Survey: Modest Uptick For U.S. E&P Spending In Store After 2013 Declines

U.S. E&P spending will grow by a modest 5.3% in 2014, a mild bounce back from 2013 when spending declined by about 3.2%, said analyst James Crandell in his “The Original E&P Spending Survey.”

“This gain understates the increase we are likely to see in wells drilled in 2014 due to the ongoing increases in rig efficiency,” said Crandell, managing director of Cowen and Co. (NasdaqGS: COWN).

Globally, the 466 companies surveyed estimated an increase of 4% in their global E&P capital expenditures in 2014 compared with an increase of 4.7% in 2013, Crandell said.

Such surveys are often divergent. A recent Barclays Research (NYSE: BCS) E&P spending outlook found U.S. spending would rise 8.5% and 6% globally.

Crandell said that while larger spenders such as Chesapeake Energy Corp. (NYSE: CHK), Encana Corp. (NYSE: ECA) and Hess Corp. (NYSE: HES) are forecast to have declines, independents, especially those with exposure to the Permian Basin and to a lesser extent the Eagle Ford, are planning increases.

Double digit increases are estimated for the companies spending below $100 million, while the largest spenders gain only 4.6%.

E&P spending trends in Canada are similar to those in the U.S., but with smaller gains—1.3%--indicated for 2014. Solid gains from Suncor Energy Inc. (NYSE: SU), Husky Energy Inc. (OTC: HUSKF) and Canadian Natural Resources Ltd. (NYSE: CNQ) were largely offset by declines coming from Apache Corp. (NYSE: APA), Royal Dutch Shell Plc (NYSE: RDS-A), Cenovus Energy Inc. (NYSE: CVE) and Lightstream Resources Ltd. (OTC: LSTMF).

Unlike U.S. operators, smaller companies in the aggregate are not anticipating an increase.

Internationally, E&P spending growth is estimated to be 3.8% in 2014, down from the 8% experienced in 2012 and 2013.

Increases should be driven by the Middle East (+14%), Europe (+14%) and Russia (+9%). International spending by large independents will be flat, while Africa and Asia-Pacific regions will see low single digit increases.

The Middle East is the fastest growing international region. Saudi Aramco and the Kuwait Petroleum Corp. are expected to have the strongest spending growth at 20% each. Abu Dhabi National Oil Co. (+3%) and Qatar Petroleum Co. (flat) are expected to see nominal growth, while both the South and North Oil of Iraq may be slightly lower.

Looking back at the 2000-2008 upcycle, Crandell said it was characterized by four consecutive years of single digit growth in international E&P spending, followed by four years of double digit growth.

“If 2014 plays out as our survey indicates, it would represent the fifth year of an upcycle in international E&P spending,” he said. “However, instead of appearing poised to move into double digit growth as last cycle's gain was, there is little to suggest this will happen in 2014 at the current time. Overall, the rate of growth appears as if it will slow down to less than half.”

Crandell says that’s due to supermajor oil companies spending about $1 billion less in 2014 than 2013. Smaller growth in Asia-Pacific is also expected as large state-owned Chinese companies pull back. And Petrobras (NYSE: PBR), the seventh largest energy company in the world, is likely to experience a second consecutive year of reduced E&P spending.

North American companies as a whole are decreasing spending by about $100 million. But companies fluctuate greatly. Among large spenders, Occidental Petroleum Corp. (NYSE: OXY) is spending $600 million less. Anadarko Petroleum Corp. (NYSE: APC) is increasing its international budget by 80% with an additional $900 million.

The Original E&P Spending Survey is a semi-annual product initiated by Crandell in 1982.