Exploration & Production (E&P) capital expenditures are negative on a year-over-year basis for the first time since 2009. The decline comes at a time where producers have exhausted their 2012 budgets due to a cost inflation, poor budgeting and a desire for faster drill/completion times. Street consensus for 2013 capex aims for a decline of -0.4% year-over-year but we believe that’s a bit optimistic after several companies have suggested that budgets will be lower.
One thing to remember is the sensitivity of commodity prices in the E&P sector. With the dollar rallying for 8 of the last 9 weeks, the price of crude oil is certainly poised to fluctuate quite a bit.