Exploration and production (E&P) companies are more confident about spending now than they were late last year, Barclays Capital reported Monday.

The investment firm’s mid-year global E&P survey indicated that capital spending is on track to jump 16% year/year to $529 billion from $458 billion, said analyst James C. West and his team. U.S. spending now is predicted to be 18% higher than in 2010 and Canadian spending is expected to be up 10% year/year — an average 16.2% higher than in 2010.

Last December E&Ps had predicted they would spend about 8% more in North America and 11% more globally than in 2010 (see Daily GPI, Dec. 16, 2010).

“The upcycle for exploration and production spending is clearly under way and capital budgets have been raised substantially during 2011,” wrote the analysts. In the past six weeks they “revisited” capital budget expectations with more than 400 energy companies.

“The U.S. continues to attract the majority of worldwide E&P spending at 21%; however this percentage has continued to decline each cycle. Internationally, the India, Asia and Australia region absorbs the largest share of spending. This is being driven by sizable investments” by Chinese national oil companies, Southeast Asian companies and Indian producers.

“We continue to believe the oil service industry is in the early stages of a major international and offshore upcycle that is currently taking hold with accelerating E&P spending in the second half of 2011 and into 2012,” wrote West and his team. “Our 1-Overweight ratings are biased toward those companies with significant international exposure, high leverage to the unfolding exploration cycle, exposure to growth in deepwater and subsea activity or leverage to the new rig construction and capital equipment ordering cycles.”

The buildout of international energy infrastructure and the “accelerating recovery in the Gulf of Mexico are also key areas of emphasis of our investment recommendations.”

Two “major risks” to the analysts’ thesis “are weakening economic conditions which could negatively impact oil prices and thus E&P spending and environmental challenges to recent permits for new deepwater wells in the Gulf of Mexico.”

One of the largest changes to the December report, they noted, is “the significantly higher international budgets of the independents. While the supermajors were already indicating large gains internationally and have modestly revised international budgets higher (now expected to be up 19% compared to 17% in December), it is the U.S.-based and European-based independents, which have recently revised their non-North American budgets dramatically higher.”

U.S.-based independents now expect to spend 23% more this year than in 2010 for international projects — they had only predicted a 4% increase last December. European independents also expect to spend about 23% more now, versus 12% 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,” said the analysts.

Actual E&P spending this year is likely to exceed current expectations.

“Although directionally accurate, our spending forecasts tend to capture budgeting activity as a snapshot in time and in many cases overall spending tends to be higher than forecast,” said West and his colleagues. “This is especially true in North America” and “we believe this will again be the case this year.”

©Copyright 2011Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.