Bigger budgets from Chinese majors and more spending in the Middle East are fueling anticipation for heightened activity that could push overall international E&P spending to a record US $678 billion by year-end 2013.

The forecast released June 4 by Barclays Capital Inc. represents an increase of 10% from 2012.

James West, oil services and drilling analyst for Barclays, said the firm expected Latin America to be the driver of growth, but growth in spending there has been slow compared to other parts of the world. Spending in the Middle East is expected to rise by 28% from last year, while budgets in Southeast Asia could grow by 19%, compared to an anticipated 12% increase in spending in Latin America. International spending overall is expected to increase 13.2% year-over-year to $490 billion.

A key finding in the report also revealed that PetroChina is expected to overtake ExxonMobil as the world’s top big E&P spender. The company is expected to spend about $36.6 billion, compared to ExxonMobil’s $33.9 billion, as it targets shale plays in North America and invests in countries where others are hesitant to enter, West said. China, which invested more than $2 billion annually in Iraq, has become the largest consumer of Iraqi oil.

“We continue to believe that the powerful combination of rebounding conditions in North America and robust and healthy growth internationally, especially offshore, will drive significant earnings growth,” West said in a conference call. “We do continue to believe that the industry is in the early stages of a long sustained and powerful global upcycle with steady spending growth in the international markets.”

In the Middle East, Barclays previously predicted an estimated 11% increase in investment; however, planned activity by companies such as Saudi Aramco and Kuwait Oil Co. caused to firm to rethink its December 2012 figure, upping it to 28% as the expected spend for just about all national oil companies increased.

The spending update pointed out the pursuit of unconventionals and Red Sea exploration and R&D activity are driving spending higher in Saudi Arabia. Efforts by Saudi Aramco include shallow-water and ultra-deepwater exploration, mainly targeting unconventional gas offshore.

However, Barclays said the biggest story is in Iraq, where the firm estimates the oil services and drilling market is approaching the $4 billion mark and could double over the next several years. Playing an important role in growth is China.

“We think the Chinese oil companies will continue to play an increasingly vital role to boosting production in Iraq, underscored by China recently becoming the largest consumer of Iraqi oil (Chinese oils are currently investing in excess of $2 billion annually in Iraq),” Barclays said in the update. “Kurdistan in northern Iraq is quickly developing into one of the most attractive international exploration opportunities, and continues to attract a slew of NOCs and leading IOCs, despite disapproval from Baghdad.”

Figures show E&P spending by companies, including Saudi Aramco, Kuwait Oil Co., Abu Dhabi National Oil Co., and others, could go from just more than $10 billion to more than $33 billion in 2013.

The spending is also expected to be higher than Barclays projected in December for India, Asia, and Australia. The region could experience a 19% bump (up from the 11% estimate) in spending for select companies, reaching $100 billion in spending. Attributing to expectations here are more spending from Petronas, which has several offshore projects and EOR efforts underway; and ONGC, which has growing interests offshore East Africa in addition to deepwater interest at home. Pertamina and PTTEP also could see spending growth in double-digit percentages.

Barclays pointed out that shale prospects are attracting Asian companies. The firm believes development of shale gas could be “the next leg-up” for Asia’s upstream sector. “The lion’s share of the potential $100 billion Chinese shale market will likely be absorbed by domestic players and in-house service teams at the various NOCs, in our view; however, we believe there is still substantial opportunity for exposure into this play.”

For North America, Barclays anticipates E&P spending to grow 2%. Spending in the US is projected to be about $145 billion in 2013 and $42 billion in Canada, where “market conditions remain choppy mainly due to volatile differentials in Canadian basins.”

“The activity recovery in US land is under way although somewhat uneven and creating a market of ‘haves’ and ‘have not’s’ for the oil service providers,” Barclays said.

Drilling activity has shifted to more liquids-rich plays amid low natural gas prices.

“We do believe the era of easy oil is over,” West said, adding the geology of shale’s unconventional reservoirs and the enormous capital required “has fundamentally altered the spending pattern of E&P companies.” As a result, Barclays believes the amount of capital required to produce a barrel of oil will continue to accelerate.

Contact the author, Velda Addison, at