Capital spending by exploration and production (E&P) companies plummeted in 2009, but a turnaround is expected this year, with North American E&Ps boosting their spending on average 22%, IHS Herold reported last week.

According to the initial findings in its annual survey, the E&P group overall is slated to hike spending on average by 17% this year. Among more than 65 of the largest publicly traded producers, total worldwide spending on E&P projects, excluding acquisitions, is forecast to rise by 7% from a year ago to $326 billion.

"This rise in spending is a sharp contrast to the expected 23% decline in upstream spending in 2009 amid the global recession and tight markets," said Aliza Fan Dutt, senior equity analyst at IHS Herold.

"While the financial and energy markets have shown marked improvement from last year's environment, oil and gas companies are still cautiously optimistic when setting their 2010 capital investment plans, primarily due to global economic uncertainty, and to a lesser extent, skittishness regarding global natural gas prices. With that being said, however, they are under pressure to drive production growth, so they must spend, but spend wisely to accomplish their reserve targets."

The survey found that 80% of E&Ps plan to hike 2010 upstream outlays above 2009 capital expenditures. Almost half plan to increase spending by at least 20%, and one-quarter will boost spending by at least 50% from a year ago.

The integrated oil companies (IOC) slashed spending in 2009 by 16%, but this year upstream capital investments are expected to rise on average by 5.3%, the survey noted.

"This uptick is due to strong increases by the U.S. IOCs and the non-North American IOCs," the energy research firm said. "Once all the numbers are in, spending by E&P companies is expected to have plummeted by 47% in 2009."

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