US shale oil output growth plans point to a possible slowdown compared with 2018, as leading independent producers prioritise boosting investor returns and look to rein in their capital expenditure (capex) budgets to stay within cash flows.
The broader shale outlook is nuanced. Majors, listed independents and privately held operators are the main output drivers. Majors continue to rapidly ramp up unconventional portfolios as the sector becomes key to their short-cycle investments, while privately held firms with solid financial backingare similarly unfazed.
But listed independents remain under pressure from investors to improve margins and boost returns. Yet their deceleration in activity may not immediately reflect across wider forecasts, such as the EIA's Short-Term Energy Outlook, which has raised its prediction for US crude output this year by 2.8pc to 12.4mn b/d, driven largely by the Permian basin. Output should surpass 13mn b/d in the second quarter of 2020, about six months earlier than previously forecast, the EIA says.
Drilling by privately held operators shows no sign of slowing, US bank Goldman Sachs says. That group's rig count at the end of 2018 was about 250, or 34pc of the total and still near the highs of October-November, despite a near 40pc fall in WTI prices in the fourth quarter. Their operations may take support from higher futures prices, at $55/bl now and $59/bl for the second half of 2019. And Permian infrastructure constraints continue to diminish, narrowing Midland-WTI price differentials. This has prompted Goldman Sachs to revise up its 2019 US oil growth expectations to 1.4mn b/d from 1.2mn b/d, although this is down from 1.6mn b/d in 2018.
But Goldman Sachs flags up listed independents such as Pioneer Natural Resources, Concho Resources and Anadarko, whose share prices underperformed after their fourth quarter earnings announcements because of "lower-than-expected cash flow or higher-than-expected capex", it says. Investors deem the measures taken so far insufficient to increase shareholder returns.
Shareholder pressure is growing on the likes of Pioneer, whose chief executive Tim Dove last month left with immediate effect, to be replaced by founder Scott Sheffield. The firm is restructuring to become a Permian-only producer. Its output target for this year, to come entirely from the Permian, is 320,000-335,000 b/d of oil equivalent (boe/d), against 320,000 boe/d in 2018, with 283,000 boe/d from the Permian (see table). Pioneer's output growth in 2018 was 18pc. But Sheffield appears more cautious on growth than in the past. "I plan to engage with employees and shareholders to understand their views on how to expand Pioneer's industry leadership position," he says.
Anadarko's share price fell after its earnings announcement by as much as 15pc — against a 6pc decline overall for US exploration and production firms — largely because of disappointing first quarter output guidance, US bank Tudor Pickering Holt says. Its target is 667,000-711,000 boe/d, compared with fourth-quarter output of 701,000 boe/d and 2018 output of 666,000 boe/d. "We remain committed to returning cash to investors," chief executive Al Walker says.
Concho has lowered it output guidance to a 21-25pc rise in 2019, with oil output up by 26-30pc. Its acquisition of RSP Permian last year drove output up by 36pc to 263,000 boe/d, with oil output up by 41pc. But its rig count will fall to 32 by the end of March, from 34 now, and to 24 by the end of 2019. "We are calibrating our 2019 programme around lower commodity prices," chief executive Tim Leach says.
But consultancy Rystad Energy says that if firms fail to boost well completions, or well productivity, US shale oil output will rise by under 1.5mn b/d by the fourth quarter of 2020 from the fourth quarter of 2018 — 50pc lower than last year.
