Guiding for growth in a volatile year

 

With oil prices holding steady at around US$45/bbl for several months, many operators feel that the worst is over and are consequently raising 2016 production guidance and capex spend. In our latest report and Crude for Thought podcast, our analysts compare company guidance from the Q4 2015 calls at the beginning of this year to the latest Q3 quarterly calls.

In general, operators are by necessity doing more with less and eking out greater productivity from their wells, and operators with recent acquisitions are guiding upwards. Relative to the start of the year, US-focused players and independents have increased their capex spend more rapidly than the large-cap operators or NOCs, likely due to the smaller, more nimble independents' ability to respond more rapidly to price fluctuations. 

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Callon Petroleum increased production guidance by 30% and is raising its spending by 80% due to its bolt-on Permian acquisition, and Rice Energy also increased capex and production guidance after its acquisition of Vantage Energy, though its capex increase will drive growth primarily in 2017 and 2018. Encana increased its capex guidance to focus on high-return wells, with the bulk of capex landing in the Permian. Eagle Ford-focused Sanchez Energy increased capex guidance after the appraisal of its Catarina Asset and realizing lower well costs (as low as US$2.8 million). Carrizo Oil & Gas has increased guidance throughout 2016 to account for strong well performance across its Eagle Ford and Delaware Basin assets.

Newfield's domestic production guidance is up 9.6 mboe/d (7%) due to strong performance of its North STACK extended-lateral wells, which have exceeded initial type curve assumptions. The company also plans to add rigs before year-end, accelerating its mission to hold leases by production and resulting in a total increase of US$100 million (15%). Marathon slightly raised both its capital guidance and the low end of production guidance after better-than-expected well results, its acquisition of PayRock in the STACK and re-allocation of capex away from the Bakken. Northeast-focused Antero has been able to revise production guidance upwards by 5% while holding capex guidance steady, citing improved well performance. Meanwhile, Southwestern increased its capital budget from roughly US$100 million to US$475 million from Q1 to Q3 of 2016, while only increasing production guidance by 5%.

On the other end of the spectrum, ConocoPhillips dramatically cut its 2016 capex at the start of the year, slashing over US$2 billion from its previous guidance and dropping its rig count to three from 13 at year-end 2015. Only recently did the company mention plans to increase Lower 48 rig count to eight by year-end. Despite this, better well performance in the Eagle Ford and Bakken, as well as lag effects from the ramp down in rig activity, has mitigated declines. Murphy Oil also guided downwards due to its limited inventory of Eagle Ford wells and decision to scale back activity, as most of its acreage is held by production.

In our latest Crude for Thought podcast, host R.T. Dukes sits down with analysts Kris Nicol, Ruaraidh Montgomery, and Andrew McConn to discuss the major takeaways from this earnings season.

Although Occidental Petroleum has made nearly a 50% cut in capital allocated to the Permian between Q4 2015 and Q3 2016, the company managed to increase production 5% as a result of a mix between high grading of development plans and acreage acquisitions. Oxy is targeting production growth for 2017 with added Permian rigs while maintaining flat production in its EOR assets. Bill Barrett reduced capex guidance twice to account for positive results from its XRL well cost improvements and reduction of required capital for infrastructure and non-drilling related spend. The company increased the lower end of its year-end production guidance because of improved well performance, which may be related to its controlled flowback program for newly drilled wells.

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Read more: acreage acquisitions and reactions to environmental concerns 
You can purchase our fullUS Upstream Week In Brief on demand to read this week's top stories in the North America Upstream sector, including EOG and Anadarko divesting two packages; Resource Energy acquiring Samson's Bakken acreage; Oklahoma injection wells being shut in after the recent earthquake; and Californians in Monterey County voting to ban new oil and gas drilling.

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