Which US Independents will increase production in 2017?

Cash-flow neutrality, capital discipline and de-leveraging will remain the strategic priorities for the coming year. Unless oil prices rebound to US$60/bbl, a return to double-digit production growth is still some way off for most. So what does the future hold for US Independents?

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Growth and cash-flow neutrality are mutually exclusive goals for all but a handful at US$50/bbl WTI, but most companies could self-fund 10% growth at US$60/bbl.  Our most recent analysis looks at:

  • Oil prices required for cash-flow neutrality
  • Spending requirements
  • Cash-flow impact
  • Leverage versus cash-flow breakevens
  • Company guidance for 2017

Kris Nicol, Principal Analyst for Corporate Research, shares his thoughts on the future of US Independents in this short video:

 


Click the chart to view full screen:
cashflow breakevens*Companies included in this analysis: APC, APA,CHK, COP, CLR, DVN, ECA, EOG, HES, MRO, MUR, NFX, NBL, OXY, PXD, RRC & SWN.

A return to material self-funded growth requires >US$55/bbl

We estimate that our peer group of the 17 largest US Independents requires an average of US$50/bbl WTI in 2017 to be cash-flow neutral and replace production declines; US$57/bbl and US$63/bbl is required to grow at 5% and 10%, respectively. Three companies can achieve self-funded double-digit growth in 2017 at <US$50/bbl.

Production could decline even with increased spending

We estimate that half of the companies’ production would decline if capex remained flat from 2016 to 2017; several require >40% increases just to offset declines. Southwestern and Chesapeake face the biggest challenge. Companies with inventories of high-impact wells (Pioneer and Range) and those with production support from international assets (Marathon, ConocoPhillips, Hess) require less capital to generate growth. Delivering 10% growth across the peer group in 2017 would require US$19 billion more capex than 2016 and translate to a US$11 billion cash-flow deficit in our base-price scenario.

Who is best positioned to grow in 2017?
Companies with low cash-flow breakevens and low leverage (Marathon, Hess, Pioneer) are best positioned to grow in 2017. Longer term, portfolio quality plays a larger role in determining which companies grow at the highest rates (Pioneer, EOG, Devon) and which remain challenged (Chesapeake and Southwestern).

 


Flexibility will be incorporated into 2017 planning process

Several companies have already provided preliminary 2017 guidance, much of which aligns with our analysis. But we expect activity plans to remain dynamic, with activity ultimately determined by oil and gas prices, capital availability, M&A activity, hedging activity, shifting cost structures, and development optimisation.

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Upstream Diversified Independents company benchmarking 2016 

Discover more about the financial health, value, production, reserves and costs for key companies such as, Anadarko, Apache, ConocoPhillips, Hess, Marathon Oil, Murphy Oil, Noble Energy, Occidental and Repsol.

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CBT Spotlight: Top players in tight oil 

Tight oil will attract similar levels of investment to deepwater out to 2025 and deliver more production than LNG. US Independents dominate the top spots, but the majors are still underweight to this resource theme. Learn more in our CBT Spotlight.

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