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2018-12-24 11:55:00

U.S. OIL CAPEX DOWN

U.S. OIL CAPEX DOWN

PLATTSThree aggressive independent Permian Basin upstream operators released capital budgets for 2019 in the last few days that are lower than either prior expectations or actual 2018 spending by at least 12% to 15%, as corporate executives attributed reduced activity to the recent plunge in oil prices.

But large players Diamondback Energy and Parsley Energy and small cap Rosehill Resources, which have had high production growth rates in the West Texas/New Mexico basin in recent years, particularly from crude oil, said in separate releases they will grow total production by at least 20% next year and in some cases, oil production by even larger year-on-year rates. Total production includes natural gas and NGLs.

WTI oil prices have dropped more than 35% in the past 11 weeks. This week it fell below the psychological watershed of $50/b - which was also the average price between 2015 and 2017.

"I do think the $50/b is an important crossroad for many operators, as it seems to be the minimum price mark many operators need to start talking about meaningful production growth," S&P Global Platts Analytics analyst Sami Yahya said.

"However, it is also important for them to know what can be sustained and what can't in terms of price trends," Yahya said. "Just because we dropped below $50/b, it does not necessarily mean that operators will react quickly to it."

But as Yahya notes, the difficulty for operators right now is that oil prices are falling at the same time when they are outlining their 2019 capital budgets.

PARSLEY'S CAPEX DROPS 15% NEXT YEAR

In 2019, Parsley's capex will drop to $1.35 billion-$1.55 billion, down 15% at the midpoints from $1.65 billion-$1.75 billion this year. In August, Parsley raised its 2018 capital budget to the latter amount from an original $1.35 billion to $1.55 billion set at the start of the year.

Parsley's total production for 2019 is expected to average 124,000 b/d of oil equivalents to 134,000 b/d of oil equivalent, as well as oil production of 80,000-85,000 b/d. Both figures imply 20% year on year growth, Parsley said.

The company said in a statement that its capital budget assumes a $50/b WTI oil price next year and "relatively static" oilfield service costs.

Next year, Parsley will reduce development rigs to 12-14, down from a recent 16, and frac crews to three to four, down from five.

"Despite a less favorable commodity price environment, we still intend to take a significant step toward free cash flow generation in 2019," Parsley President Matt Gallagher said in the company's Wednesday announcement, although he still expects to outspend cash flow by a maximum $250 million. That outspend is a more than 50% year-over-year decline.

Diamondback, which acquired Energen Corp on November 29 in a $9.2 billion all-stock transaction, set its 2019 capex at $2.7 billion-$3.1 billion for the joint companies. In 2018 the companies' combined capital budgets totaled about $2.7 billion, but analysts had widely anticipated $3.2 billion-$3.4 billion of capex next year, for a reduction of about 12% between anticipated capex and the midpoint of stated guidance.

DIAMONDBACK SEES 30%-PLUS OIL OUTPUT GROWTH IN 2019

Diamondback's production should total 275,000-290,000 boe/d, 68%-70% of it oil, which implies at the midpoint over 30% oil production growth and over 28% total production growth, pro forma for both figures at current commodity prices.

The company will operate 18-22 drilling rigs next year, against 24 in 2018, and eight completion crews starting in January, after releasing two crews this month.

Diamondback released its 2019 guidance on Tuesday, when NYMEX crude front month futures settled at $46.24/b. On Thursday, NYMEX crude futures settled at $45.88/b.

"Due to the dramatic decline in oil prices, realized pricing in the Permian Basin is near levels not seen since the end of 2016, while service costs have increased by around 35% during the same period," Diamondback CEO Travis Stice said in a statement.

Reducing 2019 activity allows the company to operate within cash flow, Stice said.

Rosehill, a much smaller company, set 2019 capex at $220 million to $240 million, down more than a third from $350 million to $375 million - the latter range representing both actual 2018 spending and previously anticipated 2019 capex.

Rosehill's production should total 20,000 boe/d to 21,500 boe/d next year, up about 28% year on year. The company also expects to drill about 27 wells in 2019, down from roughly 34 this year.

Yahya noted that in the few 2019 capex announcements he has seen, "nearly all" talked of changing guidance to match oil pricing.

"That means if get worse, they'll curb their plans further, and vice versa," he said.

Upstream budgets are expected to increase overall in 2019 by high single digits, according to Evercore ISI's most recent 2019 Global E&P Spending Outlook. But Evercore analyst James West has cautioned since releasing the survey last week that there could be revisions depending on commodity price movements in the next month. The poll was conducted in October and November when oil prices were higher than today.

 

 

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Earlier:

 

N.America
2018, November, 16, 09:20:00

U.S. FINANCIAL RISKS

U.S. OFR - The U.S. Office of Financial Research (OFR) released its 2018 Annual Report to Congress, stating that risks to U.S. financial stability remain in the medium range, reflecting a mix of high, moderate, and low risks to the financial system.

 

 
 N.America
2018, November, 14, 11:45:00

U.S. NUCLEAR CAPEX DOWN 40.8%

WNN - in 2017 the average total generating cost - which includes capital, fuel and operating costs - for nuclear energy was USD33.50 per megawatt-hour (MWh).

 

 

 N.America
2018, October, 3, 08:20:00

SHELL LNG INVESTMENT: $30 BLN

SHELL - Shell Canada Energy, an affiliate of Royal Dutch Shell plc (“Shell”), today announced it has taken a final investment decision (FID) on LNG Canada, a major liquified natural gas (LNG) project in Kitimat, British Columbia, Canada, in which Shell has a 40% working interest. With LNG Canada’s joint venture participants also having taken FID, construction will start immediately with first LNG expected before the middle of the next decade. Shell’s 40% share of the project’s capital cost is within the company’s current overall capital investment guidance of US$25-$30 billion per year.

 

 N.America
2018, September, 21, 10:30:00

U.S. CAPITAL EXPENDITURES UP

U.S. EIA - Second-quarter 2018 financial results for 45 U.S. oil exploration and production companies that the U.S. Energy Information Administration (EIA) regularly tracks reveal that most companies increased their capital expenditure budgets for 2018 compared with initial budgets made at the beginning of the year.

 

 N.America
2018, August, 1, 09:30:00

U.S. ENERGY EFFICIENCY UP

U.S. EIA - U.S. energy expenditures declined for the fifth consecutive year, reaching $1.0 trillion in 2016, a 9% decrease in real terms from 2015. Adjusted for inflation, total energy expenditures in 2016 were the lowest since 2003. Expressed as a percent of gross domestic product (GDP), total energy expenditures were 5.6% in 2016, the lowest since at least 1970.

 

 N.America
2018, August, 1, 09:20:00

U.S. INVESTMENT UP $427.3 BLN/ $260.4 BLN

U.S. BEA - The U.S. direct investment abroad position, or cumulative level of investment, increased $427.3 billion to $6,013.3 billion at the end of 2017 from $5,586.0 billion at the end of 2016, the foreign direct investment in the United States position increased $260.4 billion to $4,025.5 billion at the end of 2017 from $3,765.1 billion at the end of 2016.

 

 N.America
2018, July, 27, 12:50:00

U.S. OIL INVESTMENT UP, DEBT DOWN

EIA - Capital expenditures for these 46 companies totaled almost $19 billion in the first quarter of 2018, a year-over-year increase of nearly $2 billion (10%). Most of these companies have announced that they expect to increase full-year 2018 capital expenditures from 2017 levels.

 

 

Tags: USA, OIL, INVESTMENT