Equity Research 3 September 2019 FOCUS Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. This research report has been prepared in whole or in part by equity research analysts based outside the US who are not registered/qualified as research analysts with FINRA. PLEASE SEE ANALYST CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 17. Restricted - Internal Upstream Spending Survey Update Global Spending Taps the Brakes, Growth Slows to +3% in ’19; Expect More of the Same in ‘20 Our mid-year survey of global upstream spending across more than 175 companies shows growth slowing to 3% in 2019, a downward revision from +8% in our January spending report. North American spending was revised slightly lower (-2%) as Majors spending is largely offsetting lower E&P budgets (unchanged since March), however, we note 2H spending will be 15% below 1H, a trend we expect to continue in 2020. Surprisingly, the biggest change was IOCs underspending int’l budgets and a few notable NOC reductions, trimming overall int’l spending to +5% this year (vs. +8% previously). Offshore spending is a bright spot, now down only 2% this year (vs. -7% previously), building momentum into 2020 for potentially the first increase in five years. We don’t expect to hear many budget announcements during the 33rd Barclays CEO Energy-Power Conference in New York this week, but early indications suggest much of the same for 2020: North America flat to down 5% (private operators being the wildcard); int’l up mid-single digits driven by Middle East land activity. North America spending to decline 2% in 2019 (virtually unchanged from our March survey but lower than our +9% estimate in January). E&Ps set full year budgets low this year (and are sticking to them for the most part) with spending expected to slow ~15% in 2H19 vs. 1H19 levels, while the Majors increasingly underpin growth in the Permian. Spending next year is an unknown at this point (none have provided 2020 guidance), but early indications are for overall budgets to be flat to down 5% in 2020. Int’l spending to increase 5% in 2019 (revised down from our +8% estimate in January). The downward revision reflects lower-than-expected int’l spending by IOCs and some significant NOC ’19 capex revisions (Petrobras). NOCs (~65% of Int’l spend) plan to increase spending by ~8% this year, offsetting modest declines by the Majors. Regionally, Asia (+13%) is driving most of the growth, with Middle East (+6%) Latam (-5%), Russia (+9%), Africa (+12%) and Europe (+1%). Offshore spending to decline ~2% in 2019 (revised up from our -7% estimate in January). While companies don’t break out offshore spend (~25% of total 2019 E&P spend), we expect a ~2% decline this year, though our preliminary views suggest a mid-single-digits increase in 2020 marking the first offshore spending increase since 2014. Survey says…. Online survey of 75 smaller-caps show most plan to keep rig counts flat over the next 12mo; Labor and H20 treatment expected to be the two greatest areas of OFS cost inflation, pressure pumping and land rigs the greatest areas of deflation; the majority plans to keep completion programs flat in ‘20 if oil prices hold at current levels. INDUSTRY UPDATE North America Oilfield Services & Equipment NEUTRAL Unchanged North America Oilfield Services & Equipment J. David Anderson, CFA +1 212 526 4016 jdavid.anderson@barclays.com BCI, US Edward Kim +1 212 526 9920 eddie.kim@barclays.com BCI, US Derek Podhaizer +1 212 526 6368 derek.podhaizer@barclays.com BCI, US Robert Arancio +1 212 526 7604 robert.arancio@barclays.com BCI, US European Oil Services & Drilling Mick Pickup +44 (0)20 3134 6695 mick.pickup@barclays.com Barclays, UK Barclays | Upstream Spending Survey Update 3 September 2019 2 Global Upstream Spending Revised Lower, Now +3% in 2019; Trends Point to Similar Growth Rate in 2020 Our mid-year update to the Barclays Upstream Spending Survey (see: 34th Global 2019 E&P Spending Outlook: +8% as Int'l Picks up the NAM Slack; Downside Risk on Lower Oil Prices. published 1/8/19) shows global upstream spending up 3% in 2019, a downward revision from our March survey of 5% growth and 8% back in January. We also note 2018 global upstream spending has been revised slightly higher to 9% (vs. +8% in both March and January updates) after reflecting actual reported figures. FIGURE 1 Barclays Upstream Spending Survey Source: Barclays Research FIGURE 2 Worldwide E&P Capital Spending by Company Type / Region, 2017A-2019E Source: Barclays Research and Company Reports Note: The regional breakout assumes companies spend primarily in their home region $0$100$200$300$400$500$600$70019851986198719881989199...
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