Accelerating out of a flat year, North American E&Ps are positioned to lead a 6% growth surge in global E&P spending to a record $800 billion for 2014, according to predictions by analysts at Bernstein Research. The November report forecasts 9% annual investment growth by North American oil and gas companies—almost double the predicted growth rate of other international E&Ps—and largely by U.S. independents.

“This would mark a material uplift from the stagnant spending witnessed year-over-year [by North American oil and gas companies] in 2013,” the analysts say.

Rising cash flows resulting from a 3% strengthening of West Texas Intermediate pricing through 2013 should turbo-boost the trend. “Prices are 9% higher than the forward curve indicated they would be during [the] fourth quarter last year [2012], when most E&Ps were setting their budgets,” according to the report. Henry Hub predictions have been in line with the forward curve prediction from that time period.

Organic cash flows were expected to increase by 25% in 2013. Bernstein estimates North American E&Ps' capacity to spend in 2014 will increase by 11%.

Five U.S. E&Ps had announced budget guidance at the time of the report—Occidental Petroleum, Cabot Oil & Gas, Goodrich Petroleum, Continental Resources and Concho Resources—collectively indicating a 19% growth rate. Bernstein, however, notes that early reports likely reflect a bias toward spending increases, but the trend “supports the view that spending will take a healthy step up.”

The report suggests that capex growth plans by Occidental and Apache Corp., which had not yet indicated guidance but announced growth plans in certain U.S. regions, highlights a trend of some global E&Ps de-emphasizing international operations for greater U.S. investment.

The modeled growth rate could be at risk if North American E&Ps continue to spend less as a percentage of cash flow, a declining trend through 2012 and 2013, the report says.

The anticipated 6% global capex growth rate continues a 6% rise through 2013, but illustrates changing regional growth drivers. In addition to North American E&Ps, Russia and the Middle East will witness ramp-ups in spending, 11% and 12%, respectively. This is in contrast to 2013, in which Asia-Pacific E&Ps and European majors led the charge, but are now decelerating.

Bernstein projects international E&P spending to increase 5% in 2014, continuing to grow but slowing from 9% the previous year.

This reflects flat spending by majors, down from 13% last year; a modest 3% growth by Latin American E&Ps, largely by Pemex; and 5% growth by Asia-Pacific E&Ps, in contrast to 12% in 2013.

The deceleration in international spending growth will be driven by Brent crude prices, which have been flat over three years.

Comments