Dahlman Rose & Co.’s July 2012 survey of E&P capital expenditures is projecting an 11% annual global increase to $595 billion by year’s end. The survey, which includes responses from 463 oil and gas companies worldwide, forecasts a solid gain in international E&P spending and a moderate improvement in the United States and Canada.

“Our forecast for a 12% increase in international E&P budgets is above the 9.3% increase in international spending that our survey indicated six months ago,” says James Crandell, managing director of Dahlman Rose Research, adding that the 2012 spending increase is largely driven by Asia-Pacific and European companies and by North American independents. “This would represent the third straight year of growth in international spending and the largest year-over-year growth since the recovery began in 2010.”

In North America, despite a planned reduction in capital budgets by several small-to-midsized independents brought on by low natural gas prices, “companies we surveyed still expect to increase spending within the U.S. by 9.6%, compared with an 11% increase in spending that these companies indicated in our year-end 2011 survey,” Crandell said.

The survey noted that spending in the U.S. is expected to receive a boost from the supermajors and large, oil-weighted independent E&P companies. Canadian E&P spending is expected to grow by 6% in 2011, compared with Dahlman Rose’s original estimate of 5%.

“We would caution investors that we are near price levels where a significant number of companies could cut back on their E&P spending. While budgets are based on an average oil price (WTI) estimate of close to $90 per barrel, a meaningful percentage of companies would cut back at $75-$80 per barrel. Similarly, U.S. natural gas prices (Henry Hub) are slightly below levels budgeted,” Crandell said.

Dahlman Rose’s semiannual survey contrasted projected year-end E&P spending for 2012 to final numbers for 2011.

($ in millions) 2012 projection 2011 final figure Year-to-year change %
U.S. spending $142,699 $130,165 9.6%
Canadian spending $46,237 $43,591 6.1%
International spending $405,842 $363,754 11.6%
Worldwide spending $594,778 $537,510 1 0.7%

Crandell also breaks down what he sees as trends for the remainder of the year. The survey evaluated various regions around the world and companies that operate within those regions.

Big companies to increase capex: “Our 2012 mid-year update indicates that, while the smallest spenders of E&P dollars have pulled back slightly on planned exploration expenditures, larger independents and integrated companies have actually boosted their spending,” Crandell said. “This supports our observation that spending in the U.S. is being increasingly driven by the large independents and integrated companies as they invest more heavily in unconventional shale plays through large drilling programs and acquisitions. These companies are more able to withstand a downturn in commodity prices, which we think will reduce the volatility of the U.S. E&P spending cycle. As a result, we think the U.S. spending cycle will begin to resemble the longer cycles of international businesses.”

Setting the pace for spending: “Companies that are increasing their 2012 international E&P spending from what we estimated in early 2012 include Apache Corp., Hess Corp., Anadarko Petroleum, Murphy Oil, Occidental Petroleum, Reliance Industries, Enquest, Tullow Oil and Rosneft,” Crandell said. “The companies that are planning strong gains in North American exploration and production spending are ConocoPhillips, Nexen, Total and Apache Corp.” Crandell notes that Arc Resources, Bonavista Energy, Talisman Energy and Bankers Petroleum are cutting back on E&P costs.

Tremendous growth in Asia-Pacific and Australia: “Spending in the Asia-Pacific and Australia region is expected to be the strongest of all the regions for 2012, with a forecast 19% growth in E&P expenditures. Strong gains are expected from Sinopec, PTTEP and Santos. Woodside is expected to reduce exploration and production expenditures year-over-year.”

Great expectations in Europe: “Due primarily to underspending by European companies in 2011, we forecast a 17% growth in E&P spending in 2012. Spending growth is led by Statoil, Repsol YPF, Enquest, Premier Oil and Tullow Oil.”

Moderate spending increase in Canada: “The growth in Canada is forecast to be modest, with the largest and smallest companies boosting expenditures while medium-sized spenders pull back moderately.”

Some growth in Latin America: “We continue to expect Latin American companies to experience single-digit growth in their E&P spending in 2012, led by Petrobras, PEMEX and PDVSA.”

Recovery in the Middle East: “We expect 2012 E&P spending in the Middle East to increase over 2011 by 9%. The gains should be led by strong increases by the Kuwait Oil Co. (KOC), with more moderate increases by Saudi Aramco and Qatar Petroleum. Spending at the Abu Dhabi National Oil Co. is expected to decline.”

Nigeria and Angola boost expenditures: “E&P spending in Africa is expected to rise 10% in 2012, led by the Nigerian National Petroleum Corp. and Angola's state-owned oil company, Sonangol. The gains in spending should be smaller, however, than what we had been anticipating due to Algeria being slow and Libya remaining dormant.”

A mixed bag in Russia: “Gazprom is set to reduce E&P spending by 33%, according to our estimates. Increases by other Russian oil companies will leave spending in the region as a whole slightly higher year-over-year.”