Page 7 - NorthAmOil Week 46

NorthAmOil COMMENTARY NorthAmOil
financial performance, freeing up cash flow and improving profits while they wait for a better oil price environment. They may be waiting for some time, though, with forecasters increasingly in agreement that crude prices will stay lower for longer.
The EIA has projected that West Texas Inter- mediate (WTI) prices will average $55 per barrel in 2020. And the agency expects oil prices glob- ally to be lower on average in 2020 than they have been this year, attributing this to projected rising global inventories, particularly in the first half of next year.
Some companies are finding this operating environment more challenging than others. Occidental Petroleum is among those plan- ning major reductions in capex – though this is unsurprising given that the company quadru- pled its debt to $40bn with its deal to take over Anadarko Petroleum earlier this year. Occiden- tal said recently that it would cut its capex by 40% next year to about $5.4bn in an effort to generate cash and help pay down its debt.
Apache is another player that has warned of significant cuts to its capex budget, saying it expects to cut its upstream capital by 10-20% from this year’s level of $2.4bn. It also anticipates laying off 10-15% of its workforce by the end of March.
Several other players with operations in the Permian Basin, including Diamondback Energy, Callon Petroleum and Cimarex Energy, have all said they are considering keeping 2020 capex budgets unchanged from this year’s levels. It is worth noting that Diamondback is one of the few shale producers to have generated pos- itive returns for shareholders over the past five years.
Exceptions to the rule among shale producers
are super-majors ExxonMobil and Chevron, which are both ramping up activity in the Per- mian Basin. Among the independents, though, a slowdown is predicted to occur, and potentially to last some time. And while Chevron and Exx- onMobil are increasing their share of Permian production, independents still account for 80% of the basin’s output.
Centennial Resource Development’s CEO, Mark Papa, said earlier this month that US shale producers would be operating in what he called a “growth-challenged environment” for the next 10 years.
And Pioneer Natural Resources’ president and CEO, Scott Sheffield, said on his company’s latest earnings call that he expected the Permian to “slow down significantly over the next several years”.
Expectations for such a slowdown can be backed up by the fact that oil rig counts – both in the Permian and across the US more broadly – have been steadily falling. The Permian’s active oil rig count was down to 408 in the week up to November 15, from 493 a year ago. The total US oil rig count has shrunk from 888 to 674 over the same period. And not everyone is confident about a rebound further down the line.
“I don’t think OPEC has to worry that much more about US shale growth long-term,” Shef- field added on Pioneer’s earnings call. His com- pany is one of the most active players in the Permian and said in its third-quarter earnings that it was reducing its 2019 capex by about $150mn. The company has not yet finalised its 2020 capex budget, though it is still planning to add 2-3 rigs per year over the next few years. But Sheffield’s expectations illustrate more negative sentiment over the basin’s longer-term prospects than there has generally been in recent years.™
Oil rig counts – both in the Permian and across the US more broadly – have been steadily falling.
Pioneer Natural Resources’ president and CEO, Scott Sheffield, has warned of a longer-term shale slowdown.
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