Oil and gas companies will increase exploration and production (E&P) spending by 6% to £420billion this year, according to banking giant Barclays.
While spending by major oil companies is expected to remain flat this year, Barclays said smaller firms would drive the growth.
The big oil companies – Exxon Mobil, Chevron, Shell, Total and BP – are under pressure from investors to keep a tight lid on spending after years of major projects.
Barclays said it expected smaller, independent oil and gas companies to drive spending growth in North America, where capital budgets were expected to rise 8.4% this year, higher than the 7.3% it forecast earlier.
There is potential for higher capital deployment in the United States due to geopolitical risks in other oil-producing countries, particularly Iraq, the bank said.
“I think the first place they are going to put that money into is North America,” Barclays analyst James West said.
If conditions in Iraq deteriorate further large Western oil companies like Exxon Mobil may contemplate reallocating dollars to more stable regions like the United States, he said.
Some oil companies are pulling staff out of Iraq, fearing violence could spread to major oilfields concentrated in the south as Sunni militants push forward in northern Iraq.
Worries about oil exports from the key producer pushed up the price of Brent crude to $114 a barrel.
The higher oil prices are expected to boost cash flow for independent exploration and production companies, a factor that may push North American spending even higher, West said.
The bank’s report is based on a survey of more than 300 oil and gas companies last month.
Barclays said it also expected higher spending in Africa and Asia this year, but lower capital budgets in Europe and Latin America would limit the overall increase.
E&P companies are basing their spending budgets for the year on oil prices at $101 per barrel for Brent, well below current prices.
