Barclays: Global recovery of upstream spending remains intact

Global recovery of upstream spending remains intact, albeit at a measured pace that isn’t likely to materially tighten many global oil field service and equipment markets, according to the 33rd annual Barclays E&P Spending Survey.

The survey indicates an 8% increase in global spending in 2018, an improvement from a 4% growth seen in 2017, which was preceded by 2 years of double-digit declines. Considering the past two recoveries showed materially higher growth in year 2 (+12% in 2004, +23% in 2011), operators remain cautious on oil prices and judicious with capital.

With a growth rate of 21%, North America is once again driving global growth. (North America spending grew 35% in 2017.) However, Barclays caveats that year over year exit rates will be more muted and renewed calls for exploration and production capital discipline could counterbalance improved cash flows from higher oil prices.

Barclays expect North American large-cap and small-to-midcap E&Ps growth of 30% and 25% respectively, based on $55/bbl West Texas Intermediate (current strip prices) and conservative plowback ratios considering calls for greater capital discipline. US rig count forecast to steadily increase throughout 2018 from 900 to 945 rigs and average 925 rigs, 9% higher than the 2017 average of 850.

According to the survey, international spending will rise 4% in 2018 compared with a 3% decline in 2017, from international oil companies coming back to the market, Latin America holding flat, and steady Middle East growth.

“Spending by national oil companies (NOCs) to be up modestly in 2018 again while IOCs also up mid-single-digits following 15-20% declines each year for the past 3 years (2015-17). By geography, we expect international spending to see either flat or modest growth in every region next year,” Barclays said.

Offshore spending is poised to fall another 14% in 2018. Following estimated declines of 12%, 35%, and 19% in 2015, 2016, and 2017, respectively, Barclays now expects another 14% decline in offshore spending next year, which should mark the final year of declines as the impact of structural cost reductions for offshore projects could lead to a rebound in project sanctioning in 2018 leading to growth in 2019.

Barclays forecasts the contracted floater rig count to bottom sometime in 2018 but to remain roughly at current levels (120 rigs) by yearend.

Meantime, online survey shows about 90% of North American E&Ps expect oil field service costs to increase, primarily in pressure pumping though two-thirds expect only a modest 5-15% increase. Most expect proppant volumes per well to either remain unchanged in 2018 (47% of respondents) or move up 5-20% (41%); Respondents also said they expect to increase their land rig counts next year (45% of respondents) or keep flat (47%).