Beware the looming clouds

Author Manash Goswami

For US independent producers getting ready to make hay on the back of a recovery in crude prices and fall in services costs, industry captains are issuing a warning: the storm hasn’t yet cleared so beware the looming clouds.

For US independent producers getting ready to make hay on the back of a recovery in crude prices and fall in services costs, industry captains are issuing a warning: the storm hasn’t yet cleared so beware the looming clouds.

The world’s biggest independent oil and gas producer ConocoPhillips said the current price weakness would be prolonged if too many producers ramp up output. “I do think that [a rise in output] potentially starts to exacerbate” the current market situation, chief executive Ryan Lance said. “The possibility is there.” 

His warning closely followed a similar observation by Anadarko. Any plan to step up operations in coming months may mean "prices could suffer as a result of higher production," chief executive Al Walker said. "So we are going to be a little careful in terms of adding to that production number."

While the overall club of producers who have raised their output guidance for the year is still small, more and more are joining in. Devon Energy significantly increased its 2015 oil output guidance up from a 20-25pc range to 25-35pc,.

That comes as drilling and pressure pumping costs in the first quarter fell by more than a fifth from the earlier three months, allowing the company to achieve its new target even while lowering spending by $250mn.

"The magnitude of the decline is not a surprise to us but the speed of the realization of these better rates exceeded our expectations," chief executive John Richels said.

Canadian independent Encana, riding high on the back of a 78pc increase in liquids output in the first quarter from a year earlier, looks set to follow.

"We are well positioned to benefit as oil prices rise," said chief executive Doug Suttles. "We have core positions in some of the highest netback basins in North America and are delivering attractive margins in the current environment."

Indeed it does. Based on $50/bl WTI, the Permian, Eagle Ford, and Duvernay are expected to deliver a weighted average netback of about $26/barrel of oil equivalent (boe) in 2015 for Encana.

Other members of the club include Occidental Petroleum and Chesapeake. Occidental has been the most aggressive so far, revising up its guidance by some 40pc.

For more information, please contact OilBlog@argusmedia.com

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