an increase in deepwater activity,” Barclays noted.

Mexico’s PEMEX and Brazilian energy company Petrobras are expected to drive E&P spending in Latin America, with PEMEX pursuing onshore and offshore projects and Petrobras significantly expanding its deepwater activity with development of the Tupi field. Major oil companies also are increasing spending in Iraq in order to boost production there.

In Asia and Australia, the spending outlook for state-owned and international companies is mixed, as Pertamina in Indonesia and PTT Exploration and Production in Thailand are expected to significantly increase E&P spending, but declines are forecast for Australia’s Woodside Petroleum, BHP Billiton and PetroVietnam. Significant spending increases are expected for India’s ONGC, Malaysia’s Petronas and Sinopec in China.

Capital spending budgets outside North America are expected to rise by 12 percent in 2011 to $363.3 billion (from $324.1 billion in 2010), according to the 141 companies in our survey. Meanwhile, U.S. E&P expenditures are forecast to grow 8.1 percent to $93.6 billion from $86.6 billion in 2010 by 210 companies surveyed, reflecting a shift by U.S. operators towards oil and liquid rich drilling activities and away from conventional dry gas drilling.

“We believe the natural gas rig count could decrease by as many as 150 rigs in the first half of 2011, although this is expected to be mostly offset by an increased in the oil-directed rig count over the course of the year,” Barclays said in its report.

Of the 210 companies with spending in the U.S. surveyed, the largest increases in 2011 are expected from companies that spend under $50 million, up 63 percent year over year. However, the 107 companies that fall into this category represent on two percent of total 2011 estimated spending. Companies that spend over $1 billion are expected to increase their capital expenditures next year by 5.2 percent; these 28 companies represent roughly 71 percent of 2011 forecast U.S. E&P spending.

Canadian E&P budgets are expected to rise 4.8 percent to $32.6 billion in 2011 from $31.1 billion in 2010, according to 126 companies in the survey. “We believe this is due in part to an increased focus on drilling related extraction of hydrocarbons from oil sands (versus traditional mining techniques) which is expected to offset reduced natural gas drilling activity,” Barclays said. As in the case of the U.S., the smallest of the companies surveyed are planning the largest increases.

The survey found that companies are basing their 2011 E&P budgets on average oil prices of approximately $77.32/barrel, up from the $70.16/barrel average oil price used for 2010 budgets in December 2009. Companies used an oil price of $73.56/barrel at mid-year for budgeting purposes.

E&P budgets for 2011 also are reflecting a natural gas price forecast of $4.27/Mcf, 18 percent lower than the $5.21/Mcf price assumption used one year ago and an eight percent decrease from expectations at mid-year, or $4.65/Mcf.