Sustained growth in spending on exploration and production across the globe will focus on plays outside North America, a survey from a global bank concludes, despite the country’s growing profile and its potential to become the top global crude producer in coming decades.

Global exploration-and-production spending is poised to reach a record $644 billion by the end of 2013, a semi-annual Barclays analysis predicts. The spending report also foresees strong oil prices, which have emerged as the principal bellwether for growth in E&P budgets.

The predictions in the report are based on questionnaire responses from 300 companies, most of which elaborated on their plans in one-on-one discussions with the firm.

The spending forecast for 2013 reflects an early stage of what the firm foresees as sustained growth in global E&P spending, with next year’s increase projected to be $40 billion – or a 7% jump over the $604 billion estimated for 2012.

A Breather For the US and Canada

But there won’t be any significant increase in the US and Canada, where E&P spending will be “roughly flat with 2012 levels,” says the Barclays report, pointing out that the ongoing “breather” follows spectacular, North American CAPEX growth during 2010 (27%) and 2011 (31%).

Barclays is predicting that Canada’s 2013 E&P spending will total $44.7 billion – a 0.6% increase over 2012 levels, which were 9.5% below Canadian spending in ’11.

Barclays attributes this year’s Canadian spending decline to poor weather, along with “overspending during the peak activity period in 1Q, continued lower differentials for some plays and weaker oil prices when Canadian E&P companies were evaluating budgets coming out of the spring breakup.”

Breaking Energy recently visited some of the most promising oil fields in Canada. Read more about that trip and see photos from the sites here.

In the US, 2013 spending is expected to total $139.6 billion, or an increase of 0.7% over E&P spending in ’12. Barclays says US activity declined in the fourth quarter because independent operators, which “dominate upstream spending,” had spent as much as 85% of their budgets by the end of September.

Barclays believes that an increase in oil-focused, North American E&P spending by the majors and, increasingly, National Oil Companies (NOCs) will help offset any spending declines among independents in 2013.

However, US companies are facing the threatened repeal of deductions for intangible drilling costs, which would affect 70% of US E&P spending and shrink capital budgets by 10%-to-14%, Barclays estimates.

Although the North American E&P market has historically been “a short-cycle market” with volatile activity swings, “the shift towards oil-directed and liquids-rich activity has significantly reduced cyclicality in the region and will result in more consistent spending levels,” says the report.

Constraining Factors

Nevertheless, during the upcoming year, North American E&P spending “will be constrained by lower natural gas prices (which have rebounded somewhat), modestly reduced WTI oil prices, volatile differentials in Canada, lower NGL prices, logistical challenges in many newer oil plays, and a desire to spend within cash flow,” the report adds.

Globally, 18 of the top 20 E&P companies are planning an average 12% increase in their CAPEX budgets (with only Gazprom declining and Eni staying flat). The principal driver for greater E&P by the majors and supermajors will be strength in crude oil prices, particularly the Brent price – which has averaged $112 per barrel so far this year.

Barclays predicts that the Brent price will hover around $125 in 2013 (although the survey respondents are predicting $98). The firm also notes that its survey determined that “oil prices are now the overwhelming determinant of E&P spending, with over 70% of respondents claiming that the price of oil will be a key factor in their 2013 budget plans.”

Here is a sample of the E&P plans beyond North America:

  • In Brazil, Petrobras “will likely remain the largest upstream spender in Latin America in 2013,” although “questions have emerged recently over the extent of Petrobras’s deepwater rig demand.”
  • In Mexico, Pemex is ramping up plans to develop “vast unconventional resources, including deepwater and shale, as well as enhanced recovery processes.”
  • In Venezuela, PDVSA is planning to increase to $16 billion its $2.7 billion worth of 2012 expenditures to develop extra-heavy-crude resources in the Orinoco belt.
  • In Africa, E&P spending is expected to increase by 4.5% to $25 billion, with interest in West Africa and the Gulf of Guinea remaining “high” and exploration success in East Africa remaining strong despite ongoing piracy risks.
  • In Russia, E&P spending is expected to grow 7%, “led by significant increases in E&P activity by Lukoil” – which is expected to increase its expenditures to jump 31% to $12.9 billion.
  • Iraq “remains the largest E&P spending growth story this decade, largely driven by remediation work at brown fields by various IOC’s and NOC’s,” with the upside for its current, $3.75 billion E&P market foreseen as $6-to-$8 billion over the next few years.
  • Saudi Arabia is still adding rigs and “aggressively increasing its shallow-water jackup count as it steps up deep-gas drilling.”
  • In Asia (including India and Australia), overall E&P spending is expected to increase by 11%, “led by a ramp-up in expenditures by PetroChina (expected up 11.5%), Inpex (expected up 27%), Petronas (expected up 7.7%) and Sinopec (expected up 14%).

During his conference call, Barlcays analyst James West mentioned that Saudi Arabia is said to be developing shale gas fields in the northern part of the country. He told Breaking Energy that “no one is talking about it in any detail,” but added that the Saudis are definitely exploring the potential for exploiting the resource.

The China Play

Regarding China’s shale-gas initiative, West told Breaking Energy that, during the third quarter, “China declared shale gas to be a mineral – not a hydrocarbon – which opened up that play to many more companies because, to exploit hydrocarbons, you have to be a Chinese company. Their declaration could cause an explosion in shale gas activity similar to what we’ve seen in North America.

“So,” West continued, “China recently held some licensing rounds, and Schlumberger has taken a stake in a company called Anton [Oil Field Services] – a Chinese company they’ve partnered with in the past. Halliburton is also vetting potential joint partners, and Baker Hughes has been canvassing China in search of a partner, as well.”

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