E&P spending to rise 7.3pc in 2017: Barclays
Seoul, 10 January (Argus) — Global upstream spending will rise an estimated 7.3pc this year after two straight years of double-digit percentage declines, led by North American independents reacting to a stronger outlook for oil and natural gas prices, according to a survey of producers by investment bank Barclays.
Upstream capital investments worldwide will climb to $404.6bn in 2017 from last year's estimated $377.1bn, Barclays said today. Spending crashed along with oil markets the past two years — by 26pc in 2015 and by about 23pc in 2016 among the Barclays survey respondents.
This year's anticipated turnaround will be most dramatic in North America, where spending is expected to swing from a 38pc drop in 2016 to a 27pc increase this year. Spending in the region will climb to an estimated $98.3bn, driven by a 58pc surge among large-cap North American independents. Large-cap independents will actually overtake the US majors in capital expenditures (capex) in the region, at $35.4bn, as the independent oil companies leave their North American spending little changed at $33bn.
Upstream producers are emboldened by improving cash flows after Opec essentially put a floor on crude prices last year and helped spur a partial market recovery. Producers see crude prices averaging around $55/bl for Brent and $50/bl for WTI this year, up from $45/bl and $44/bl in 2016, Barclays said.
Barclays forecast an average crude price of $57/bl this year and the high $70s and $80s in 2018 and 2019, respectively.
The 215 oil and gas producers in the survey also are increasingly optimistic. The current estimate of a 7.3pc capex increase in 2017 compares with a 5pc projection for the new year when Barclays published its last survey report in September.
North American spending, in particular, is driven by cash flows. Large-cap independents spent 118pc of cash flow in 2016 and are predicted to invest 105pc this year, so further upticks in oil prices would likely lead to upward revisions to capex budgets, the bank said.
Onshore oilfield-services costs are predicted to rise as drilling activity increases, but the offshore segment is expected to continue to slump. Offshore spending will drop 20-25pc this year after declines of 12pc in 2015 and 34pc in 2016, the survey showed.
BP last month sanctioned its $9bn Mad Dog 2 project in the US Gulf of Mexico, and this week awarded a $1.3bn contract for South Korea's Samsung Heavy Industries to build the floating production unit for the project, but that kind of decision remains the exception rather than the rule. Offshore capex this year is predicted to slide to $53.5bn, down from $121bn in 2014. Spending offshore will be at less than half of peak levels in most regions, including North America, Africa, Europe and Asia-Pacific.
By region, upstream capex is predicted to rise everywhere this year, mostly in single-digit percentages, except in Europe. The survey showed that spending in Europe will fall an estimated 6.1pc to $20.4bn. Outside North America, the biggest projected increase will be in Asia-Pacific, Australia and India, where capex will climb 13pc to $70.3bn.
State oil companies and independents will drive the international capex gains. US and European majors are seen reducing their overseas upstream spending by 15pc and 7.2pc, respectively.
US gas drilling is recovering after a jump in prices last year, but possible delays in pipeline projects may stall activity gains, Barclays said. The bank sees the US onshore oil and gas rig count rising to 730 this year from 483 in 2016.
Opec will likely be supportive of stronger crude prices, as Barclays predicts a "relatively high level of compliance" with reduced production quotas. The bank sees production falling by 700,000 b/d in the current quarter from fourth-quarter 2016 levels, and edging down an additional 2,000-3,000 b/d in the April-June period.