Alpine High

Permian natural gas fundamentals were rocked with some major infrastructure news on Monday, when Kinder Morgan announced its plans to build the 2-Bcf/d Permian Highway Pipeline (PHP) from Waha to the Texas Gulf Coast. The announcement revealed that EagleClaw Midstream, a Blackstone Energy Partners portfolio company, has signed a letter of intent to become a 50% owner in the project and commit natural gas volumes to the pipeline. Adding firepower to the project, Apache Corp. is committing significant volumes to the pipeline too, with an option to take an ownership stake. While Kinder Morgan and EagleClaw Midstream stopped short of a final investment decision (FID), the destination flexibility that PHP’s tie-ins with other key pipes offer makes the project a major contender in the race to become the second new long-haul natural gas pipeline out of the Permian. Today, we discuss the latest infrastructure development in the Permian natural gas market.

The group of 21 liquids-focused exploration and production companies we have been tracking plans to cut capital expenditures by half in 2016, after a 42% decline in 2015. However, capex for this “oil-weighted” E&P peer group is apparently bottoming out—their mid-year guidance was only 2% lower than their original 2016 estimates. Even with deep cuts in capital spending, the group expects production to fall only 7% in 2016, and those estimates have been revised higher from the initial 2016 guidance.  Also worth noting: Pure Permian Basin players, the most optimistic companies in the peer group, are cutting capital spending by only 19% and are expecting a 12% gain in production.  And with Apache Corp.’s announcement earlier this week of a huge discovery in the Permian’s Southern Delaware Basin, the market is definitely making a turn. Today we discuss 2016 capex and production for a representative group of E&P companies whose proved reserves are more than 60% liquids.