Page 9 - NorthAmOil Week 19

NorthAmOil COMMENTARY NorthAmOil
Shale heavyweights scale back
Leading independent shale producers Pioneer Natural Resources and EOG Resources are among those to announce further cuts to spending after seeing their first-quarter earnings fall
US
WHAT:
First-quarter results have brought a wave of falling earnings and more cuts among shale drillers, including Pioneer and EOG.
WHY:
The collapse in oil prices in March has had a significant financial impact across the industry.
WHAT NEXT:
The producers are taking various steps to adjust to deteriorating market conditions.
THE oil price collapse in March has had a dra- matic financial impact on shale drillers, and this is already visible in their first-quarter earnings, even though the crash came so late in the quar- ter. With earnings season well underway, small and large independents alike are reporting sim- ilar developments, including quarterly losses or declines in profit and further cuts to capital expenditure budgets and activity.
Some of the largest independent shale pro- ducers, including Pioneer Natural Resources and EOG Resources, were among those to announce significant new capex cuts after their earnings took a hit.
EOG
EOG, which is the largest producer in Texas’ Eagle Ford shale, reported earnings of $9.8mn in the first quarter of 2020, down 98% from $635.4mn year on year. The decline was largely the result of a nearly $1.6bn write-down of the value of EOG’s business in the wake of the oil price crash. Meanwhile, the company’s quarterly revenue rose 16% y/y from $4.1bn in the first quarter of 2019 to $4.7bn in the latest quarter.
This result was in line with numerous other shale producers, whose revenues grew or remained level, but who found themselves hit by large impairments as oil prices tanked.
EOG said it was cutting its 2020 capex budget
by an additional $1bn to $3.3-3.7bn. This is a cut of $3bn, or 46%, from the company’s original guidance, issued at the start of this year. EOG said it had taken 28 rigs offline over the past six weeks, reducing its operated rig count from 36 to eight. Over the remainder of the year, it is plan- ning to operate six rigs on average. The company is also delaying completions of around 150 wells until the second half of the year. This is a popu- lar tactic among some shale drillers when they anticipate rapidly bringing new wells online at a later date to benefit from higher oil prices.
In addition, EOG has been shutting in existing wells since March and is ramping up these shut-ins. The company’s shut-in volumes amounted to around 8,000 barrels per day in March and 24,000 bpd in April. Under current plans, shut-in volumes will peak at 125,000 bpd in May before being ramped down again, and EOG anticipates that over the whole of 2020, volumes associated with shut-in wells will aver- age 40,000 bpd.
As a result of these various measures, EOG now anticipates producing about 390,000 bpd in 2020, down 15% on last year. The company now expects to bring about 485 wells into production, down from its original guidance of 800 wells.
“Our guiding principles in this environment remain consistent with EOG’s long‐term strat- egy: to make returns‐based decisions and spend
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