Global exploration and production spending is forecast to rise 11% in 2011 from $442 billion in 2010 to $490 billion. This increase will be driven by spending gains in Latin America, the Middle East/North Africa and Southeast Asia.
According to Wood Mackenzie, the capital spending on upstream activities such as drilling and production will increase substantially in many global regions over the next three years, but it will be minimal in the Gulf of Mexico. It is predicted that upstream spending in the U.S. will climb to around $95 billion in 2013 from a low point of $63 billion in 2009. Even more spectacular growth is expected in Australia (up 190%) and Iraq (up 1,700%).
For the first time in several years, large Western oil companies are leading the industry’s charge, increasing their budgets faster than the state-run national oil companies that have dominated spending in recent years.
The largest producers, a club that includes Exxon, Royal Dutch Shell PLC, Chevron Corp. and BP PLC, are expected to increase spending by 16% to $108.6 billion, according to Barclays Bank. A decade ago, these companies were slow to ramp up spending after an oil-price slump and ended up paying more for drilling rigs and other services. This time, they appear committed to not making the same mistake.
The substantial increase in E&P capital budgets for 2011 is due in part to a number of factors including engineering and construction related spending for several large LNG projects expected to move forward next year (specially in Qatar), increased spending in Iraq (majors oil companies with all their capital power intend to increase daily production to its utmost at 12MM Barrel / day by 2015) and an increase in deep-water activity (South East Asia, GOM, West Africa and Brazil).
Mexico’s PEMEX and Brazilian Energy Company Petrobras are expected to drive E&P spending in Latin America, with PEMEX pursuing onshore and offshore projects and Petrobras significantly expanding its deep water activity with development of the Tupi field (largest field in Brazil 100,000 BOE + 177MMCF).
As the global appetite for energy rises, led by Asian economies, the increased spending for new supplies is being seen as a good sign. In Asia and Australia, the spending outlook for state-owned and international companies is mixed, as Pertamina in Indonesia and PTT Exploration and Production in Thailand are expected to increase E&P spending. Significant spending increases are expected for India’s ONGC, Malaysia’s Petronas and Sinopec in China.
Capital spending budgets outside North America are expected to rise by 12 % in 2011 to $ 363.3 billion (from $324.1 billion in 2010). Meanwhile, U.S. E&P expenditures are forecast to grow 8.1% to $93.6 billion from $86.6 billion in 2010 by 210 companies. Of the 210 companies with spending in the U.S., the largest increases in 2011 are expected from companies that spend under $50 million, up 63% year over year. However, the 107 companies that fall into this category represent on 2% of total 2011 estimated spending.
Companies that spend over $1 billion are expected to increase their capital expenditures next year by 5.2%; these 28 companies represent roughly 71% of 2011 forecast U.S. E&P spending.
Canadian E&P budgets are expected to rise 4.8% to $32.6 billion in 2011 from $31.1 billion in 2010, according to 126 companies in the survey. A survey made by Barclays found that companies are basing their 2011 E&P budgets on average oil prices of approximately $77.32/barrel, up from the $70.16/barrel average oil price used for 2010 budgets in December 2009. Companies used an oil price of $73.56/barrel at mid-year for budgeting purposes.
E&P budgets for 2011 also are reflecting a natural gas price forecast of $4.27/Mcf, 18% lower than the $5.21/MCF price assumption used one year ago and 8% decrease from expectations at mid-year, or $4.65/MCF. The Organization for Petroleum Exporting Countries (OPEC), meeting earlier in December in Ecuador, showed no desire to increase production, a move the group would typically consider if it felt that high oil prices could hinder economic growth. And a recent survey of oil companies indicated an increasing confidence that prices in 2011 will be robust.
Chevron Corporation announced a $26.0 billion capital and exploratory spending program for 2011, out of which a $2.0 billion of expenditures by affiliates that do not require cash outlays by Chevron. Around 85% of the 2011 spending program is for upstream oil and gas exploration and production projects worldwide, while the remaining 15% is associated with the company’s downstream businesses that manufacture, transport and sell gasoline, diesel fuel and other refined products, fuel and lubricant additives, and petrochemicals.
This year, the company allocated $5.6 billion for 2011 capital and exploratory budget; $3.1 billion for production, $1.6 billion for developments and $900 million for exploration. The exploration expenditures include conventional deep water drilling in Egypt, Ghana, Indonesia and Brunei.
