Cowen: Global, N. American E&P spending fall revised downward

Following Barclays’ downward revisions to its 2016 global and regional exploration and production spending outlook, another investment bank, Cowen & Co., revised lower its E&P spending forecasts last published in January (OGJ Online, Mar. 18, 2016).

In its midyear E&P spending update, Cowen & Co. now estimates global expenditures to fall 24% compared with a 16% decline in its January survey. The downward revisions were primarily driven by larger spending cuts from North America-focused E&Ps and major international oil companies.

In this update, Cowen & Co. expects US spending to decline 45%, reflecting oil prices of $40/bbl and natural gas prices of $2.50/MMbtu. This was down from a 22% estimate at the time of January’s survey, which was based on $48.5/bbl oil and $2.50/MMbtu gas. Canada spending is expected to fall 33% compared with an earlier estimate of an 18% falloff.

Survey of international spending reveals a 19% decline compared with an initial estimate of 14% in January. The Middle East remains an area of stability while the largest negative revisions come from large IOCs, Latin America, and the Asia Pacific region, excluding China. Latin America is still the weakest region, where spending is expected to decline 30%.

IOCs and independents are projected to have spending declines of 24% this year, while other independents are expected to spend 45% less. This compares with prior decline estimates of 10% and 17%, respectively.

Assuming oil and gas future prices of $50/bbl and $3/MMbtu in 2017, Cowen & Co. expects an increase in global spending next year, mainly driven by North America, while international spending will likely remain depressed due to slower recovery in offshore activity and large participants with little change to budgets over the 2015-18 timeframe, namely the Middle East and Russia.