U.S. exploration and production (E&P) spending year/year in 2011 is forecast to jump by 8.1% to $93.6 billion from $86.6 billion, according to the latest survey by Barclays Capital. Canadian E&P spending is expected to be 4.8% higher.
However, expectations for higher natural gas prices in the coming year have fallen, according to Barclay's Original E&P Spending Survey, which was issued on Wednesday. The semiannual survey, initiated by analyst Jim Crandell in 1982, attempts to include "each meaningful spender on exploration and production throughout the world."
E&P capital expenditures (capex) were up this year from 2009 by 20% in the United States and 36% in Canada (excluding currency movements), Barclays noted. Capex budgets in 2011 are forecast to jump again, according to 210 U.S. and 126 Canadian producers. Most of the money is earmarked for oil and liquids plays.
U.S. spending in 2011 "is likely to be impacted by a reduction in conventional dry gas drilling, offset by higher drilling and completion activity in oil and liquids-rich basins," said the analysts. "In Canada, increased drilling-related extraction of hydrocarbons from oil sands (as opposed to traditional mining techniques) is expected to offset lower conventional gas activity."
Higher oil prices were forecast by most of those in the survey. Expectations for natural gas prices, however, have fallen since Barclays' survey six months ago (see Daily GPI, June 17).
"The average oil price on which companies are basing their 2011 E&P budgets is approximately $77.32/bbl (West Texas Intermediate)," said Crandell. "This compares with the $70.16 average oil price assumption used for 2010 budgets in December 2009. At mid-year, companies were basing budgets on an oil price of $73.56/bbl.
"Budgets also reflect a natural gas price forecast of $4.27/Mcf. This estimate represents a significant reduction in price expectations compared with one year ago (down 18% from $5.21/Mcf) and an 8% decrease from expectations at mid-year ($4.65/Mcf)."
Because of the move toward liquids plays, Barclays analysts said the domestic 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 increase in the oil-directed rig count over the course of the year."
Smaller U.S. producers are expecting to make the biggest hikes in 2011 capex budgets, Barclays found. Companies that spend under $50 million plan to increase their upstream spending 63% year/year.
"However, these companies (107 in total) only represent 2% of total 2011 estimated spending," noted Crandell. "As company size grows larger the magnitude of the increase lessens. Those companies that spend over $1 billion are indicated to increase capex next year by just 5.2%."
Twenty-eight E&Ps surveyed represent roughly 71% of 2010 forecast U.S. spending, he said.
Companies with U.S. capex budgets of $1 billion-plus, and which plan to hike budgets year/year, were ConocoPhillips (60%), Hess Corp. (43%), Pioneer Natural Resources Co. (26%), EOG Resources Corp. (21%), Noble Energy Inc. (13%), Plains Exploration and Production Co. (11%), and Petrohawk Energy Corp. (7%).
"Conversely, large companies that we estimate will reduce their 2011 U.S. capex budgets include Encana Corp. (down 21%), Southwestern Energy Co. (down 12%), Devon Energy Corp. (down 10%), Williams Cos. (down 8%), and Range Resources Corp. (down 6%)." Chesapeake Energy Corp. is keeping its spending flat in 2011, the survey found.
Of the 402 global oil and gas companies surveyed, E&P expenditures are expected to be up by 11% year/year to $490 billion from $442 billion. The biggest increases are forecast for Latin America, the Middle East/North Africa and Southeast Asia.
"Unlike in recent years when national oil companies accounted for the majority of the spending gains, for 2011 the supermajors are likely to show the largest increases," said Crandell and his team. "We view this as a positive indicator."
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