Q2 Was Turning Point for US Upstream Operators
OREANDA-NEWS. The second quarter was a pivotal three months that saw rising crude prices and rig counts, well performance improvements and a brighter tone from US upstream operators who had weathered a tough downturn, and ominous crude prices in early 2016.
When crude prices fell back to $40/b from yearly highs over $50/b just as they were going through their quarterly earnings calls, US operators didn’t flinch from their production plans, Evercore ISI analyst Stephen Richardson said.
“If anything, the market was rewarding clarity on 2017…and telling us it still has confidence” in next year—at which point crude should be at least $50/b, Richardson said in an audio clip.
Jefferies analyst Jonathan Wolff went a step farther, characterizing upstream company managers on quarterly calls as “surprisingly, outspokenly, bullish on oil… markets, with most pointing to the supply impact of underinvestment.”
Even so, capital budget additions for the 25 producers Wolff covers were minor—about 4% on average for the 10 operators that hiked capex, while two cut budgets for the year. And lower costs prompted a number of his companies to increase their volume of expected well completions this year with no capex hikes.
About half Wolff’s companies plan to add a total of 20 rigs in the year’s back half, he said, including 11 rigs in the Permian Basin.
US producers added 44 oil rigs in July, the most in any month since April 2014, the International Energy Agency noted in its latest Oil Market Report earlier this month, and 32 more were added in the first three weeks of August.
Besides contracting a rig here and there and squeezing more wells into the drilling lineup, managers’ tone of voice and language suggested confidence and pent-up energy—a contrast to the grim air three months earlier when they were wary of fickle oil prices that were recovering from two months in the $30s/b.
Positive words and upbeat voices conveyed a palpable sense of hope, such as Anadarko CEO Al Walker stating he was “encouraged” that $60/b was “likely to emerge” next year. Or Halliburton CEO Dave Lesar noting that North American operators show a “spring in their step” not seen earlier this year.
Production growth was also widely discussed, as many operators said it was in their line of sight for 2017 while many enthusiastically raised output guidance for this year as well.
Concho CEO Tim Leach claimed he was “very, very pleased to be able to talk about…double-digit production growth” within cash flow for 2017.
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