Higher crude oil and natural gas prices, improved efficiency in drilling and completion and other factors combined to give most U.S-based exploration and production companies (E&Ps) solid financial results in the first quarter of 2017 — a stark contrast to their performance in 2015 and 2016. Better yet, the turnaround is providing E&Ps with the optimism and wherewithal to significantly ramp up their planned capital spending this year and in 2018. It’s also giving them an opportunity to zero in on shale plays with low breakeven costs that will help them maintain profitability even if commodity prices stay flat or sag. Today we analyze the first-quarter financial results of a group of 43 U.S. exploration and production companies.
Posts from Nick Cacchione
After cutting capital investment 71% between 2014 and 2016, the 13 diversified U.S. exploration and production (E&P) companies examined in our Piranha! market study are planning to increase 2017 capital spending by 30%. While this seems like a lackluster rebound compared to the 47% boost announced by oil-focused E&Ps, the diversified group’s totals are skewed by the pull-back strategy of giant ConocoPhillips. Excluding ConocoPhillips, the 12 other companies are guiding to a 48% increase in 2017 investment—very similar to their oil-weighted peers. Today we continue our Piranha! series on upstream spending in the crude oil and natural gas sector, this time zeroing in on E&Ps with a rough balance of oil and gas assets.
The 21 oil-focused U.S. exploration and production companies examined in our Piranha! market study are planning an average 47% increase in their 2017 capital expenditures and expecting a 7% increase in production. The 47% boost in capex is huge, but due to draconian cuts in 2015 and 2016 this year’s total is still off 58% from 2014’s—an indication of the big hole the sector is still climbing out of. The Permian Basin continues to attract more capital—no surprise there—but capex in the Bakken is also on the rise after a few lean years. Today we continue our Piranha! series on upstream spending in the oil and natural gas sector, this time zeroing in on E&Ps that focus on crude.
In connection with 2016 earnings releases, U.S. exploration and production companies (E&Ps) have announced a surge in capital spending for 2017 after slashing investment by an average 70% from 2014-16. Our “Piranha” universe of 43 E&Ps is budgeting a 42% gain in organic capital outlays with a strong focus on the major U.S. resource plays. Despite crude prices languishing at an average of ~$47/bbl since January 2015, most of the upstream industry has weathered the crisis remarkably well, primarily through the “high-grading” of portfolios, impressive capital discipline, and an intense focus on operational efficiencies. Today we review the overall outlook for 2017 upstream capital spending and oil and natural gas production, and take an initial look at expectations for our group of companies.
Change continues to come fast and furious to midstream MLPs, with no master limited partnership facing a bigger shift than MPLX. MPLX LP, formed in 2012 by Marathon Petroleum Corp. (MPC), is no stranger to transformation. In 2015, MPLX acquired MarkWest Energy Partners for $14.7 billion, a move that in one fell swoop made the merged entity the fourth-largest MLP in the U.S. In October 2016, Marathon announced an aggressive “dropdown” strategy that will provide MPLX with additional assets that will generate about $1.4 billion in annual earnings by the end of 2019. MPLX also has a significant capital investment program that allocates $2.3-$2.8 billion to build out gathering and processing infrastructure and logistics and storage facilities in Appalachia and Texas. Today, we review our latest Spotlight analysis of one of the nation’s largest MLPs.
The past production profiles of the ten companies in RBN’s Gas-Weighted E&P peer group are dramatically different from the Oil-Weighted and Diversified U.S. E&Ps, boosting production by over 18% from 2014 to 2015, while the output of the other two peer groups was virtually flat. The group as a whole finally put on the brakes in early 2016 because of mounting debt and persistent low gas prices, cutting capital investment by 49% to dampen production growth to 4%. However, a small group of producers with solid balance sheets and strong hedging protection continue to target double-digit output growth. And with gas prices over $3.00/MMbtu, more growth is on the way. In today’s blog we discuss 2016 capital spending and production for our representative group of E&Ps whose operations are primarily focused on natural gas.
A group of 15 diversified exploration and production companies we have been tracking collectively has slashed capital expenditures by 70% since 2014, but so far the cumulative effect of these spending cuts has been only a 5% decline in production. Now, several of these E&Ps––especially those targeting the Permian Basin and the SCOOP/STACK plays––are planning capex increases and/or expecting production gains. Today we discuss 2016 capital spending and production for a representative group of E&Ps whose operations are roughly balanced between oil and natural gas.
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.
In their second quarter 2016 earnings announcements, North American exploration and production companies (E&Ps) announced relatively minor changes to the steep reductions in 2016 capital budgets they unveiled around the first of the year. Total 2016 “finding and development” spending for 46 leading U.S. producers was an estimated $41.0 billion, down 51% and 70% from investment in 2015 and 2014, respectively, and slightly lower than the $41.9 billion forecast for 2016 spending in year-end 2015 announcements. The second-quarter reports over the past few weeks also confirmed the initial guidance of a 4% production decline in 2016 after 7% and 6% increases in 2014 and 2015. However, as we discuss today, a look behind the headline numbers indicates that cuts in capital expenditures (capex) look to have bottomed out, and that the industry may be poised for a turnaround in drilling activity later this year into 2017.
In connection with year-end 2015 earnings announcements, North American exploration and production companies (E&Ps) continued to announce large reductions in 2016 capital budgets. But the most dramatic news is that RBN’s analysis of a study group of 30 E&Ps indicates that these companies are finally expecting oil and gas production to fall in 2016 after a 7% gain in 2015. In today’s blog we update our continuing analysis of E&P capital spending and oil and gas production guidance.
From waves of reanimated corpses feeding on unfortunate strangers trapped in a western Pennsylvania farmhouse in Night of the Living Dead to the hordes stalking the beleaguered survivors in the current smash TV hit The Walking Dead, zombies have captivated audiences. But real life zombie companies aren’t as entertaining. The dramatic and sustained plunge in hydrocarbon prices since mid-2014 has ravaged the finances of oil and gas producers to the extent that some observers have labeled the weakest of these “zombie” companies. These cannot sustain themselves on current pretax cash flow and look to be shuffling slowly toward their ultimate demise. Today we take a walk through the living dead to uncover the zombies.
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.
Although many industry observers predicted draconian cuts to the credit lines of North American E&Ps during the fall borrowing base redeterminations by their lenders, the average reduction for 17 companies disclosing the results to date is just 4%. Today we describe how these results may indicate that significantly lower industry costs and less dramatic reductions in long-term commodity price forecasts could be partially offsetting the negative factors used to determine borrowing capacity under secured and unsecured credit lines.
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.
RBN analysis of 31 exploration and production (E&P) companies shows sharp differences between two groups of gas-weighted firms. The US diversified group is struggling to increase production, and slashing capital spending in light of weak profitability. Meanwhile, the Appalachian group is flying high as the most profitable classification in our analysis – largely as a result of slashing costs in response to weak natural gas prices. Today we wrap up our three-part analysis of U.S. E&P company’s 2015 outlook.