Early in April, Raymond James & Associates published the latest iteration of its global upstream spending survey based on more than two-thirds of company budgets worldwide. The results confirmed the firm’s expectation that oil and gas companies would cut oilfield capex by an average of 20% to 25% in 2015. Based on the final tally for last year, overall reductions hit the high end of that range.

With the latest survey update, “The picture for 2016 is almost as painful, with current budget plans implying additional cuts of 22% this year,” the analysts said.

It’s obvious that a significant crude price rebound and activity lift-off aren’t imminent. It will take many more months for industry restructuring to help balance supply and demand. But the stage is set for “a potent supply response that will play out over years to come and spread out over a wide range of geographies,” the RayJay analysts said.

Right now energy players and investors may be wondering whether oil prices will ever rise again substantially. “It is essential to underscore that achieving sustainable global oil supply growth is simply not possible at current oil prices and oilfield investment levels,” the analysts said. And when the tipping point comes, the money that’s being pulled out will funnel back in.

RayJay surveyed 40 large, mostly multinational companies that disclose financials. They represent about 65% to 75% of total upstream spending and an even larger share of non-OPEC spending. Sixteen are based in the U.S. Their main focus is upstream, from conventionals to shales to deepwater, oil sands, EOR, LNG and frontier exploration.

These companies began reducing their outlays in 2013, when aggregate capex spending peaked at about $580 billion and then declined to the $300 billion expected for this year, a three-year waning of nearly 50%. Spending has since contracted to about three-quarters of what it was in 2010.

This downturn is perhaps unprecedented, although it’s difficult to confirm, the analysts said. “In those days [mid- to late 1980s], many of the key non-OPEC players simply did not disclose anything.”

Only a handful of the companies surveyed are cutting budgets by less than 15% for 2016, including ExxonMobil Corp., Canadian Natural Resources Ltd., China Petroleum & Chemical Corp. (Sinopec Ltd.), PetroChina Co., Petroleo Brasileiro, Petroleos Mexicanos, Statoil ASA and Suncor Energy Inc.

Plenty are slashing outlays by more than half. Among the U.S. upstream leaders in this arena are Apache Corp., Continental Resources Inc., Devon Energy Corp., Marathon Oil Corp. and Murphy Oil Corp.

“Just two companies out of 40 are boosting spending on an organic basis: Repsol (up 3%) and Rosneft (up 22%),” the analysts said. “Shell’s nominal budget is up 26%, but pro forma the addition of BG, it is actually down slightly.”

As expected, given the unconventional shales’ shorter-cycle capex requirements, the U.S. spending declines projected for 2016 and 2017 are more than double the global average. “By the same token, U.S. spending stands to be the quickest to respond upward in 2017 as oil prices recover,” the analysts said.

Globally, capex plans vary widely. In Latin America, Petrobras’ expenditures are down 60% since maxing out in 2013, while Pemex has cut back by just 30% during the same time frame. In Canada, oil-sands project deferrals won’t be fully visible in production drop-offs for a year or more, but deterioration in short-cycle spending in plays like the Cardium is quickly taking down supply.

In Russia, Rosneft’s capex sums will hold or rise in 2016 largely due to historical underinvestment; additionally, Rosneft and Gazprom can tap the Kremlin’s sovereign balance sheet, “so their liquidity is in better shape than you may think,” the analysts said. Statoil benefits from the Norwegian government’s ability to take a longer-term view of its North Sea holdings.

“By contrast, the U.K. sector, where asset ownership is much more fragmented, has been in the midst of brutal austerity,” RayJay noted.

Outside the U.S., production is on the skids, albeit modestly for now. China’s production will decline this year for the first time in more than two decades.

These factors underpin the analysts’ outlook for higher crude prices to re-surface in second-half 2016. “In our view, it is abundantly clear that oil prices will need to be materially higher (versus current levels) by the end of 2016 in order to support a more sustainable level of investment next year and beyond.”

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