U.S. exploration and production (E&P) companies that have taken a shine to the oily shale plays are boosting their capital expenditures (capex) in 2011, while the gas-focused shale operators are reining in the spending, according to a survey by Barclays Capital.
The Original E&P Spending Survey, published on Wednesday, is a semiannual report initiated by analyst Jim Crandell that attempts to measure E&P spending around the world. In the latest report 402 E&Ps were surveyed, including 210 in the United States and 126 in Canada.
Global E&P capex overall is forecast to jump by 11% year/year to $490 billion from $442 billion. U.S. explorers overall are expected to increase capex by 8.1% to $93.6 billion, while Canadian producers plan to raise their upstream spending by 4.8%.
However, the increased funding is earmarked for oily plays, not gas, the survey found.
"Growth in spending in the U.S. during 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 Crandell and his team. "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...
"The vast majority of the incremental spending is expected to be directed toward conventional oil plays, liquid-rich reservoirs and oil shales."
Traditional dry gas drilling -- particularly outside of shales -- is forecast to decline.
"We believe the 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," the report stated.
Of the 210 companies planning to explore in the United States that were surveyed, the largest capex increases in 2011 are expected from companies that spend less than $50 million, which is 63% more than in 2010.
"However, these companies (107 in total) only represent 2% of total 2011 estimated spending," said 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%."
The 28 companies surveyed with $1 billion-plus capex budgets "represent roughly 71% of 2011 forecast U.S. E&P spending."
The capex budget plans are mixed for the North American producers, according to the survey.
Companies with U.S. capex budgets of $1 billion-plus, and which plan to hike budgets year/year, included producers whose budgets are increased to focus on oil and liquids shale output in 2011: 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%).
The gas-directed shale producers, meanwhile, are slashing or keeping capex flat in 2011: 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., which spent about $4.9 billion this year for its upstream operations, plans to keep spending flat.
Canadian E&P spending in 2011 is expected to increase "only modestly" from 2010 levels "primarily due to lower natural gas prices and reduced vertical, dry gas drilling, offset by increased drilling-related extraction of hydrocarbons from oil sands and shales."
Like the United States, "the smallest of the companies are planning the largest increases," the survey found.