Barclays Sees Higher E&P Spending in 2010

Worldwide exploration and production (E&P) expenditures are forecast to rise by 12 percent to $447 billion in 2010 from $400 billion in 2009, according to 427 companies surveyed in the mid-year update to Barclays Capital Original E&P Spending Survey.

The spending increase is slightly higher than the results for Barclays' December 2009 survey, in which global E&P expenditures were expected to rise by 11 percent in 2010. North American capital expenditures are now expected to rise at a faster rate than previous forecast, with an 18 percent spending increase to $85 billion among 220 companies surveyed.

However, international E&P spending is now expected to rise by nine percent year-on-year, compared to a 10.5 percent increase estimated in the December 2009 survey, to $335 billion among 151 companies surveyed.

North America-based independent firms have been the most aggressive in increased spending plans. While companies of all sizes have raised their 2010 U.S. spending budgets, the greatest increase in U.S. E&P spending is expected among smaller firms spending under $100 million, with 87 percent of companies in this category increasing their spending versus 48 percent forecast in December.

Companies with a budget of more than $1 billion have indicated they will have much stronger increases in U.S. E&P expenditures, with an increase of 12 percent versus the six percent growth estimated by the December survey. Companies with budgets between $100 million and $1 billion have more modestly increased their 2010 budgets in comparison to the December survey, with a 28 percent increase now budgeted for 2010 versus 2009 spending; in the December survey, a 24 percent increase was estimated.

U.S. spending will increase due to higher oil price expectations, success in drilling shale plays, drilling to hold leases and hedging, which have more than offset lower natural gas price expectations. Due to the deepwater drilling moratorium in the U.S. Gulf of Mexico, Barclays has estimated a spending reduction of two percent, down to an 18 percent increase from 20 percent, or approximately $1.6 billion.

The downward revision in international spending has been attributed in part to weather-related delays in Russia earlier this year and a decline in spending among Latin America companies. Venezuelan national oil company PDVSA has reduced its E&P spending by 25 percent, compared to the one percent increase forecast in the Barclays' December survey, while spending by Mexico state energy company PEMEX is down 18 percent compared to a six percent decline estimated in December.

Spending among firms based in Europe, the Middle East and Africa are up slightly from the December 2009 survey, while spending increases among state-owned and international oil companies based in Asia and Australia are slightly down from the December survey.

Canadian E&P expenditures are expected to rise 28 percent to $27 billion in 2010 for the 131 companies Barclay surveyed, compared to a 23 percent increase forecast in the December survey. Barclays attributed the strengthening of the Canadian dollar in 2010 versus 2009 as partly responsible for the strong year-on-year growth in Canadian E&P spending. In Canadian dollar terms, Barclays estimates that E&P capital spending has risen by about 17 percent, generally in-line with the rate of U.S. E&P spending growth.

Well over half the companies surveyed anticipate E&P expenditures to keep growing in 2011, with 37 percent indicating spending would be up 20 percent or more, 16 percent expecting to boost spending by 10 percent to 20 percent and seven percent expecting to increase spending by one percent to 10 percent.