E&P spending in U.S. oil basins is poised to significantly increase in 2014, according to projections by Barclays Research analyst James West, based on initial data released by select independents. And the data are impressive, he says.

“The stage has been set for a prolific period of activity in the U.S. land basins,” West forecasts in a report in late October. “We are becoming increasingly confident that activity levels will rise by double digit percentages year-over-year in the U.S.”

New technology, more capital and an expanding inventory of undrilled unconventional wells are driving the anticipated capital upswing, where oil basins will see the majority of spending gains led by the Permian and Williston basins, he says.

“The Permian will be a dominant driver of incremental activity in the US land basins next year,” he says. “Horizontal activity is on the cusp of becoming the predominant form of drilling as operators continue to exploit the unconventional resources in the region.”

Industry sources indicate the Permian could gain up to 70 new horizontal rigs next year, a 35% increase.

Pioneer Natural Resources, with more than 10,000 undrilled sites in the Permian, is a prime example of increasing spending. While the company has yet to finalize its 2014 budget, “recent moves made by the company suggest a potentially rapid acceleration of activity in the Permian Basin.”

West points to the recent $550-million sale of Pioneer's Alaska portfolio as capital likely to be deployed in the Permian, where Pioneer currently operates 12 rigs but plans to add eight more in coming months.

In addition, “we expect strong spending levels from Apache, Anadarko, Devon, Concho and Cimarex” in the Permian, he says.

The Bakken, too, should see strong spending, illustrated by Continental Resource Inc.'s announcement of a 12% ramp in upstream spending in 2014. “We would not be surprised if Continental ends up allocating additional capital beyond the current plan over the course of the next year.” The company increased its 2013 budget 7% midway through the year.

In contrast, West sees major oil companies retracting from U.S. unconventional resource plays, as evidenced by Shell Oil pulling up anchor in the Eagle Ford shale.

“The majors appear to be executing a pivot back to their traditional hunting grounds,” he says, “and we think additional asset sales from the majors could follow. After arriving late to the shale game in North America, the majors are having a difficult time fitting the new acreage into their broader strategy.”

Which could be a good thing for U.S. independents and service companies, he believes.

“Shale acreage, operated by sophisticated independents with knowledge and experience working in the unconventional land basins, will likely be drilled and developed at a faster rate than if those acres remain in the hands of the majors, who appear to be moving more slowly as they manage global reserve portfolios.”

As for those skeptics who would point to capital constraints placed on E&Ps by their shareholder base? “We would submit that when there are profits to be made, capital is often the loosest constraint in the oilfield.”

—Steve Toon

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