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New lyrics, same tune for US shale producers

  • Market: Crude oil, Natural gas
  • 17/08/20

US shale producers are renewing their vows of fiscal discipline and shareholder devotion amid an unprecedented global demand drop and a severe recession.

The refrain is familiar for a sector that borrowed heavily in the past to prioritise production growth over investor returns. But the industry's cash crunch makes this year's promises ring differently, with plans under way for massive cost-cutting, allocating more free cash flow for debt reduction and dividends, and significantly lower production targets. "The days of investing every bit of our cash flow for maximum growth are gone," independent producer Cimarex Energy's chief executive Tom Jorden says.

The crude price crash in the spring has accelerated the trend of technologically driven cost cuts in the US oil patch. Independent producer Diamondback Energy brought down its drilling cost per lateral foot in the Delaware basin section of the Permian shale by 26pc in the second quarter, compared with the end of 2019, while its Midland basin costs were down by 23pc. Cimarex and Callon Petroleum have cut their lateral foot costs by 23pc in the Delaware basin, while Callon achieved a 38pc decrease in the Midland.

Many producers are eyeing flat production despite cuts in capital expenditure (capex). Devon Energy is targeting 141,000-146,000 b/d of crude output next year, 4pc below its 2020 estimate, while next year's capex of $750mn-950mn will be 13pc lower than in 2020, at mid-range. Callon expects to cut its 2021 capex by 20-23pc from 2020 levels, with production down by just 10pc.

Producers are also outlining plans to limit free cash flow reinvested into production to 70-80pc, devoting the rest to paying dividends and reducing debt. Pioneer Natural Resources plans to introduce a variable dividend in 2021, in addition to a base dividend. Other firms are pursuing a similar payout strategy, giving them the flexibility to tie additional returns to market conditions without a cut in the base dividend.

All this adds up to more modest growth targets, with a 5pc/yr goal shared by many firms, down from 20pc/yr and above previously. "You can't have the Permian and the US shale add 1.0mn-1.5mn b/d of new production per year to a glutted world oil market," says Pioneer chief executive Scott Sheffield, who returned to the company in 2019 after several years of retirement to help guide it from annual growth of around 25pc/yr to a new 5pc/yr target. The EIA projects US crude output will rebound after a sharp drop in March-June, but its 2021 forecast of 11.14mn b/d is 1pc below the 2020 projection.

Apple of Wall Street's eye

The new investor-friendly and cost-conscious shale exploration model outlined by firms in the second-quarter earnings season is one that EOG Resources says it has been following for years. The Permian and Eagle Ford shale-centric producer was a Wall Street darling that was called "the Apple of oil" as it combined cutting-edge technology with financial discipline. Over the past three years, EOG has generated more than $4.6bn in free cash flow, increased its dividend by 72pc and reduced its net debt by $2.2bn. The firm has not cut its dividend during the 2020 downturn and does not appear to be cutting staff.

That other companies are prioritising returns to investors over growing production "is fantastic for the industry, for investors, and certainly it is very positive for oil prices as we move forward", EOG chief executive William Thomas says. But even financial discipline is no guarantee of success amid a price downturn — EOG reported a second-quarter loss of $909mn, even with a $639mn boost from derivatives.

US crude output

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12/07/24

Gas struggles hinder Brazilian industry: Study

Gas struggles hinder Brazilian industry: Study

Sao Paulo, 12 July (Argus) — A lack of natural gas supply is hindering 9pc of Brazil's industry, according to a study conducted by the country's industry confederation (CNI). According to CNI, 14pc of the Brazilian industry uses natural gas in its production processes, with 9pc reporting some sort of supply issue in the last 12 months. The study also showed that 10pc of industry have limited access to energy in general. Among those who do not use natural gas in the production process, 10pc point to the lack of access to energy as the main reason for choosing another energy source, 8pc blame the lack of distribution infrastructure, such as gas pipelines, and 5pc said prices are too high. The study provides some insight to the industry, but it may not paint the most accurate picture, given that gas usage is more intense in some specific sectors, CNI's energy policy and industry expert Rennaly Patricio Sousa said. Brazil's south holds the heaviest natural gas users in the country and its regional federations have been very active in advocating for a more competitive gas market. "The attraction of new investments to the south is related to the availability of gas," Santa Catarina state's industry federation president Glauco Jose Corte said on 10 July during an industrial forum. "Therefore, we need to discuss improvements in transport infrastructure, supply strategies, the entry of new players and the role of regulatory agencies." CNI's study makes it clear that low competition in the natural gas sector holds back both industry and consumers, making the Brazilian product more expensive and less competitive. Hence, lowering the price of natural gas is important to increase investments and revenues in sectors that are very dependent on it, such as the petrochemical industries, steel, ceramics, glass, aluminum and mining, the report said. The 2021 new gas law made room to reform the sector, but the market remains very concentrated, Sousa said. "So opening up the gas market is a good bet to help resume growth in the industry that consumes about 60pc of this energy." By Betina Moura Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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India to offer 25 oil, gas blocks in 10th round: Update


