2020 WTI prices may leave companies unable to cover costs.
US oil and gas executives expect WTI prices to average $58.54/b by the end of 2020, but most are also basing their capital spending on 2020 prices trading roughly 8% lower throughout next year with many planning for significant spending cuts, according to a Dallas Federal Reserve survey released Friday.
Petrotahlil :The quarterly survey, which polled executives at 111 exploration and production companies and 59 oilfield services companies, reveals a domestic industry concerned about increasingly limited access to capital, stagnant prices and looming bankruptcies in the Permian and other US shale plays.
"The outlook for North American onshore seismic has worsened significantly," an executive at one oilfield services company said in the survey. "Our customers are only interested in spending dollars where absolutely necessary and only when that investment will produce a return in the very short term."
The survey said that contraction in the US oil sector may have lessened in Q4 2019, when compared with Q3, but about one-quarter of respondents forecast they will be unable to cover planned capital expenditures in 2020 if prices do not rise above $60/b.
"Continued weak oil prices and high costs are squeezing my margins," one E&P executive told the survey. "It is very difficult to find any projects that make sense economically."
In fact, only 8% of respondents to the survey said they expect to increase capital spending significantly in 2020, with 21% saying they plan to decrease spending significantly next year and 20% saying they will decrease spending slightly.
"We are having to divest properties in order to keep from dropping employees," one E&P executive said.
"We will be acquiring existing production, drilling only lease-required development wells, and will not be drilling any exploratory wells," another E&P executive said.
Operator bankruptcies have become a "major" worry in the sector, another E&P executive added.
"Many non-operated working interest owners are going non-consent, which is a sign of low oil and gas prices and/or lack of available capital," the executive said. "Oil and gas purchasers are generally non-responsive to questions; we can't reach them by phone, and automated web-based question input screens go many days before a response [comes], if any."
WEAK PRICES EXPECTED
On average, executives polled forecast WTI prices to be at $58.54/b by the end of 2020, but estimates varied from $48/b to $75/b. The executives were surveyed December 11-19, when WTI prices averaged $60.19/b.
In its latest Short-Term Energy Outlook, EIA forecast WTI to average $55.01/b in 2020, down from $56.74/b in 2019.
Executives in the Dallas Fed survey also forecast Henry Hub natural gas prices to average $2.51/MMBtu by the end of 2020, with forecasts ranging from $1.35/MMBtu to $4/MMBtu. Henry Hub prices averaged $2.28/MMBtu when the survey was conducted.
On average, executives were planning for an even lower WTI price in 2020. Most respondents said their companies were planning for WTI to average $54/b in 2020 as the basis for their capital spending plans next year.
According to the survey, 40% of executives said they would need WTI prices to average $55/b or more in 2020 in order for cash flow from operations to cover capital expenditures.
The most common complaint was limited access to capital.
"The risk appetites of the banks for energy lending are much lower," one E&P executive said.
Another compared Wall Street's interest in Permian production to an investment fad on par with savings and loans of the 1980s or subprime housing loans of 2005 through 2008.
"Now it is this total infatuation with shale at the exclusion of real money-making investments in conventional projects," the executive said. "The shortsightedness is destroying real value and makes this industry appear to be a bad investment."
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Source :Platts
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