Spending by international oil and gas companies in 2012 is likely to hit record levels, while exploration and production (E&P) expenditures in North America also should be up by healthy margins, according to a new survey by Barclays Capital analysts.

"Recent exploration success in various regions of the world confirm our view that exploration is likely to be at the forefront of spending growth in 2012," according to Barclays' Global 2012 E&P Spending Outlook. "In 2010, 32% of respondents planned on increasing the percentage of the budget dedicated to exploration. This percentage grew to 38% in 2011 and 42% in 2012."

The outlook, compiled by analyst James C. West and his team, is forecasting worldwide capital budgets to approach $600 billion in the coming year.

"The acceleration in worldwide spending is expected to be led by increased expenditures internationally (up 11%), in addition to solid growth in North America (up 8% year/year)," said the analysts. "This compares to international spending growth of 20% in 2011, and spending increases in North America of 31%. We believe the majority of companies have taken a conservative approach in setting their initial 2012 budgets, and current oil price levels (if sustained) would suggest that there is considerable upside to our current forecasts as we move throughout the year."

By region, E&P capital expenditures (capex) are expected to rise "most meaningfully" in Latin America, Africa, Europe, the Middle East and Russia. However, there is "upside to both our international and North American E&P spending forecasts."

Internationally, the Barclays team said higher spending may result from the resolution of the economic crisis in Europe and a resumption of activity in some North African countries and oilfield service cost inflation. In the United States capex "could be revised higher dependent on the pace of the acceleration of drilling activity in the Gulf of Mexico and as companies gain confidence in the oil price."

The top 20 exploration and production spenders globally account for nearly 57% of total spending in the coming year. Of these E&Ps, all 20 are expected to increase capex during 2012 by an average of 13%.

ExxonMobil Corp., which is the largest natural gas producer in North America, remains on the top of the leader board for 2012 in terms of spending, the survey found. However, PetroChina International Ltd. at No. 2 is "gaining ground."

Chevron Corp, the third leading spender, continues to "aggressively increase its spending," while Brazil's Petroleo Brasilerio, Petrobras, which is No. 4 on the list, could "close the gap in the next several years" and "remains the largest capital spender on oil and gas in the world in 2012."

In 2012 the fifth largest spender is expected to be Mexico's Petroleos Mexicanos (Pemex), followed in order by Royal Dutch Shell plc, Total SA, Malaysia's Petroliam Nasional Berhad (Petronas), Statoil ASA, BP plc, Eni SpA, ConocoPhillips, OAO Gazprom, Angola's Sonangol, China Offshore Oil Co. Ltd. (CNOOC), OAO Lukoil, Petroleos De Venezuela SA, Saudi Aramco, China Petroleum and Chemical Co. (Sinopec) and Rosneft.

Higher oil prices are driving the capex gains, according to Barclays.

"In aggregate, oil and gas companies are basing 2012 capital spending budgets on an average oil price of $87/bbl West Texas Intermediate and $98/bbl Brent. This compares to current WTI and Brent prices of $101 and $110, indicating that oil and gas companies are likely taking a conservative view on oil prices, given the uncertain economic environment."

In a separate report, industry analyst IHS said a "huge surge" in acquisition activity in the United States and Latin America led to a 47% jump in total global upstream capex in 2010 to $558 million.

"This activity represents a record high and healthy rebound after declining more than 20% to $380 billion in 2009," according to the IHS Herold 2011 Global Upstream Performance Review. "The significant increase in capital spending was primarily due to a sevenfold increase in acquisition spending to $125 billion, which is up from nearly $18 billion in 2009. Most of this spending occurred in the U.S. and in South and Central America, which each saw total upstream spending increases of approximately 130% to $195 billion and $91 billion, respectively."

Nicholas D. Cacchione, who directs IHS energy equity research and is the author of the report, noted that the E&Ps "were able to aggressively pursue these investments because they had significant cash flow to invest. Spending and cash flow were closely tied last year, and we expect the same for 2011, with both the E&Ps and Integrated oil companies continuing to invest at healthy levels."

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