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Post-Harvey, E&Ps Cut Guidance on Eagle Ford Shut-ins, Gulf Coast Damage

Hurricane Harvey’s lingering impact on the Texas energy sector is forcing producers to reduce guidance, not only from shut-ins in the Eagle Ford Shale but also because of petrochemical limitations at Gulf Coast processing facilities.

Oklahoma City-based Devon Energy Corp. on Friday said Harvey not only knocked out Eagle Ford output, but its impact on processing also cut into other U.S. production.

The exploration and production (E&P) company, which was producing 60,000 boe/d in the Eagle Ford before Harvey came ashore on Aug. 25, has reduced total 3Q2017 production guidance by 15,000 boe/d net, two-thirds oil-weighted.

Temporary storm-related limitations in the downstream, following flooding and damage at petrochemical facilities across the Gulf Coast region, “curtailed production in select areas of Devon’s U.S. operations,” management said. “Many critical third-party petrochemical facilities across the Gulf Coast region have now restarted and are in the process of ramping up to pre-storm capacity.”

Eagle Ford production has been restored to pre-storm levels, and inspections have found “minimal damage” to producing assets and facilities, Devon said.

The “one-time production impact to be confined to the third quarter and it represents one-half of 1% of Devon’s total expected volumes for the full-year 2017.”

For Denver-based SM Energy Co., the total effect on production from the hurricane is estimated at 200,000 boe, “which effectively reduces previously provided third quarter 2017 guidance to 10.6-11.0 million boe.”

The temporary effect on production was weighted 58% to SM’s natural gas output, 32% to natural gas liquids and 10% to oil. All production, drilling and completion operations since “have returned to normal.”

Most important, said SM management, “all of the company's employees and families were safe during the disaster. The company's Houston office remains closed due to flooding of the lower floors of the building, and employees are able to work from home.”
SM’s Eagle Ford daily operations are run from the field office in Catarina, TX, which was not affected by the storm. All of the producing assets were outside the storm's path and unharmed.

“While the company had intermittent curtailments in certain production due to downstream, third-party facilities that were impacted by the storm, all of the company's operations have returned to pre-Harvey production levels,” SM management said.

Harvey, which first trampled communities in South Texas at landfall and then flooded the Greater Houston area as it stalled on the Gulf Coast, caused substantial electricity outages, as power plants and transmission infrastructure were affected by high winds and significant flooding, the Energy Information Administration said Wednesday.

Eagle Ford operators began assessing operations once the storm had passed.

EOG Resources Inc., one of the biggest operators in South Texas, earlier this month reduced 3Q2017 guidance by 15,000 b/d to 320,000-330,000 b/d. However, full-year guidance is unchanged.

Chesapeake Energy Corp. CEO Doug Lawler also acknowledged earlier this month that the company had been impacted “to a pretty significant extent” in the Eagle Ford, with 20% of output still offline as of early September.

However, few E&Ps have reported significant damage from Harvey, which suggests that most of the shut-ins were driven by Gulf Coast refinery outages, causing a reverse domino effect in the value chain, according to Raymond James & Associates Inc.

Midstream assets carry E&P output to market, and even though they may have sustained minimal damage from the storm, operators were “at the mercy of refinery restarts, thereby pigeonholing Eagle Ford production recovery,” said Raymond James. “Further, refinery outages have potentially widespread implications for other major producing areas, including the Permian Basin and Midcontinent region, as much of production in these plays is transported to the Gulf Coast hub given its proximity.”

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