With many North American exploration and production (E&P) companies already cutting capital budgets, overall spending could decline by 30% or more should WTI prices remain in the $50 range, according to Barclay’s Global 2015 E&P Spending Outlook.

So far, large-cap budgets are down 15.7% and small- to mid-cap companies 22.7%. Private companies are down about 15%.

Oilfield services likely don’t yet know what to make of 2015, said J. David Anderson, analyst, Barclays, on a Jan. 9 conference call.

“Right now the service companies probably aren’t going to provide a whole lot of guidance in first quarter calls,” he said. “They really don’t know what’s going on right now. They all know they’re staring at a cliff, they just don’t know how far down it is.”

Barclays conducted its survey in December, when respondents said North American budgets would be down about 14%. However, crude prices continued to fall.

“We clearly see some downside here,” Anderson said. He noted that the survey “is a snapshot in December of what companies were thinking in terms of spending.”

North American spending was poised to drop significantly. After rising to $196 billion in 2014 from $179 billion in 2013, a 14% reduction would send spending down by $28 billion. At a 30% cut, spending would fall nearly $59 billion from 2014 levels.

“The cash flow–driven nature of the North American market provides the greatest visibility of upstream spending in any region and 2015 is not a pretty sight,” Anderson said in the report.

Barclays predicts North America will be hit hardest during the downturn. Most E&P executives surveyed in December didn’t have much confidence basing financial projections on oil prices stabilizing in the $60 to $70 range.

“Consequently, oil prices have fallen further and announced E&P budgets have gotten progressively worse, highlighted by Continental Resources announcing a 42% cut in 2015 spending” compared to their initial 2015 budget.

Services

Since E&P spending is almost entirely driven by cash flow, North American spending could easily take another leg down in the coming months as companies report year-end results, Anderson said.

“In the meantime, we’ve already seen some early signs of the slowdown with 118 rigs dropped over the past six weeks and many operators citing rapid pricing discounts for rigs and pressure pumping as service companies try to lock in utilization wherever possible,” he said.

Baker Hughes (NYSE: BHI) said Jan. 9 average U.S. onshore rig count for the fourth quarter of 2014 was 1,856 rigs, up 14 rigs or 1% from the third quarter of 2014. On average, the U.S. onshore drilling efficiencies dropped slightly to 5.14 wells per rig, due primarily to slower drilling rates in the Eagle Ford, Marcellus and Haynesville basins for the quarter.

By total onshore rigs, BHI counted 1,805 in the fourth quarter of 2014 compared to 1,697 in the fourth quarter of 2013.

The full weight of the slowdown is likely to hit in the first quarter of 2015 and bottom out by the fourth with 500 fewer rigs in operation, Anderson said.

Service costs could fall as much as 20%, but supply companies likely won’t make changes in 2015, he said.

In December, E&Ps' expected service costs were expected to fall at least 10%, the survey found. About 40% of North American E&Ps expected drilling and completion costs to make a reversal from 2014, when 35% of E&Ps said costs increased more than 10%.

Drilling fluids, pressure pumping and directional drilling were expected to loosen the most, with proppants remaining tight.

“Quite frankly we need to start seeing a supply response, not just in production but also in services,” Anderson said. “We won’t see a response in 2015. But our expectation is that in 2016 you will see that.”

Due to the lower spending, Barclays rates oilfield services as Neutral.

“With consensus earnings estimates still far too high for the group and limited valuation upside on DCF, we are cautious on the industry until we see upside to 2016 estimates,” Barclays found.

Overseas

Internationally, spending is set to fall by 6.7% as defiant national oil companies refuse to cut back. Saudi Aramco, for instance, will cut spending just 1%.

The pain threshold for OPEC members varies, with member countries such as Venezuela likely to be in agony at prices below $70 per barrel (bbl). Venezuela’s breakeven price for crude is $121/bbl.

However, cartel leader Saudi Arabia is willing to bleed cash. Its fiscal breakeven point for crude is about 100/bbl but with $750 billion in cash reserves it can weather weaker oil prices for years. Kuwait, at $54/bbl, and the United Arab Emirates (Abu Dhabi), at $77/bbl, are also well-positioned.

For a further look at international spending, see Middle East Appears To Be ‘Lone Source Of International Strength.’