U.S. exploration and production (E&P) spending is down, costs are down and the natural gas rig count is way down, but sector volumes still may climb in 2Q2009 on acquisitions made in 2008 and because some continue to lay down cash in natural gas shale plays, energy analysts said in previews of quarterly earnings.
The E&P team at Tudor, Pickering, Holt & Co. Securities Inc. (TPH) is forecasting its covered producers to grow volumes 10% in 2Q2009. In 2009 E&P volumes are expected to jump by 8% overall and by 7% in 2010.
Capital spending "seems to be generally in line," with up to 90% of free cash flow plowed back into exploration and development spending, wrote the TPH analysts, "but some companies continue to strategically outspend," including shale players Petrohawk Energy Corp., Southwestern Energy Co. and Range Resources Corp. Last week Range said its 2Q2009 output rose 14% from a year ago (see related story).
TPH's E&P coverage universe includes 30 producers of various sizes. Its large capitalized producers, which include XTO Energy Corp. and Occidental Petroleum Corp., are expected to grow production on average about 6% both in 2009 and 2010, according to TPH.
However, "the little guys are growing fast," which will lift sector output, analysts wrote. Small cap producers covered by TPH include Concho Resources and Carrizo Oil & Gas.
Producers "likely" will have flat production sequentially from 1Q2009, a consequence of the recent drilling cuts, the TPH team noted.
And energy analysts appear to agree that there will be no big gas drilling turnaround or uptick in E&P spending this year. At Barclays Capital, analysts said North America's larger independents and the less visible "middle-tier" producers, which include many "mom and pop" and privately financed operations, will lead the way.
"Their activity, particularly in shale drilling, will be the largest influence for U.S. natural gas production," wrote Barclays analysts Jim Crandell, Biliana Pehlivanova and Michael Zenker.
"As the cycle turned in late 2008, the company types that added the most rigs, on an absolute basis, were also those that pulled back the most," said the Barclays trio. "The middle-tier producers were first to cut back in 4Q2008, with the larger independent companies following suit in 1Q2009. Somewhat surprisingly, all producer groups have affected a rig count decline of 57-61% from the peak, contrary to the idea that better capitalized producers would not cut back by as much."
Independents and middle-tier producers "appear to have opportunistically entered shale basins in drilling booms and in the discovery phases of these shale plays," wrote Crandell and his colleagues. "On the other hand, integrated companies and single-rig drillers show random activity that suggests they may be interested in these plays but are not as concerned about how quickly or when they move."
U.S. E&P spending will fall by 38% in 2009 versus a year ago, according to Barclays' oil services equity research team.
"As we would expect, larger companies are not cutting by as much, as better balance sheets and longer-term goals allow them to continue producing despite a difficult operating environment," said the Barclays team. "Those that spend over $1 billion annually are only cutting spending by 33%."
Intelligence Press Inc. All rights reserved. The preceding news report
may not be republished or redistributed, in whole or in part, in any
form, without prior written consent of Intelligence Press, Inc.