More Ch-ch-ch-ch-changes to Upstream Capital Spending and Production Estimates in 2Q/15

With crude oil prices just over $40/bbl you might think producers would be reducing capex and cutting their 2015 production estimates.  But not so.  RBN’s analysis of second quarter guidance in 2015 indicates that 31 E&Ps as a group kept their capex outlook at about the same level as they indicated in Q1.  And as a group they still expect oil and gas production in 2015 to increase versus last year. But there were significant differences between the peer groups we examined. The Small/Mid-Size Oil-Weighted E&Ps upped 2015 investment by $730 million versus Q1 and now expect 2015 production to be up 16% over last year versus the 13% increase expected last quarter.  The Large Oil-Weighted E&Ps slashed capex by another $630 million, yet production is still expected to rise, in this case by 4% versus a 3% growth expectation last quarter.  In contrast, capital spending and production guidance were little changed among the gas-weighted peer groups. Today we provide an update to our Q1 analysis of capital spending and production trends.

Recap

In Episode 1, of this series we provided an overview of the 2015 capital spending and oil and gas production trends for 31 E&P companies based on guidance given during the first quarter of 2015. In our analysis, we divided the universe into four peer groups: Small/Mid-Size Oil-Weighted E&Ps, Large Oil-Weighted E&Ps, Diversified Natural Gas-Weighted E&Ps, and the Appalachian Gas-Weighted E&Ps. In Episode 2, we did a deeper dive analysis into the two oil weighted peer groups in the study. We found that the Large Oil-Weighted E&Ps were cutting back less than the Small/Mid-Sized Oil-Weighted E&Ps as they are more financially secure and have more ability to fund investment through the price cycle. The Small/Mid-Sized Oil Weighted E&Ps were focused on aligning spending with cash flows with the goal of self-funding their capital investment. In Episode 3, we analyzed the natural gas-weighted peers. Our analysis revealed that the US diversified natural gas peers were struggling to increase production and slashing capital spending in light of weak profitability. In contrast, the Appalachian gas producers were flying high as the most profitable group in our analysis –as a result of slashing costs and favorable production volumes. This time we update the analysis based on Q2 guidance.

Small/Mid-Size Oil-Weighted E&Ps

The Small/Mid-Size Oil-Weighted E&Ps shown in Figure #1 below increased their full year 2015 capital spending estimates by $730 million over first quarter 2015 forecasts to just under $14 billion. In addition, the peer group has increased the collective full year oil and gas production target by about 3 percentage points over first quarter estimates (13% up to 16%) to 12.6 MMboe. Pioneer Natural Resources was responsible for the lion’s share of the gain, increasing its capital spending budget by $350 million. The company plans to add an average of two horizontal rigs per month for the balance of the year in the northern Sprayberry/Wolfcamp play. Laredo Petroleum plans to increase its investment by nearly $160 million over its original $356 million 2015 budget to drill additional opportunities in the Permian Basin. The incremental activity, partially funded by the recent sale of some non-operated properties, drove a 500 Mboe rise in its 2015 production forecast 16.3 MMboe. Newfield Exploration is increasing its exploration and development budget by approximately $125 million because of its increased activity in the STACK play in the Anadarko Basin. Energen is adding $95 million to its exploration and development outlays in the Sprayberry and Wolfcamp plays. The company also increased its 2015 oil and gas production estimate by 4 percentage points to 22.7 MMboe, 19% higher than 2014. Sanchez Energy sharply boosted its production forecast to 17.5 MMboe, 57% higher than 2014. The company also provided a first look at its 2016 capital spending, guiding to a 50% decline from 2015. This reduction is most likely more significant than the rest of its peers will report given Sanchez’s relatively strong 2015 capex program.

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