- 35304, SI/NC, Hess, BL-Domy-156-95-2932H-8, Beaver Lodge, no production data,
- 34635, SI/NC, Slawson, Wolverine Federal 9-31-30H, Elm Tree, no production data,
RBN Energy: E&Ps paring CAPEX despite strong 2018 profits, expected 2019 prices, part 3.
U.S. exploration and production companies (E&Ps) are tapping the brakes on their capital spending in 2019 after two years of strong investment growth and a return to profitability that in 2018 approached the level generated in the $100+/bbl crude oil price environment back in 2014. The pull-back in capex this year appears likely to slow the pace of production growth, and comes despite a 30% rebound in crude oil prices in the first quarter of 2019. What’s going on? Well, many investors remain skeptical about E&Ps, as evidenced by stock prices that remain in the doldrums, and to gain favor with investors, a number of E&Ps are returning cash to them in the form of share buybacks and higher dividends. Today, we consider the current state of investment in the E&P sector, how it’s affected by stock valuations and how it affects production growth.
In a number of blogs over the past three years, we’ve documented the dramatic recovery of the E&P sector from the financial crisis caused by the plunge in oil prices that began in late 2014. Through portfolio high-grading and an intense focus on operational efficiency, the 44 representative E&Ps we track demonstrated that they could grow reserves and increase production on lower capital budgets. The nearly 50% reduction in “finding and development” costs (the cost of “finding” an additional barrel through organic capital spending), excluding acquisitions — from $15.01/boe (barrel of oil equivalent) in 2014 to $8.41/boe in 2018 — helped the E&P sector roar back to profitability last year. Our universe of 44 E&Ps on average netted a healthy pre-tax operating profit of $11.03/boe in 2018, which compares with a barely breakeven profit of $0.07/boe in 2017 and is only 20% below the profit generated by the group in the $100+/bbl environment in 2014. And with first-quarter 2019 oil prices rising 30% — the largest quarterly rise since 2009 — the E&P sector appears to be in a position to report continued profit growth this year.