April 10, 2018 – Natural Gas Intelligence
U.S. E&Ps Practicing Capital Discipline Even as Activity Climbs Onshore
By Carolyn Davis
The global oil and gas industry has begun its second year of recovery, but capital spending only climbed last year by about half as much as originally budgeted, and it is poised to surge this year, according to a survey by Raymond James & Associates Inc…
Read the full article here: http://www.naturalgasintel.com/articles/113976-us-eps-practicing-capital-discipline-even-as-activity-climbs-onshore
…Meanwhile, Oil & Gas Financial Analytics LLC founder Nick Cacchione, in a blog post for RBN Energy LLC, said with oil prices exceeding $60/bbl, margins should increase this year, giving the 44 major U.S. E&Ps he tracks an estimated $24.5 billion in incremental cash flow.
Cacchione pegged incremental capex for the U.S. E&P group at $2.3 billion this year, which leaves more than $22 billion in incremental free cash flow. A lot of cash is being returned to shareholders.
“We counted nearly $7 billion in new share repurchases, as well as another $710 million in newly announced dividend gains,” Cacchione said. “Part of the remaining free cash flow will be used to reduce some of the $184 billion in debt that remained outstanding at the end of 2017.”
In a deeper dive into 17 U.S. oil-weighted E&Ps, Cacchione also noted the “remarkable” financial discipline by domestic operators.
“Altogether, these oil producers are only allocating an additional $2.1 billion -- less than one-sixth of the $13.6 billion in additional cash flow -- to increased capital expenditures, resulting in a modest 9% boost in 2018 capex,” he said. “The remaining $11.5 billion in free cash flow will be reserved for strengthening balance sheets and rewarding shareholders through higher dividends and share buybacks.
“That’s noteworthy for an energy sector renowned for its financial profligacy in the emergence from downcycles over the last three decades.”
According to Cacchione’s calculations, oil-weighted domestic E&Ps plan to allocate more than half (55%) of 2018 capex to the Permian Basin, 13% to the Eagle Ford Shale and 9% to the Bakken Shale, with the remainder across other assets. Last year about 52% of total capex was allocated to the Permian and 12% to the Eagle Ford, while the Bakken also was at 9%. Capex in Oklahoma’s myriad reservoirs is seen declining to 2% of total spend, down from 3% in 2017.
