Towards the end of 2011 and into 2012 the major Oil & Gas companies finalised their budgets for the upcoming year and this provides us with a view on the market as a whole because if the oil companies are spending money on exploration and production then there is more work for offshore support vessels.
Barclays Capital published its annual E&P Spending Survey late last year which is summarized in the below graph. From its survey, it estimates that E&P spending will reach almost $600 billion during 2012 which is a 12% increase on their estimate for 2011 ($529 bn) and a 10% increase on actual spending during 2011 ($544 bn). This increase in spending has largely been driven by the high oil price that has been seen throughout 2011 and is expected to continue throughout 2012.
They also predict a larger increase for international spending compared to North America which is likely because of large projects such as Gorgon in Australia and more aggressive spending from National Oil Companies like Petrobras in Brazil. Pemex is another company that is likely to be aggressively spending in 2012 after some of its more mature fields saw a decline in production.
Other fringe countries in the Latin American region are also planning on ramping up their E&P schedules during 2012 with Colombia’s Ecopetrol budgeting around $8.4 bn in 2012. China is another area where massive growth is expected over the next few years with the national oil company (CNOOC) pledging to spend $1.5 trillion by 2015 with offshore expected to receive the majority of this.
For the six supermajors (BP, Chevron, ConocoPhillips, Exxon Mobil, Royal Dutch Shell and Total), they are all planning on increasing their budgets compared to 2011 with Exxon Mobil planning to be the largest spender again with a total CAPEX of $37 billion. Exxon plans to spend this amount for the next several years but if oil prices remain as high as they are long term this may increase further. Chevron and Royal Dutch Shell are the next big spenders with $33 bn and $30 bn CAPEX respectively with around 80% of this dedicated to E&P spending. Total are planning to spend $24 bn with again, approximately 80% of this going towards E&P and finally ConocoPhillips have set their CAPEX budget at $16 bn with $14 bn of this put towards E&P. BP have yet to announce their CAPEX budget for the year but are likely awaiting the final outcome of the Macondo court trials before committing funds elsewhere. We expect somewhere around $20 bn would be in line with the other supermajors but this could be reduced or increased depending on any fines or payouts they incur.
The graph above shows how oil company E&P budgets have been linked with the change in oil price over the years with the clear example of what happened when the oil price crashed as a result of the financial crisis in 2008. This led to severe cut backs on the part of oil companies who were also feeling the effects of the global recession. The world is yet to fully recover from that recession with many other areas still remaining flat but because of the consistently high oil price over since 2010 oil companies have increased in confidence and we have seen at least 10% growth in budgets every year since.
If the oil price were to crash again it is likely that oil companies would restrict their budgets and we would see a similar situation as seen in 2009.