12/07/24
News
12/07/24

India to offer 25 oil, gas blocks in 10th round: Update

Mumbai, 12 July (Argus) — India will offer a total of 25 oil and gas blocks in the tenth bidding round in August or September, according to a senior Directorate General of Hydrocarbons (DGH) official. The offer will cover 13 sedimentary basins, including six onland blocks with an estimated area of 16,871km², six shallow water blocks covering 41,391km², one deepwater block of 9,991km², and 12 ultra deepwater blocks of 12,3733km², the DGH official said. India offered 136,596.45 km² in 28 upstream oil and gas blocks in the ninth bidding round under the Hydrocarbon Exploration and Licensing Policy's (HELP) Open Acreage Licensing Programme (OALP). The deadline for this round has been extended thrice , with the latest one to 31 August as the government wanted to provide much more granular data about the blocks to help upstream companies make a decision, DGH director-general Pallavi Jain Govil told reporters on the sidelines of an industry conference. India also extended the deadline for bids for a special upstream bidding round to 16 August from 15 July earlier. It had invited bids for two discovered small oil and gas fields located in the Mumbai offshore region and one coal-bed methane (CBM) gas field in West Bengal. The conclusion of the ninth round will have a key role to play in the launch of the tenth round as foreign participants have raised key issues with the oil ministry, including ones related to indemnity and compensation, a government official said. These issues have been holding back foreign firms from investing in India. With bigger blocks on offer, there are expectations that it will elicit interest from foreign participants as the government tries to resolve issues raised by these companies. The move by the government to provide more data to bidders by placing it in the National Data Repository is expected to reverse the tepid response in previous drilling rounds. It is not yet known if this round will elicit interest from foreign participants, as has mostly been the case in previous auctions. India's upstream licensing has largely been dominated by domestic participants. Indian state-controlled refiner ONGC in January bagged seven of the 10 areas in exploration blocks offered under India's eighth open acreage licensing policy drilling round. A private-sector consortium of Reliance Industries (RIL) and BP, state-controlled Oil India and private-sector Sun Petrochemicals received one block each. India's hydrocarbon exploration has been lacking because of slow policy implementation, despite its huge demand for oil and gas. The DGH is working to minimise the approval time to increase domestic production and decrease import dependency on oil and gas. Lackluster discoveries, shrinking exploration capital and a complicated tax regime have also limited foreign interest. The DGH has also started an efficiency department recently to focus on enhanced oil recovery techniques with the use of carbon capture, use and storage technology, Pallavi Jain said during a panel discussion. By Rituparna Ghosh Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Japan’s Shikoku to shut Ikata reactor for maintenance


12/07/24
News
12/07/24

Japan’s Shikoku to shut Ikata reactor for maintenance

Osaka, 12 July (Argus) — Japanese utility Shikoku Electric Power is planning to shut down the 890MW Ikata No.3 nuclear reactor on 19 July, to carry out regular maintenance works. The absence of Shikoku's sole reactor could prompt the utility to boost thermal power generation at coal-, gas- and oil-fired units to meet expected rises in electricity consumption for cooling purposes during the peak summer demand season. The Ikata No.3 reactor is set to close for a three-month turnaround, after around 13 months of continuous operations. Shikoku plans to start test generation in the final phase of the maintenance on 30 September and complete the entire turnaround process on 25 October. The potential fall in nuclear output could theoretically increase LNG demand by 170,270t over August-September, assuming an average gas-fired generation efficiency of 50pc. Shikoku operates four thermal power plants, including the 1,385MW Sakaide gas- and oil-fired plant, 750MW Saijo coal-fired plant, 700MW Tachibanawn coal-fired plant and 450MW Anan oil-fed plant. Thermal capacity accounts for around 60pc of the utility's power portfolio. By Motoko Hasegawa Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Biden brushes aside calls to end candidacy


