Cowen and Co.’s recent survey results indicate that in the new year, exploration and production (E&P) companies' spending should decline about 15% globally, driven by weakness everywhere but the Middle East.

Only 5% of U.S. companies, out of the 476 companies surveyed in the Original E&P Spending Survey, judged “the economics of exploration to be good or excellent, down from 58% a year ago.”

Oil is now at about $50 per barrel (bbl), down from the $70/bbl estimate when “certain companies” put together their original E&P budgets for 2015, the firm added. Oil prices and cash flow are these budgets’ main drivers, Cowen said, noting that in 2014 fewer budgets dedicated as much cash to exploration. Sixty-seven percent lowered the amount, while only 9% enlarged it. This year, “an even smaller” 5% will spend more money from their budgets on exploration, the firm said.

The survey also indicates that E&Ps overspent relative to their cash flows last year. In 2014, “nearly twice as many” companies surveyed overspent their original global E&P budgets, especially in the U.S. This year, amid much lower oil prices, the overspending should stop.

Spending and penny-pinching patterns were broken down in the survey by region. In North America, capex is expected to fall 22% to 24%, and Europe’s estimate is comparable at 23%. Russia’s capex is expected to fall perhaps by 15% or 33%, Cowen added. Finally, Asian capex should fall “moderately, and the Middle East will by all indications be the region beginning the year with “relative strength” financially.

At home

A total of 186 U.S. companies were surveyed. In the U.S., capex was estimated to stand at about $119 billion. The hardest-hit area in U.S. operations will be vertical drilling, Cowen added.

Asked which domestic plays would be targeted for the most substantial cutbacks, domestic companies marked the Williston/Bakken, Permian Basin and Eagle Ford Shale. These, the largest plays, will face decreased spending, but their cores remain “attractive” to domestic E&Ps at $60/bbl to $70/bbl or even $50/bbl to $60/bbl, respondents indicated. Horizontal drilling’s dominance and the economic work in some of these plays’ cores will drive the operations there this year, the firm added.

Looking outward, U.S. companies working abroad that were surveyed, such as Anadarko Petroleum Corp. (NYSE: APC), Occidental Petroleum Corp. (NYSE: OXY), Apache Corp. (NYSE: APA) and Murphy Oil Corp. (NYSE: MUR), might cut capex for those operations by 23%. Anadarko had a 50% difference between its $800 million 2014 estimated international E&P budget and its $400 million 2015 estimated international E&P budget, the survey revealed.

Wider geography

Asked where they would spend less this year (excluding North America), Latin America topped companies’ lists and the North Sea followed closely behind with 14% and 11% of respondents, respectively. “We see Latin America E&P budgets declining significantly in 2015,” Cowen said, noting that Venezuela and its state-run Petroleos de Venezuela SA are projected to “be down significantly.”

Also, the 110 Canadian companies surveyed estimated a decline of 24% in their E&P spending.

How does it compare?

Cowen and Co. analyzed this price drop relative to the one in 2009, when oil fell below $40/bbl. It had gone from $140/bbl in “mid-2008 to under $40 per barrel (Brent) at year-end.”

Today’s cycle has also seen a fall below $50/bbl in a three- to four-month time span, but “what appears different is that the Saudis and their Persian Gulf allies were willing to make a substantial cut in production in the 2009 downcycle and prices doubled in the ensuing 12 months,” the firm added. Not so now. “The willingness of these countries or of OPEC overall to cut production does not seem to exist in this cycle.”

In the U.S., if spending dropped at a rate less than the predicted 22%, rig counts could fall by 550 from fourth-quarter 2014’s average, Cowen said, but noted that during this downturn completions should fare better than drilling.

International majors’ spending overall will decline much more sharply in this current downcycle, because, compared with 2009, many of them had been ramping up spending in that year with few cutbacks. At this time, many are focused on returns to shareholders and less on production growth, Cowen added.

Cowen and Co. even noted that in the U.S., “there could be less of a downturn than in 2009” thanks to the prevalence of horizontal drilling.

Predictions for the current cycle aside, Cowen emphasized its ongoing “lack of conviction that oil prices have bottomed” but is keeping its “cautious stance.”

“Should prices remain where they are now … companies will plan on prices somewhere around" $60/bbl looking toward the next bend in this downturn. If this price is reached, budgets would be further slashed, Cowen added. Nothing but a “sharp turnaround” in oil prices, and WTI of “at least” $80/bbl, would make them increase capex.

This was the largest-ever Original E&P Spending Survey since its introduction in 1982 by analyst James Crandell.