LONDON: Global energy exploration and production (E&P) spending will reach the record high level of $598 billion in 2012 helped by high oil prices, Barclays Capital said on Monday, with the potential for more spending if higher oil prices are sustained.
The level is an increase of 10 percent from $544 billion this year, analysts with BarCap, led by James West in New York, said in an equity research note.
"The acceleration in worldwide spending is expected to be led by increased expenditures internationally (up 11 percent), in addition to solid growth in North America (up 8 percent year-on-year)," the bank said.
But the bank noted: "This compares to international spending growth of 20 percent in 2011, and spending increases in North America of 31 percent." E&P spending growth in 2012 is mainly being driven by that in emerging markets.
Barclays said that if oil prices were sustained at the current level, there could be "considerable upside" to their forecast.
By 1054 GMT, North Sea Brent crude futures were trading at $110.80 a barrel and US light crude at $101.69 a barrel.
E&P spending is expected to rise most meaningfully in Latin America, Africa, Europe, the Middle East and Russia, BarCap said. Capex on E&P is seen rising 21 percent in Latin America, 14 percent in Africa and 42 percent in the former Soviet Union and CIS countries.
In Latin America, BarCap highlighted a "significant step up in activity" by state-run oil firm PEMEX in Mexico, an aggressive capital program for Ecopetrol in Colombia, and Brazilian Petrobras’ continued deployment of capital in support of its pre-salt development plan.
Spending in Africa is projected to rise next year as civil unrest and political disruptions in North Africa and other areas abate, and the supermajors begin work on large projects and new discoveries in East and West Africa, BarCap said.
Higher oil prices are driving this spending, but companies’ conservative estimates leave the door open for more. BarCap said oil and gas companies were basing their 2012 capex budgets on an average oil price of $87 a barrel for US crude and $98 a barrel for Brent.
"We believe the majority of companies have taken a conservative approach in setting their initial 2012 budgets, and current oil prices levels (if sustained) would suggest that there is considerable upside to our current forecasts as we move throughout the year," said BarCap.
As a result of this pick up in spending, BarCap sees oil service, equipment and drilling companies significantly outperforming the broader equity market over the next few years.
It particularly favours the large-cap diversified companies such as Schlumberger, Baker Hughes, Halliburton and Weatherford, as well as capital equipment companies Cameron and National Oilwell Varco.
BarCap surveyed some 350 oil and gas companies globally about their spending intentions for the coming year.
