Steven Poruban
Senior Editor
With worldwide capital spending budgets of exploration and production companies expected to rise 11% in 2011 to $490 billion from $442 billion-according to the 402 oil and gas firms surveyed by Barclays Capital-this year will undoubtedly be an exciting one on which to report.
Barclays most recent research note on the topic, "The Original Oil Services & Drilling Monthly: December 2010," released Dec. 23, 2010, stated that the strongest gains in capital spending year-on-year are expected outside North America. Here, spending is expected to rise by 12% to $363 billion vs. $324 billion in 2010.
"The largest part of the increase is due to higher capital spending from the supermajors (up 17%) and select national oil companies," Barclays analysts said, adding, "This is a change from recent years where the NOCs drove spending growth."
Among the selected NOCs expected to show the largest increases internationally are Mexico's Petroleos Mexicanos, Brazil's Petroleo Brasileiro SA, India's Oil & Natural Gas Corp., Indonesia's Pertamina, Malaysia's Petronas, Kuwait's Kuwait Oil Co., Libya's National Oil Corp., and Algeria's Sonatrach.
US E&P spending
E&P spending in the US, meanwhile, is expected to rise by 8.1% to $93.6 billion from $86.6 billion in 2010, Barclays analysts said. "The vast majority of the incremental spending," they said, "is expected to be directed towards conventional oil plays, liquid-rich reservoirs, and oil shales."
They said, "Traditional dry gas drilling (particularly outside of shales) is expected 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." Of the 210 companies surveyed with spending in the US, the largest increases in 2011 are expected from companies that spend less than $50 million, the analysts said, which is up 63% year-on-year.
"However, these companies (107 in total) only represent 2% of total 2011 estimated spending," they said, adding, "As company size grows larger the magnitude of the increase lessens."
The firms spending more than $1 billion have indicated a 5.2% increase in spending in 2011. "These 28 companies represent roughly 71% of 2011 forecast US E&P spending," they said.
Among the larger firms that Barclays analysts estimate will have "significant" E&P budget increases in the US in 2011 vs. 2010 are ConocoPhillips, up 60%; Hess Corp., up 43%; Pioneer Natural Resources Co., up 26%; EOG Resources Inc., up 21%; Noble Energy Inc., up 13%; Plains Exploration & Production Co., up 11%; and Petrohawk Energy Corp., up 7%. All of these firms are expected to spend $1 billion or more in 2011.
Conversely, large firms that are expected to reduce their 2011 US capital spending budgets include Encana Corp., down 21%; Southwestern Energy Co., down 12%; Devon Energy Corp., down 10%; Williams Cos. Inc., down 8%; and Range Resources Corp., down 6%.
Canadian E&P spending
Canadian E&P spending in 2011 is expected to increase only modestly from 2010 levels, Barclays analysts said. In 2011 Canadian E&P capex is slated to rise by 4.8% to $32.6 billion in 2011 from $31.1 billion in 2010, according the 126 companies surveyed.
"We believe this is 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," they said.
In contrast to previous years, the analysts said they expect the US dollar/Canadian dollar exchange rate to have only a "minimal impact," roughly 1%, on next year's spending increase.
"As is the case in the US, the smallest of the companies are planning the largest increases," they said.
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