Marathon’s 2011 worldwide Exploration and Production (E&P) budget of approximately $3.4 billion reflects an increase of 29% over 2010 capital spending. Marathon’s E&P strategy is based on three key elements: a solid portfolio of base assets, growth assets and impact exploration.
The Company plans to spend approximately $1 billion on its base E&P assets to provide stable production, income and free cash flow. These assets include production operations in the Gulf of Mexico, Norway, U.S. conventional oil plays, Equatorial Guinea and elsewhere. With a continued emphasis on high operational reliability, Marathon will implement a disciplined investment plan and competitive cost structure for its base assets. The increase in spending for base E&P assets, compared to 2010, is primarily due to additional activity on conventional oil assets in Norway and the U.S.
Besides, Approximately $1.9 billion of the capital spending budgets is allocated to E&P growth projects. Of that, nearly $1 billion is concentrated on three key North America liquids-rich resource plays: North Dakota’s Bakken play, the Eagle Ford Shale play in Texas, and the Anadarko Woodford Shale play in Oklahoma.
Marathon plans to spend $465 million selectively investing in a controlled high-impact exploration program. Activity will include conducting seismic surveys and drilling 10 – 15 high-potential prospects this year across the deep water Gulf of Mexico, Indonesia, the Iraqi Kurdistan Region and Poland. Marathon estimates 2011 production available for sale will be between 380,000 and 400,000 barrels of oil equivalent per day, excluding the effect of any future acquisitions, dispositions or exploration success, essentially flat with 2010 volumes. Increases in the Company’s U.S. unconventional production is expected to largely offset natural declines elsewhere, largely in North Sea assets.
ConocoPhillips has approved a 2011 capital program of $13.5 billion, representing a significant increase in Exploration and Production expenditures. Approximately $12.0 billion of the capital programs will be in support of E&P, while the Refining and Marketing (R&M) segment represents about 9% of this year’s spending. The 2011 capital program is consistent with the company’s plan to enhance returns on equity through shifting capital to higher returning investments, maintaining capital discipline and funding growth in shareholder distributions. This capital budget reflects the company’s emphasis on building the upstream business.
In Europe, Asia Pacific and Africa, the E&P capital program is expected to total about $6.0 billion. Within the Asia Pacific region, the company’s funds will be used for further development of the coaled methane-to-LNG project associated with the Australia Pacific LNG joint venture, as well as for the development of new fields offshore Malaysia, Indonesia, and offshore Vietnam. In the North Sea region, spending is planned for existing and new opportunities in the Greater Ekofisk Area, the U.K Fields, various Southern North Sea assets, and the development of the Jasmine and Clair Ridge projects. As for the capital for the African region is expected to be in support of onshore developments in Nigeria, Algeria and Libya. Spending in the Caspian Sea region is planned to be in support of continued development of the Kashagan Field.
Noble announced its estimated 2011 capital program to count for approximately $2.7 billion, with investment split relatively between the U.S. and international operations. Approximately, 42% of the program is directed towards major project investments, 18% for exploration and appraisal activities, and the remaining 40% for ongoing maintenance and near-term growth opportunities. Major project investments include the company’s development activities in the horizontal Niobrara, deep water Gulf of Mexico, West Africa, and Eastern Mediterranean.
The company anticipates investing $875 million in the Central DJ basin. In addition to the existing vertical well program in Wattenberg, Noble Energy intends to expand horizontal Niobrara drilling activity, targeting around 70 horizontal wells in 2011. In the deep water Gulf of Mexico, the company’s $275 million program is focused on progressing near-term oil developments at Galapagos and Raton South. It also includes three exploration wells with expectations to resume drilling at the moratorium-suspended Santiago and Deep Blue wells, along with a first appraisal well at the Gunflint discovery.
Noble Energy’s core international programs in West Africa and the Eastern Mediterranean represent approximately $575 million and $650 million, respectively. In West Africa, the company plans to advance liquid developments at Aseng and Alen (Equatorial Guinea, gas/condensate) and to resume oil exploration with two to three tests in the region. A large portion of the Eastern Mediterranean expenditures will be the development of the Tamar natural gas field, offshore Israel. Exploration plans in the Eastern Mediterranean include three to four wells, which will include at least one appraisal well at the Leviathan discovery. The remainder of the capital program is set aside for other opportunities onshore in the United States, as well as in the North Sea and China. Excluded from the capital program is $70 million of non-cash capital to be accrued for the Aseng FPSO capital lease.
Prepared by Mostafa Mabrouk, Vice Chairman Assistant For Economic Affairs, Ganope