12/07/24
News
12/07/24

Biden brushes aside calls to end candidacy

Washington, 12 July (Argus) — President Joe Biden said on Thursday he will not end his re-election bid despite calls from Democratic lawmakers and donors who have raised doubts about his ability to defeat former president and Republican nominee Donald Trump. "I believe I'm the best qualified to govern, and I think I'm the best qualified to win," Biden told reporters following the conclusion of a three-day NATO summit in Washington. "I beat [Trump] once, and I will beat him again." Biden's televised debate with Trump last month led some Democratic lawmakers to urge him to end his campaign, and even senior Democrats like former House of Representatives speaker Nancy Pelosi (D-California) suggested that Biden should decide soon whether to remain in the race. Biden in his debate, which he called a "stupid mistake," often appeared feeble and confused and struggled to clearly articulate his policy positions. But Biden appeared stronger and more coherent in his solo press conference on Thursday — the first since November — in part because he talked about his international initiatives, which he considers among his strongest policy strengths. Biden cited NATO's security support for Ukraine and his administration's efforts to achieve a ceasefire in Gaza among his accomplishments. During the NATO summit this week fellow leaders "made it a point in their statements to thank the US and to thank me personally for all that NATO has achieved," Biden said, as a counterpoint to Trump's frequent criticism of the military alliance. Biden acknowledged that his age and medical conditions have led him to curtail his work schedule, with no engagements after 8pm, even though several late evening events were on his agenda during the NATO summit. He appeared to blame his staff for putting too many events on his schedule. Biden earlier attributed his poor performance during the debate to two transatlantic trips in June, to attend the 80th anniversary of the Normandy landing in France and to participate in the G7 summit in Italy. Even with a clearly stronger performance today — Biden took multiple questions during an hour-long press conference that ended at 8:30pm ET — his tendency to misspeak will continue to fuel his critics. At a NATO event earlier today, Biden mistakenly introduced Ukrainian president Volodymyr Zelenskiy as Russian president Vladimir Putin, while NATO leaders watched uncomfortably. "I am better [than Putin]," Zelenskiy jokingly retorted, while Biden said he thought too much about how to "beat Putin." And Biden referred to vice president Kamala Harris as "vice president Trump" during the press conference. Harris is qualified to serve as president but "I am the most qualified person to run," Biden repeatedly said. "I am the qualified person to do the job to make sure that Ukraine will not fall, that Ukraine succeeds, that the European alliance stays strong." Biden said he would only drop out of the race if his staff told him polls "showed there's no way you can win." At the summit, NATO members decided to establish an organization formally tasked with coordinating military assistance and training for Ukraine's armed forces, rather than have the US alone lead the effort. Referencing Trump's criticism of NATO and frequent adoration of Putin, Biden said that the election "is much more than the political question — it's a national security issue." Biden referred to several unnamed NATO leaders who told him: "You've got to win. You can't let this guy come forward. It'd be a disaster." The NATO summit declaration also accused China of covertly assisting the Russian war effort by providing key components for weapons. The US previously threatened to impose sanctions against Chinese companies allegedly helping the Russian defense industry. "I'm not prepared to talk about the details of [potential new sanctions] in public," Biden said. "I think you'll see that some of our European friends are going to be curtailing their involvement" in China. Biden said he would not sit down to negotiate with Putin over Ukraine "unless Putin's ready to change his behavior." Hungary's prime minister Victor Orban met with Zelenskiy, Putin and Chinese president Xi Jinping earlier this month to discuss a possible Ukraine peace deal, and he plans to meet with Trump on Friday. The Biden administration has dismissed Orban's mediation as unhelpful. By Haik Gugarats Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Houston power outages creeping down toward 1mn


11/07/24
News
11/07/24

Houston power outages creeping down toward 1mn

Houston, 11 July (Argus) — Slightly more than 1mn Houston-area homes and businesses were without electricity Thursday afternoon as local power distribution company CenterPoint Energy continues to slowly restore service after Hurricane Beryl. The storm knocked out power to about 2.1mn customers on 8 July when it made landfall southwest of the city as a Category 1 hurricane. The pace of restoration of service to areas that include major oil refineries, petrochemical plants and an LNG export terminal has been seen by many in the region as far too slow. At 6:50mp ET on Thursday about 1.04mn customers were still without power, according to CenterPoint. The company estimates that about 1.2mn customers have had power restored so far, another 400,000 should be restored by the end of day Friday and another 350,000 by the end of day Sunday. The 2 Bcf/d (57mn m³/d) Freeport LNG terminal in Texas remained offline and without power on Thursday after it was shut down ahead of Beryl's landfall. The electric power sector accounts for about 45pc of Texas' gas use, and gas generates about 43pc of the state's electricity, according to the US Energy Information Administration. Spot gas prices at the Katy storage hub, a key natural gas market near Houston, averaged $1.715/mmBtu on Thursday, down by 7.2pc from the previous session but 5.2pc higher from the start of this week. The index began July at $1.97/mmBtu. By David Haydon Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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