Barclays Expects Oil Cos to Loosen Purse Strings in 2010

LONDON (THE WALL STREET JOURNAL via Dow Jones Newswires), Jun. 22, 2009

In a new survey released Monday, Barclays Capital (BCS) confirms what we already know: Oil companies are slashing spending hard this year because of the recession. But the U.K. bank also says it expects many oil companies to loosen their purse strings in 2010.

More than half of the roughly 400 companies Barclays surveyed worldwide are projected to raise their budgets next year. About 32% of those surveyed say they'll increase spending by 20% or more from 2009 levels; another 21% of companies say they'll increase their budgets by 1% to 20% in 2010.

That's mildly encouraging news for future oil-pumping capacity, but the survey still leaves plenty of room to be obsessed about the future prospect of sharply higher oil prices (which, by the way, are about $2 lower Monday to below $68 a barrel, down from last week's $72, on a stronger U.S. dollar and lingering concerns about sluggish demand).

The upside in crude prices in recent months has come partly from the type of data Barclays serves up in its survey. The bank said it expects exploration and production spending globally to tank by 15% this year to $387 billion compared with its previous projection in December for a drop of 12% in 2009. Some companies bucked the trend and registered a billion-dollar-plus increase in spending in 2009, including ExxonMobil, Chevron, China's CNOOC and Thailand's PTT Exploration & Production.

Those projections are in the ballpark of what other forecasters are calling for, but it's tough to draw clean comparisons because analysts usually survey a different number of companies to draw their conclusions. Barclays doesn't provide an exact estimate for overall capital expenditures in 2010.

What's unfortunate is that the places where spending is most needed -- in non-OPEC nations like Russia, the U.S. and Canada that are having a horrible time preventing oil output from dropping -- it is falling the most.

In the U.S., still one of the world's biggest oil producers, exploration and production expenditures are forecast to slump 38% to $68 billion while in Canada spending is seen dropping 36% to $19 billion versus 2008. In North America, the smaller companies are cutting the most, while the biggest companies are cutting the least.

Barclays says the last time its survey recorded such steep declines in North American drilling outlays was in 1986. That year, incidentally, was when oil prices cratered to below $10 a barrel and marked the first of many years of sluggish spending in the oil industry that helped lay the foundation for seven years of rising crude prices up to 2008 and for last year's record high price of $147 a barrel.

Since Barclay's December survey, a number of state-run companies have dramatically cut their 2009 capital budgets. Russia's OAO Gazprom has cut its 2009 spending by 24% of $2.3 billion. Others that have scaled back: Venezuela's PDVSA, the Nigerian National Petroleum Corp., Petronas and Reliance Industries.

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