However, business confidence remains strong among the 185 top-level industry executives polled for the report, Big Spenders, from the Economist Intelligence Unit, commissioned by advisors GL Noble Denton.
And it states that this increased optimism looks set to drive higher capital expenditure by the industry in 2012, despite slower growth in oil and gas demand in the second half of last year and fears over the future of the global economy.
Investment intentions have “risen significantly” and national oil companies are especially bullish about boosting spending, with more of it to be ploughed into exploration, according to the report.
More than four-fifths, or 82%, of executives said they were confident about the business outlook over the next year, an increase from 76% last year, while a significantly higher number of companies said they had firm plans to increase investment in 2012 – 63% this year compared with 49% in 2011.
It points out that a lot of this planned spending represents already committed outlays on long-term projects by player such as Shell, which has taken 16 new final investment decisions since the start of 2010 to add 400,000 barrels of oil equivalent per day of new production.
These include projects in the deep-water Gulf of Mexico, Australian liquefied natural gas and tight gas in the US, as well as traditional plays in the North Sea.
“The thinking tends to be long-term – many years or even decades in our industry – rather than driven by short-term factors,” said Shell’s chief financial officer Simon Henry.
Similarly, US giant ConocoPhillips plans to execute a $28 billion capital expenditure programme over the next two years, of which almost 90% has been earmarked for exploration and production to support its 100% reserves replacement goal.
Compatriot company Occidental revealed a 56% increase in capex in 2011 to $6.1 billion, which is set to increase further as it proceeds with the capital-intensive Shah sour gas development off the United Arab Emirates in partnership with Abu Dhabi National Oil Company.
Among national oil companies, Brazil’s Petrobras is leading the way with a planned 24% increase in spending to exploit its deep-water pre-salt reserves while Pemex of Mexico aims to splash large sums on an expanded offshore drilling effort.
The US, with its booming shale gas play, is set to absorb the lion’s share of investment, having pulled in 21% of $529 billion of the global E&P spend last year with the capital commitment of $110.7 billion representing an 18% increase over 2010 spending levels, according to Barclays Capital.
However, companies also see greater opportunities for revenue growth in the Far East, as well as South-East Asia and Latin America.
Both Shell’s Henry and Helge Lund, chief executive of Norwegian state oil company Statoil, see a robust oil and gas demand outlook with strong fundamentals for the sector.
However, there is a greater sense of caution among smaller companies, with chief executive of Abu Dhabi National Energy Company (Taqa), Carl Sheldon, saying it would be prepared to cut annual spending – targeted at $2 billion over the next two years – if the oil price goes south.
Hamid Gayibov, managing director of Russia-focused M&A consultancy Xenon Capital Partners, warns “there is big uncertainty regarding the global oil market, and if there is a major disclocation in the global economy, we could see the oil price collapsing and fundamentals continuing to weaken”.
Such a development could result in companies, both big and small, scaling back their spending plans in areas where they could do so without damaging their wider portfolio, according to the report.
There are also further clouds on the horizon, including heightened risk from the challenges of exploiting hydrocarbons in increasingly complex reservoirs - said to harbour about 85% of the world’s remaining undiscovered resources – as well as tougher regulation in the US Gulf after the Macondo disaster.
While stricter safety rules have made drilling permits more difficult to obtain in the US, regulation has also emerged as a major issue in Asia - after the oil spill last year at ConocoPhillips’ Penglai 19-3 field off China - and in Africa.
The survey further highlights growing industry concern over a worsening shortage of skilled professionals, accompanied by rising salary levels and operating costs, that is harming growth prospects.
It points out that an engineering skills shortage in the UK “threatens to undermine growth in the development of the maturing North Sea acreage”.
In Western Australia, it is estimated that by 2015 there will be a shortage of roughly 150,000 workers needed to develop projects in north of the state.
In the face of such obstacles to growth, GL Noble Denton board member Pekka Paasivaara said: “While capital expenditure looks set to take off, industry leaders will need to invest selectively this year, keeping operating risks low during a period of prolonged uncertainty.”