Exploration and production (E&P) companies are in the early stages of a “multi-year, double-digit growth spending upcycle” around the globe that is characterized by increased drilling in complex geologies on land, as well as deepwater development, according to a new survey by Barclays Capital analysts.

In their Global 2012 E&P Spending Outlook, Barclays analysts used information from publicly traded explorers to determine who was spending money and where it would be spent. The “most important determinant” will be oil prices (54%), followed by natural gas prices (47%) and cash flow (46%). “We believe the shift in key determinants to oil prices is linked, in part, to the change in the North American market,” said analyst James C. West and his team.

Last week several big U.S.-based producers unveiled their global E&P spending plans (see related story).

West shared some of his insight from the survey during a conference call last week.

Based on the survey responses, Barclays is expecting “cash flow to remain an important key determinant of spending,” he said. “While oil prices may fluctuate, we believe companies will continue to drill as long as it is economic and they have the cash flow to support drilling.”

The survey found that “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.”

Most of the companies surveyed (62%) expect to spend within cash flow next year, while more than one-third (36%) expect to equal spending with cash flow. About one-quarter of those responding see less spending in 2012.

“Although North America has historically been a short-cycle market characterized by volatile swings in activity, the shift toward oil-directed and liquids-rich activity is reducing the cyclicality in the region and will result in more consistent and growing spending levels. Long-term and across cycles, we expect spending growth in North America to remain in the high single digits through 2015,” said West.

North America’s independents are expected to increase their spending by about 3% year/year “given the ongoing oil renaissance and improving outlook in the Gulf of Mexico,” said West.

Overall, spending by international E&Ps in 2012 is likely to hit record levels.

“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 Barclays survey. “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.

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.”

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