Barclays: 2018 global spending growth trending in low single-digits

Aug. 30, 2017
Global capital spending in 2018 will increase a modest 4%, down from 2017 growth of 8%, according to preliminary results of Barclays’ midyear global spending survey of more than 200 companies.

Global capital spending in 2018 will increase a modest 4%, down from 2017 growth of 8%, according to preliminary results of Barclays’ midyear global spending survey of more than 200 companies.

Spending for this year was revised slightly lower to an 8% increase vs. March estimate of 9%, driven entirely on the back of a strong North America recovery (31% year-over-year) while international spending growth remains relatively flat at 2%.

In 2018, international markets are expected to keep moving sideways, while North America growth will be more muted at 10-15%, based on preliminary estimates.

Also, Barclays said, “We expect 2018 to look similar with modest growth from national oil companies (NOC) and declines from international oil companies (IOC) resulting in another year of low single-digit growth,” Barclays said.

North American spending

North America spending is now expected to increase 31% in 2017, in-line with a 32% estimate in March and better than the 27% estimate in January, reflecting robust activity and pricing increases on US land (up 55%).

However, with E&Ps approaching 2018 with great caution given the uncertain macro, onshore US E&P spending should be in the range of 15-20% growth in 2018, based on preliminary estimates.

This assumes oil prices stabilize in the $50-55/bbl (WTI) range on average next year and E&Ps spend in-line with cash flows, with even further upside if E&Ps outspend cash flow in line with higher historical levels.

International spending

International spending growth is now trimmed to 2% in 2017, down from 3% estimated in March. This growth reflects a 5% increase in spending from NOCs and modest declines from European IOCs, US IOCs, and international E&Ps.

Regionally, growth is being driven by Asia (17%), Russia/FSU (4%) and the Middle East (1%) and by the Chinese NOCs (PetroChina, CNOOC, Sinopec) in particular.

International spending in 2018 will grow at low-single digits again based on Barclays’ preliminary estimates as IOCs’ continue to focus on dividends, capital preservation and balance sheet strength. Our 2018 estimate assumes a 0-5% increase in spending from NOCs offset by modest declines from both European and US IOCs.

Offshore spending

Offshore spending is now expected to decline about 20% in 2017, and 2018 will trend down another 10-15%, according to the survey.

“While companies don’t break out offshore spend (which we believe makes up about 20% of total E&P spend in 2017), we expect a 20% decline in offshore spend in 2017, driven by lower day rates, above-market day rates coming off contract, and a shift from deepwater developments to shorter-cycle tie-backs and step outs,” Barclays said.

With 2018 expected to be another down year, Barclays believe three things need to take place for 2019 to mark the first increase in year-over-year offshore spending since 2014: Stable oil prices in the $60s; accelerating decline rates for IOCs’ existing portfolios; and, accelerating oil field service cost inflation in US land that makes the return profile of deepwater projects preferable to shorter-cycle opportunities.