Monday, June 4, 2018

Permian Oil Producers And Profitability -- Oilprice -- June 4, 2018

Consider the source, but if "accurate," this might be one of the better articles/analyses I've seen with regard to the Permian.

Long term one can argue this will all take care of itself, but for companies like Oasis who moved out of the Bakken to focus on the Permian must certainly raise some concerns -- with 20-20 hindsight.

The Wall Street Journal recently reported hat only five of the Top 20 U.S. oil companies focused mostly on hydraulic fracking generated more cash than they spent in the first quarter of this year. This continues a trend that has been ongoing throughout the fracking boom.
The WSJ article is here; I think I may have already linked it; don't remember.

Some data points from the linked article:
  • first mentioned: Oasis -- spent $3.27 for every $1 it made; Parsley Energy spent almost $2 for every $1 it made in cash
  • CLR quit hedging in 2014, but is expected to do so "at some point"
    • notably, CLR was reported to have the highest cash flow among its peers; $258 million for 1Q18)
  • EOG was also highlighted for generating $110 million cash surplus for 1Q18
  • The WSJ did not name the other companies that generated positive cash flow
  • the contributor provides his estimates
    • COP led all oil companies with cash flow of $864 million for 1Q18
    • COP: like CLR, not hedged
    • EQT: $172 million
    • Chesapeake: $148 million
    • Cabot Oil & Gas: $117 million
    • Cimarex: $41 million
    • biggest loser in the Top 20: Pioneer Natural Resources -- outspent its cash flow by $264 million (Pioneer has been touted as one of the best, if not the best option for "mom-and-pop investors" in by some analysts)
  • lack of cash flow in the Permian partially due to takeaway constraints which won't be resolved until 2019
  • but -- and I've mentioned this several time -- the negative cash flow is also a function of companies investing heavily into (overpaying for) the Permian in anticipation of future production
  • the writer emphasizes: a negative cash flow is not necessarily a concern; it is common in the oil sector
  • "but this [negative cash flow] increases the level of risk for these companies, as a prolonged oil price slump could financially strain the big spenders"
But, wow, take a look at this, things are obviously moving in the correct direction:
My screen of the Top 80 U.S. and Canadian oil and gas companies showed cumulative cash flow from the group at -$669 million for Q1 2018. A year ago, that number was -$6.9 billion.
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