Non-Permian producers tout steady gains

Many US independents with large positions outside the Permian basin have lifted their 2018 output forecasts. But only a few are raising their spending.

Shale producers dominant in Texas' Eagle Ford formation and the Bakken in North Dakota are not so exposed to pipeline constraints as peers focused on the Permian. Infrastructure expansion has failed to keep pace with the rapid output growth from the Permian, widening the discount on the region's crude prices to over $10/bl to the WTI benchmark. The Permian is also facing a shortage of labor, sand and water, which is raising costs.

ConocoPhillips, the world's largest independent, has revised its 2018 output forecast to 1.23mn-1.26mn b/d of oil equivalent (boe/d) from previous guidance of 1.2mn-1.24mn boe/d, partly driven by its US shale operations. The firm's unconventional output rose by 37pc on the year to 292,000 boe/d in April-June, topping 300,000 boe/d at the end of the quarter. It produced 182,000 boe/d in the Eagle Ford, 82,000 boe/d in the Bakken and 28,000 boe/d in the Permian's Delaware region. ConocoPhillips plans to move one of its three rigs in the Delaware to the Eagle Ford in response to the Permian infrastructure bottlenecks. And it will not run any conventional rigs in the Permian for the rest of this year.

Smaller peers are raising production forecasts, too. EOG Resources, which has a diversified US shale business, has increased its full-year output guidance to 706,700-728,300 boe/d from 685,800-728,500 boe/d. But "we are not relying on any one basin to drive the company's success," chief executive Bill Thomas says.

Marathon Oil, whose biggest shale operations are in the Eagle Ford and the Bakken, has set a new target of 400,000-415,000 boe/d, up from 390,000-410,000 boe/d. Key Bakken producer Continental Resources is aiming for 290,000-300,000 boe/d, compared with previous guidance of 285,000-300,000 boe/d. Whiting Petroleum has lifted its 2018 forecast slightly to 128,800-130,700 boe/d from 128,400 boe/d. And Hess has stuck with its full-year target of 245,000-255,000 boe/d, with higher Bakken output expected to offset the impact of asset sales.

Most of these companies expect to meet the higher production projections without adjusting their spending plans. EOG has kept its full-year capital expenditure (capex) flat at $5.4bn-5.8bn, Hess at $2.1bn, Marathon at $2.3bn and Whiting at $750mn.

In the bull pen

ConocoPhillips and Continental are notable exceptions. The former has raised its 2018 capex guidance to $6bn from $5.5bn, with all of the increase allocated to its onshore operations in the US lower 48 states. Some of the extra spending is to meet rising equipment and input costs. But "our adjusted capital plan is also bringing incremental production with it", executive vice-president of production, drilling and projects Al Hirshberg says.

Continental has raised its capex budget for this year to $2.7bn from $2.3bn amid expectations of higher crude prices and uncertainty surrounding supplies. "We are pretty bullish on prices," chief executive Harold Hamm says. "We expect Permian production to be held back because of infrastructure for a year more. During that time, it is hard to see a lot more oil coming to the market."

Continental plans to add more drilling rigs in late 2018 to "accelerate development of oil-weighted acreage", Hamm says. "Over 95pc of our drilling activity in 2018 will be focused on oil and liquids-rich prospects." The firm has agreed a deal with Canadian firm Franco-Nevada to form a subsidiary to manage mineral royalties. Continental expects to receive $220mn from Franco-Nevada in the fourth quarter as part of the tie-up, which will help fund its higher capex budget.