Capital spending on exploration and production by 139 publicly traded oil and natural gas companies is expected to rise about about 12% to $406 billion in 2011, consultant IHS said Tuesday.
"Although this modest increase is less than the 19% rise in 2010, oil and gas companies, many of which decreased spending considerably during the economic downturn of two years ago, are continuing to increase their investments in their upstream portfolios, particularly for oil-weighted projects," IHS senior analyst Aliza Fan Dutt said. "Despite recent volatility and a wobbly economic recovery, oil prices remain relatively strong, which supports higher upstream spending. In addition, investments in oil and unconventionals continue at a rapid clip, while conventional gas outlays remain relatively depressed."
The shift to drilling on oil and liquids-rich properties that began in 2010 accelerated through the year and continues today, the report said.
Fan Dutt said those producers that shifted earlier to oil and liquids-rich plays will benefit more than those who followed. EOG Resources, for example, an established natural gas producer, shifted to the oil-side much earlier than most of its peers. As a result, oil now contributes 60% of the company's revenues and it is posting strong earnings growth.
"Cost inflation will continue to be a key issue, with more companies competing for oil services and equipment during a time of elevated oil prices," Fan Dutt said. "Cost containment will be particularly important for natural gas-weighted producers as they struggle to achieve strong margins amid weak natural gas prices."
"A healthier economy will back attractive upstream opportunities" outside the US, Fan Dutt said, adding that many of these plays are in areas that are riskier both politically and geologically. But companies like China National Offshore Oil Corp. do not plan to slow down their upstream expansion" because of growing Chinese demand."
MARATHON CAPEX
The report said US integrated oil companies are expected to boost spending by 14% this year, with Marathon Oil emerging as the most aggressive company in this segment by planning to increase E&P capex 37% as it drills on expanded US acreage in the Anadarko Woodford play, the Niobrara play in the Denver-Julesburg basin in Colorado and Wyoming and in its Bakken shale position.
The largest North American E&P will increase capital spending only 3%, the IHS study said, supported by spending on unconventional resources in shale basins.
Global integrated oil companies are likely to boost E&P capital spending 9% this year, down slightly from 2010 and Canadian integrated oil producers are expected to raise their spending by 13%, IHS said.
Spending among integrated oil companies outside the US also is expected to rise 13% this year, unchanged from last year.
Ecopetrol, the state-owned oil company of Colombia, expects to spend 56% more this year on E&P after raising spending 34% last year and Latin American behemoth Petrobras continues to invest heavily on its expansive upstream portfolio, with an expected 24% increase in spending. Lukoil, IHS said, is slated to spend 55% more this year.
