Comments: Upstream Spending Optimism
- John Donnelly (JPT Editor)
- Document ID
- Society of Petroleum Engineers
- Journal of Petroleum Technology
- Publication Date
- August 2010
- Document Type
- Journal Paper
- 14 - 14
- 2010. Society of Petroleum Engineers
- 1 in the last 30 days
- 31 since 2007
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More than halfway through the year, signs point to a continued steady recovery in the upstream oil and gas sector. Several new surveys show that companies are increasing E&P spending this year, in spite of a shaky global economic situation and reduced drilling in the US Gulf of Mexico because of the Deepwater Horizon accident.
This month’s Guest Editorial lays out the case for increased merger and acquisition (M&A) activity, based on economic optimism, which may continue for the rest of this year and into the next. The rise in shale gas appears to be the major source of momentum in M&A as large operators seek a stake in the game-changing unconventional play and oil reserves become more valuable in a potentially gas-saturated market.
Two major E&P spending surveys released recently forecast growth in E&P spending. The IHS Herold 2010 Global Upstream Capital Spending Report and Barclays Capital Original E&P Spending Survey both see significant rises in upstream capital spending this year. IHS Herold forecasts that E&P spending, excluding acquisitions, will increase 8% to USD 353 billion in 2010 compared to last year. The survey queried 110 of the largest publicly traded oil and gas companies.
This year’s rise compares to a 22% decline in upstream spending in 2009, when the global recession and tight credit markets forced companies to cut back. Smaller E&P companies in particular are benefiting from easier credit. The survey also confirmed that many companies are shifting their E&P focus away from gas to oil as oil prices continue to stay above USD 70/bbl. The survey predicts that because of the growing uncertainty over regulation caused by the Deepwater Horizon accident, some E&P spending will flow to onshore US activity or leave the US altogether.
Barclay’s spending report—a survey of 427 companies—forecasts that global E&P expenditure will rise 12% this year, with North American upstream spending rising faster than expected. US spending is increasing because of higher oil price expectations, the success of shale plays, and drilling to hold leases, but the threat of a deepwater drilling moratorium in the US Gulf of Mexico will lead to some spending reductions.
The report notes a decline in spending among Latin America companies. Venezuelan national oil company PDVSA has reduced its E&P spending by 25%, while spending by Mexico state energy firm Pemex has fallen 18% this year, according to the survey. Spending in Europe, the Middle East, and Africa is up slightly from a December 2009 survey forecast.
More than half of the companies surveyed expect upstream spending to continue to grow into next year. The survey says that 37% of the companies said they expect their spending will increase 20% or more, while 16% said they expected to increase spending by 10 to 20%.
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