Only Two Wells Coming Off The Confidential List Today -- December 18, 2019

Later today, we'll get another "surprise" report from the API -- either a "surprise" build or a "surprise" draw. Whatever it is, it's always a surprise. LOL. I'm off by a day. The API report was out yesterday afternoon and there it is ... LOL ... the oilprice breaking news headline: "oil prices fall as API reports a surprise crude build. So, what was it?

• consensus forecast: a 1.288-million-bbl draw
• actual: a whopping 4.7-million-bbl build

And this is after all those rigs have been laid down, and all that talk about cutting back on production. We'll see the EIA numbers later this morning. [Later: I posted the data; somehow it got deleted; not worth the effort of re-posting. It was incredibly unremarkable.]

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Back to the Bakken

Active rigs:

$60.44	12/18/2019	12/18/2018	12/18/2017	12/18/2016	12/18/2015
Active Rigs	52	69	51	40	64

Two wells coming off the confidential list today -- Wednesday, December 18, 2019: 54 for the month; 259 for the quarter:

• 36168, SI/NC, XTO, Lavern 42X-14AXD, Capa, no production data,
• 35742, conf, Whiting, Ogden 41-9HU, Sanish, a huge well, the Ogden wells are tracked here;
  

  Date	Oil Runs	MCF Sold
  10-2019	33644	33307
  9-2019	26188	17759
  8-2019	22166	0
  7-2019	39696	0
  6-2019	4286	0

RBN Energy: 2020 E&P CAPEX set to plunge as producers prioritize cash flow.

There has always been an aura of excitement, adventure and risk surrounding the quest to unlock natural resources, from the California Gold Rush to the early days of Texas oil wildcatting. Today’s exploration and production leaders may be just as passionate as their predecessors, but the “riverboat gambler”-type days of reckless spending in pursuit of growth now seem like a distant memory.

In the brutal aftermath of the oil price crash in late 2014, producers have been forced to follow their heads instead of their hearts, adopting a far more careful approach to investment that prioritizes portfolio rationalization over expansion, and cash flow above growth. E&P companies in 2019 slashed capital investment, and, according to early guidance, they will again in 2020. [Despite slashing CAPEX in 2019, production across the US set new all-time records. Rig counts don't matter.]

Underscoring this more conservative attitude is the release of the 2019 Securities and Exchange Commission price deck, which impacts the economics of booking oil and gas reserves. It showed the WTI oil price for SEC reporting purposes declined about $10/bbl, or 15%, to $55.69/bbl in 2019, while the Henry Hub SEC price declined by 17%, to $2.58/MMBtu.

Today, we examine a representative group of U.S. E&Ps’ spending plans for 2020, which reflect the impacts of a lower-price environment.

The oil and gas industry slashed investments by more than 70% after the price of benchmark West Texas Intermediate plummeted below $30/bbl in early 2016 (Saudi's trillion-dollar mistake), but a near doubling of prices by the end of that year resulted in an average 42% increase in capital expenditures in 2017.

Despite price volatility in the first half of 2017, producers stuck with their early guidance and were rewarded by a second-half recovery that generated substantial profits after two years of massive losses.

Oil prices ended 2017 about 20% higher than a year earlier, but E&P companies only budgeted a cautious 4% increase in exploration and development costs for 2018 and left those budgets largely unchanged even as oil prices increased nearly 25% in the first nine months of last year. The wisdom of that conservative approach was apparent when WTI nosedived from $75/bbl in early October 2018, to $45/bbl in December 2018. That price shock then contributed to an average 11% reduction in capital spending in 2019, again a prudent move as pre-tax operating profits steadily declined from more than $10 per barrel of oil equivalent (boe) produced in the first quarter of 2019 to $5/boe produced in the third quarter of 2019.

We have gathered early guidance on 2020 capital spending for 15 companies spanning the Oil-Weighted, Diversified and Gas-Weighted E&P peer groups, a sampling that represents about one-third of the 47 companies we track. This preliminary data indicates that 2020 capital expenditures for the 15 would be $28.6 billion, down 13% from 2019. Extrapolating this decline out to the full universe of the 47 companies would indicate a $9 billion decline in capital outlays, to $61 billion for next year. Twelve of the 15 companies issuing guidance are forecasting lower outlays, while three are expecting increased investment.

The largest declines are expected from the Oil-Weighted E&Ps, down 17% year-on-year, and the Gas-Weighted E&Ps, down 25% year-on-year. The early guidance from the four Diversified E&Ps who have reported thus far indicates a 1% increase in capex. However, this is heavily influenced by a $600 million, or 10%, increase in investment by ConocoPhillips. Excluding Conoco, guidance is down 11% among this peer group. Guidance from three of the four Oil-Weighted E&Ps has been impacted by rationalization after major merger-and-acquisition activity as well as lower oil prices, while the Diversified and Gas-Weighted E&Ps are facing generally poor natural gas pricing.

Production growth has continued to slow after a nearly 6% rise in 2018. Overall, oil and gas production is expected to increase just 1% (orange cell), with the Oil-Weighted E&Ps leading the pack with a 3% gain (purple cell) despite the big capex decline. The Gas-Weighted E&Ps are also guiding to a small gain in production despite slashing capex.