North America-focused E&Ps and the major international oil companies have further slashed capex budgets for this year, according to the midyear Cowen & Co. E&P Spending Survey.

The analysis showed global expenditures are expected to fall by 24% compared with the 16% estimated when Cowen conducted its January review. Latin America and Asia Pacific join North America as areas targeted for the most significant budget cuts.

“Following a decline of 24% in 2015 and 24% in 2016, global spending will have fallen 45% from the 2014 peak,” the Cowen analysts said. “Since the beginning of this survey, no other two-year period has experienced such severe decline.”

E&Ps have nearly doubled spending reductions, from 22% in January for U.S. spending to 43% at midyear. The outlooks are based on oil and natural gas prices of $40 per barrel (bbl) and $2.50 per million British thermal units (MMBtu), compared with $48.50/bbl and $2.50/MMBtu at the beginning of the year. Canada spending has fallen 33% in the new projections against a prior estimate of 18%.

International spending is relatively stable in the face of lower commodity prices. Companies forecast a decline of 19% at midyear compared with 14% in January.

E&Ps hoping for a healthier 2017 will find some support in the midyear tally’s capex numbers.

Assuming oil and natural gas futures prices of about $50/bbl and $3/MMBtu, respectively, next year, North America is positioned for a healthy recovery, according to Cowen analysts, as E&Ps respond to improved cash flows.

About 45% of the North America-focused companies surveyed said their 2017 spending would rise by more than 15% under that price scenario. Futures prices are continuing to reflect a positive slope, the analysts noted.

The international scene is less positive. “After factoring in a full year of price concessions implemented in 2016, spending could be down slightly in 2017,” the analysts, led by Marc Bianchi, said.

The Cowen survey polled E&Ps on additional aspects of their business plans: how behavior would change under different commodity scenarios; their expectations about cost inflations and continued efficiency gains; and their thoughts on technology and completion design.

On commodity scenarios, E&Ps indicated that at $50/bbl, 40% would step up drilling this year; at $55/bbl, more than 70% would increase activity.

“This is consistent with views of Cowen’s E&P analyst Charles Robertson, who sees $50/bbl altering spending views from survival to stability, with prices above $55/bbl required to begin growing U.S. onshore production,” the analysts noted.

Since WTI crossed above $45/bbl at the end of April, the rig count has increased by 54 rigs, bottoming at 366 in early May. Leading the initial rig additions are small public and private E&Ps, with private E&Ps adding 34, small public E&Ps adding another seven and large companies calling up 13. Mid-size E&P and the majors have kept their activity flat.

Regarding cost inflation and efficiency, three-quarters of the companies said they think they can at least double drilling levels before encountering higher costs. They view completions as the area where costs will rise first, and they expect to be able to maintain their drilling efficiency gains. Nearly half said they would increase completion intensity at higher prices.

Overall, the survey suggests the bottom has been reached. “Survey responses continue to support our view that the price recovery will be slow to materialize, but when it does, completion-oriented service will be the area to respond first,” the analysts said.

“Contrary to some expectations, E&Ps do not expect a reduction in drilling efficiency as activity increases. In fact, a number of respondents suggested efficiency would continue to improve, which could create an overhang on demand for land rigs.”

In the offshore arena, activity won’t expand much until prices stick in the $55/bbl to $65/bbl range. Most of the companies indicated they plan to restart exploration activity in 2018.

Susan Klann can be reached at sklann@hartenergy.com.