Independent Producers

In connection with third-quarter earnings announcements, North American exploration and production companies (E&Ps) continued to announce large reductions in 2015 and 2016 capital budgets. But the most dramatic news is that RBN’s analysis of a study group of 31 E&Ps fourth quarter forecasts indicates that oil and gas production is now expected to level off in the fourth quarter of 2015 and into 2016. Today we update our analysis of E&P capital spending and oil and gas production guidance.

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.

CME NYMEX crude oil prices were down again yesterday – with the West Texas Intermediate (WTI) contract closing at $46.39 down $2.30 over the holiday weekend and over 55% lower than its high 7 months ago in June 2014. Some are billing the free fall in crude prices as a showdown between U.S. shale producers and OPEC. That is because OPEC has apparently decided not to cut production to prop up prices in an over supplied market in hopes that lower prices would squeeze out U.S. shale producers. If that was the strategy then it isn’t working so far. Today we review crude producer plans for 2015 and find lower capital expenditure budgets and cuts in rig deployment contrast with expanded production.