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Dahlman Rose: Non-US E&P spending stronger than previously expected

Global capital expenditures for exploration and production in 2012 will rise by 11% to $595 billion, according to the midyear spending update to the Dahlman Rose Original E&P Spending Survey.

The new results, for which 463 companies were surveyed, indicate moderate increases in the US and Canada and a solid gain in E&P spending elsewhere.

Despite the reduction in planned capital budgets by some independent producers due to the sharp drop in natural gas prices, companies surveyed still expect to increase spending in the US by 9.6% to $142.7 billion. This compares with an 11% increase in spending these companies indicated in the yearend 2011 survey.

However, companies reported that their budgets were based on higher-than-current oil prices.

The report’s authors caution that current prices are near levels where a large number of companies would cut back on their E&P spending. While budgets are based on an average West Texas Intermediate price of close to $90/bbl, a meaningful percentage of companies would cut spending at $75-80/bbl. Similarly, US natural gas prices for Henry Hub are slightly below levels budgeted, the report said.

The survey, led by Dahlman Rose managing director James Crandell, found that spending in the US is expected to get a boost from the supermajors and large, oil-weighted independent E&P companies. Canadian E&P spending is forecast to increase by 6% to $46.2 billion compared with the original estimate of 5% growth.

The forecast for a 12% increase in E&P budgets outside the US and Canada is above the 9.3% increase in spending that the survey indicated 6 months ago. This boost is driven largely by increased spending among Asian and European companies and by North American independents. This would represent the third straight year of growth in such spending and the largest year-over-year growth since the recovery began in 2010, according to the report.

In Latin America spending will climb by 9% this year, up from the previously expected 5%, led by Petroleo Brasileiro SA (Petrobras), Petroleos Mexicanos (Pemex), and Petroleos de Venezuela SA (PDVSA). Spending in the Middle East will also climb by 9% from a year ago, the survey found, led by strong increases by Kuwait Oil Co.

E&P spending in Africa will rise by 10% this year, led by the Nigerian National Petroleum Corp. and Angola's state-owned Sonangol. Gazprom will reduce upstream spending by 33%, according to Dahlman Rose estimates, but increases by other Russian companies will put spending in that country slightly higher than during 2011.

Due primarily to underspending by European companies in 2011, the analysts forecast 17% growth in E&P spending in Europe in 2012. Upstream spending in Asia-Pacific and Australia is expected to be the strongest of all the regions for 2012, with a forecast of 19% growth.

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