You wouldn’t know it yet from outright crude oil production volumes, which stood at 13.1 MMb/d last week, but with crude oil prices in the cellar, the situation for U.S. E&P companies has rapidly gone from bad to worse. The double whammy of the coronavirus and the Saudi’s decision to flood oil markets with new production has cast a pall over the U.S. E&P sector, sending share prices plummeting. Producers had already taken a stripped-down approach to 2020 investment, with previous guidance reducing capital expenditures by 14% in order to boost free cash flow and hike shareholder returns. That was on top of the 7% decline in capex seen in 2019. But in the last 10 days, about half of the 42 E&P companies we track have announced further, substantial cuts in planned capex. And with West Texas Intermediate prompt crude oil futures settling at $25.22/bbl yesterday — well below breakeven for many producers — and still-lower prices a real possibility, more industry-wide reductions are looming as first-quarter earnings are announced in April. Today, we break down what the recent announcements mean for capex and production volumes.
It’s impossible to overstate just how rapidly — and drastically — the world has changed since the last time we assessed 2020 capital spending budgets for the universe of E&P companies we follow back in mid-December 2019 (see Can’t Afford to Love You). The E&P sector’s prospects for growth this year were already bleak. An early look at the 15 companies that had issued 2020 guidance by then showed double-digit percentage drops in spending for this year, particularly among Oil- and Gas-Weighted producers. Then, with more complete 2019 data rolling in from a total of 42 companies, the industry’s early-year guidance indicated a total production gain of 1%, to 4.9 billion barrels of oil equivalent (boe) for 2020. The Oil-Weighted and Gas-Weighted E&Ps forecasted production growth of 4% and 1%, respectively, while Diversified E&Ps’ output was expected to be flat.
The Crude Voyager is a weekly analysis of U.S. Gulf Coast loading activity that explains the ebbs and flows of crude loadings, destinations, and geopolitical issues impacting U.S. exports. It outlines the major paths for laden tankers hauling U.S. crude all over the world and reflects the change in tanker departures to the main regions that consume U.S. crude.
That’s all out the window now. Even before this week’s free-falling crude oil prices — the focus of our Save It for Later blog — a parade of E&Ps made announcements indicating that their total capital spending could plummet to $46 billion, a 26% decline from previous guidance and a 36% fall from 2019 levels of $72.4 billion. Oil-Weighted and Diversified E&Ps, which are bearing the brunt of the oil price decline, are trending toward $7.2 billion and $8.2 billion in additional capital spending reductions, respectively — 42% and 32% below their 2019 investment. Gas-Weighted producers, which initially guided to a 32% decline in 2020 outlays because of low natural gas prices, may cut another 10%. The oil and gas companies that have announced steep capital spending reductions have generally not quantified the impact of the cuts on oil and gas production. The exception was EOG Resources, which said March 16 that it expects oil output to be flat instead of up 10%-14% after announcing a 31% capex reduction. We think that revised guidance issued with first-quarter results could show at least a 6% overall decline in production targets for our universe of companies to 4.5 billion boe, levels last seen in 2018. As we said in How Much More Can She Stand, U.S. production has the momentum of a moving train; it will take a few months for those reductions to materialize.
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About the song
"Paint It Black" was written by Mick Jagger and Keith Richards, and was the first cut on side one of The Rolling Stones' sixth U.S. studio album, Aftermath. Released as a single in May 1966, the song would go to #1 on the Billboard Hot 100 Singles chart. It was the first hit single to prominently feature a sitar on the recording. Personnel on the record were: Mick Jagger (lead vocals), Keith Richards (acoustic guitar, lead guitar, backing vocals), Brian Jones (sitar, acoustic guitar), Bill Wyman (bass, Hammond organ), Charlie Watts (drums, percussion) and Jack Nitzsche (piano). "Paint It Black" has appeared in television shows, movies, and video games. It has been covered by several artists over the years.
Aftermath was the first Rolling Stones album to feature all original material. It was recorded between tour dates at RCA Studios in Hollywood, CA, between December 1965 and March 1966, with Andrew Loog Oldham producing. The album went to #2 on the Billboard Top 200 Albums chart. It has been certified Platinum by the Recording Industry Association of America.
The Rolling Stones are a British rock band formed in London in 1962. They have released 30 studio albums, 28 live albums, 26 compilation albums, three EPs and 120 singles. They have sold more than 200 million records worldwide. The Rolling Stones have won one Billboard Music Award, four Grammy Awards, three MTV Video Music Awards and two World Music Awards. They are in the Rock and Roll Hall of Fame and the UK Music Hall of Fame. Lead singer and front man Mick Jagger was knighted by Prince Charles in December 2003. Brian Jones died in July 1969, and Bill Wyman officially retired from the band in 1993. Original members Jagger, Richards and Watts, along with longtime guitarist Ronnie Wood, still record and tour to this date.
