With visions of high oil prices dancing like sugarplums in their heads, oil and gas operators plan a 10% increase to a record $598 billion in 2012 global upstream spending. This is according to Barclays Capital’s annual oil and gas upstream spending survey.

The forecast marks the second consecutive double-digit increase in global spending, as improving crude oil prices give oil and gas operators a target-rich investment environment in spite of ongoing geopolitical and macroeconomic uncertainty.

Barclays polls 350 oil and gas companies each November for their capital investment plans for the coming year. This year, the investment-banking firm suggests its bullish survey findings likely understate 2012 spending.

“We believe the majority of companies have taken a conservative approach in setting their initial 2012 budgets and current oil price levels (if sustained) would suggest that there is considerable upside to our current forecasts as we move through the year,” the firm notes in an accompanying spending report.

Operators are basing 2012 capital spending on expectations that crude oil prices will average $87 for West Texas Intermediate (WTI) and $98 for Brent. Furthermore , six of 10 companies say they would increase spending if WTI averaged $100 per barrel or higher in 2012. WTI closed at $100.99 on December 5, 2011.

Higher oil prices have also influenced a conceptual shift to liquids among North American operators, who now list oil prices as the most important factor in determining 2012 capital spending. They previously cited natural gas prices as the No. 1 determinant in 10 of the last 12 spending surveys. By share, 54% of operators placed oil prices at the top of the list for key spending determinants in 2012, followed closely by cash flow at 53%.

“The majority of companies we surveyed (62%) expect to spend within their cash flow during 2012, with 38% projecting expenditures to be equal to cash flow and 25% expecting spending to be less than cash flow,” according to the report.

Of note, two-thirds of respondents would cut spending if WTI averaged $70 in 2012, while 50% would cut spending by 5% or more if WTI averaged $80 for the year.

Oil and gas operators expressed a growing interest in exploration as a greater portion of their 2012 spending. According to the Bar-clays survey, 42% of respondents will increase budgets for exploration in 2012 compared to 38% in 2011 and just 32% in 2010, as the industry recovered from a disastrous 2009.

Those figures are consistent with the E&Ps’ view that the industry has entered a long-term investment upcycle in order to overcome accelerating decline curves, challenges in discovering large reserves, rising consumer demand for energy, tight spare capacity, and an uncertain geopolitical environment.

“This is setting the stage for further growth in spending in 2013 and beyond, and we believe double-digit spending growth is likely for the next several years,” the report’s authors note.

U.S. spending

Operators will boost U.S. spending 9.6% to $122.4 billion in 2012, according to the survey, led partially by large independents such as Apache, Pioneer Natural Resources, Noble Energy, and Williams Cos. that plan a 15% or greater sequential increase in 2012 capex. International oil companies (IOCs) such as BHP-Billiton, Statoil and ENI will increase respective U.S. spending by 35% or more in 2012.

Among the more notable particulars, 35 companies plan to spend more than $1 billion each in the U.S. in 2012. The figure marks a 10% increase versus 2011 in aggregate spending, which will rise to $96.3 billion in 2012 for the group.

Another 53 companies will spend between $100 million and $1 billion for an aggregate 6.4% increase to $23.7 billion.

The Permian Basin leads all U.S. regions, with operators planning a 20% increase in 2012 capital spending there, followed by the Midcontinent (+18%), the Bakken (+11%) and the Marcellus (+7%). Offshore projects are beginning to expand in the post-Macondo Gulf of Mexico as operators meet new equipment-safety requirements and the federal government works through permitting backlogs.

However, natural gas continues to fade down the stretch. Roughly half of respondents to the Bar-clays survey would cut spending at average 2012 gas prices of $3.50 per million Btu (MMBtu), while only 27% would increase capital spending if gas prices averaged $4.50 per MMBtu. Some 70% of operators would boost 2012 capital spending at average gas prices of $5 MMBtu or higher.

International spending

Operators plan a 10.6% increase to $438.8 billion in 2012 as confidence rises in the economics of non-North American oil and gas. More than two-thirds (68%) of survey respondents view international exploration economics as either excellent or good, up from 61% in 2011 and just 55% in 2009.

Operators plan a 21% increase in Latin American E&P spending in 2012 through a combination of unfolding activity offshore Brazil, new shale discoveries in Argentina, and growing capital intensity in Venezuela and Mexico as national oil companies (NOCs) in the latter two seek to offset high decline rates in existing production.

Elsewhere, operators plan a 14% increase in North Africa versus 2011, led in part by a return to normalcy following recent political disruptions. Additionally, new discoveries in East and West Africa, along with recent success in the North Sea, have increased the industry’s appetite for global exploration for oil and gas.

Saudi Arabia and Iraq will lead spending higher in the Middle East as Saudi Arabia moves its rig count from 104 currently to 118 in 2012, while Iraq exits 2011 at $2 billion in spending on the way to $8 billion over the next half decade, according to Barclays. In fact, Barclays anticipates the Iraqi rig count will grow from 30 units currently to 250 or more in the next half decade. Operators plan to increase Middle East spending by 12% to $24 billion in 2012.

Canadian spending

With just a 3% gain to $37.2 billion projected for 2012, Canadian operators appear to be left out of the general optimism. However, the forecast may reflect an anomaly.

“Many Canadian budgets appear to have been set during the late October/early November time-frame, when oil prices were in the mid-$80 range,” the report notes. “We expect the Canadian market to remain solid and actual spending levels are likely to be roughly in-line with U.S. levels.”