There are, to be sure, plenty of prolific oil and natural gas basins across North America that onshore operators are plowing successfully. However, all eyes and ears during second quarter calls to discuss results are likely to be trained on potential capacity constraint issues in the Permian Basin, and looming pipeline shortages in the Williston and Anadarko basins, according to analysts.

Exploration and production (E&P) companies that have worked in the Permian for months have been sending signals that pipelines are filling up, which could hinder growth plans, i.e. capital expenditures (capex).

Second quarter earnings season is heating up, and several oilfield service operators that serve the U.S. onshore already said they have concerns about the lack of takeaway potential. Still, E&Ps for now are supported by “macro tailwinds, leaving prices above budgeted levels offset by well documented infrastructure constraints in the Permian,” said Wells Fargo senior analyst Gordon Douthat.

While all eyes have been on Permian blockades, there are also potential takeaway issues looming in the Midcontinent within the Anadarko and Williston basins.

“Outside of the Permian, gas processing and takeaway capacity is emerging as a choke point” in the Williston and Oklahoma’s Sooner Trend of the Anadarko Basin, mostly in Canadian and Kingfisher counties, i.e. the STACK. Personnel and trucking “remain areas of tightness more broadly,” Douthat said.

It’s already well documented that oil and gas growth in the Permian should exceed capacity as the year unfolds. That means management teams may be quizzed during the conference calls about “the ability to mitigate pricing exposure and preserve flow assurance,” he said.

“Until additional pipeline capacity comes online starting in mid-2019, there seems to be a recognition that not much can be done to alleviate the issue,” which could force a build-up of drilled but uncompleted wells, a reduction in activity or both, as rail and trucking may not enough to bridge the gap until additional infrastructure comes online.

“We will be looking for signs on who will flinch first, either cutting activity or reallocating to other basins,” Douthat said.

Where there are “alternatives” to working in the Permian, E&Ps “are considering, if not already shifting, activity to less constrained areas, though we recognize the somewhat limited potential for this across our coverage as pure plays have no alternatives, and those with optionality, typically large caps, have secured takeaway capacity,” he noted.

E&Ps to date have made limited public comments about reducing activity. However, in any case, the smaller producers and the privates would be most exposed to potential activity reductions.

“As it relates to activity levels, we don’t expect wholesale changes to 2018 plans — though we do recognize the potential for capex budgets to creep up as companies true up for activity levels that came in hot in the first half of 2018,” Douthat said.

Meanwhile, during the second quarter, Midland-Magellan East averaged $12.41/bbl and Midland-Cushing basis averaged $8.03/bbl, but “given that volumes are contracted to be sold one-to-two months ahead, 2Q2018 could potentially surprise to the upside compared to what these averages would indicate.”

E&Ps in general should stick to their original capex plans for this year. However, as the budgets mostly are weighed to the first six months of 2018, there could be a slowdown. Based on guidance, Douthat said capex could be reduced by 15% in the last half of the year.

“We do see the potential for capex raises given efficiency gains, service cost inflation, with some looking to ramp as we get closer to 2019.”

Evercore ISIS recently completed its global E&P mid-year spending outlook. Specifically, regarding North America, senior managing director James West and his colleagues said the onshore, particularly the Permian, continues to serve as the “epicenter of the capex recovery.”

However, Evercore is forecasting North American capex to increase by only about 14% this year, relatively unchanged from an initial forecast issued late last year for 2018. U.S. capex is forecast to climb by about 16%, an 80-basis point improvement from the December forecast.

“Short-cycle investments continue to attract the lion’s share of incremental upstream investment, but the limits of shale production are clearly being tested, and it’s increasingly clear that a global, synchronized increase in upstream capital is necessary to address the supply-demand imbalance we envision over the intermediate term,” West said.

In their E&P forecast, Goldman Sachs analysts led by Brian Singer said the “pickup in producer focus on discipline/shareholder returns remains underappreciated.”

The “higher beta (often smaller-cap) E&Ps have rallied in recent weeks,” but “we see incrementally greater opportunity among companies that will be able to use the period of above mid-cycle oil prices to show free cash flow, differentiated corporate returns and debt-adjusted per share growth.”

Goldman analysts expect Wall Street to zero in on producer execution during the second quarter, particularly in the Permian, to determine if 2018 growth targets are achievable. Often the targets imply production acceleration in the second half of the year. Analysts also plan to listen in on capital allocation plans.

Like their peers, analysts with Jefferies LLC expect the investor focus to remain on takeaway constraints in the Permian.

Jefferies analysts have already flagged slowing productivity gains in the Permian, with 2017 data showing Delaware sub-basin six-month cumulatives/per 1,000 feet of lateral had fallen 3% while the Midland sub-basin was roughly flat.

“Despite the slowing productivity, we still prefer Permian producers, as we believe that the Permian provides some of the strongest economics in E&P and many of the Permian stocks continue to discount a light oil basis differential that does not revert to historical norms,” said Jefferies analyst Mark Lear.

West Texas Intermediate, Lear noted, recently traded above $75/bbl for the first time since late 2014, but it pulled back on trade fears, Libyan ports reopening and potentially higher production from the Organization of the Petroleum Exporting Countries and Russia.