2021 capex depends on H2 oil price path
A preliminary glimpse of capital budgets for 2021 will likely also be on the agenda, although that will depend on where oil prices go from here. Most operators are likely to be wary and look for prices higher than current levels around $40/b to raise activity appreciably, analysts say.
“We think 2021 maintenance versus growth remains the central question for the industry and any shifts in this calculus will be of interest,” said Richardson.
Analysts had chopped their original capex by about 50%, released drilling rigs and pulled back substantially on activity after oil prices began plummeting in early March.
The US rig count has shed nearly 560 rigs or 67% of its bulk since mid-March.
The first week of March, oil prices tumbled from $46/b-$47/b – which had already slid from the low $60s/b in early 2020 – to lows not seen in more than 20 years. Crude prices hit the teens in April and the $20s/b in May.
The sharp activity reductions that ensued in the wake of sinking prices will likely result in US shale oil supply exiting 2020 at 1.8 million b/d-1.9 million b/d, or 20%, below Q4 2019 levels, Morgan Stanley analyst Devin McDermott said. In turn, that will leave many mid- to large-cap oils with “impaired” production bases, he said.
“Fully restoring production may take time and depends on commodity prices, with around $40/b WTI needed to hold total US supply flat in 2021,” McDermott said. “With growing regulatory uncertainty, geographic and asset diversity is also increasingly important.”
Restoring US production to pre-pandemic levels of 13 million b/d of oil would require $40/b-$50/b WTI, McDermott said.
Platts Analytics forecasts 2020 US oil output at 11.741 million b/d, or nearly half a million b/d less than 2019.
1 million b/d of oil output recently restored
With WTI currently back around $40/b, pipeline flows suggest about 1 million b/d of curtailments have been reversed over the past few weeks, McDermott added.
“If current prices hold, we believe effectively all curtailed volumes will return by the end of Q3,” said McDermott.
Noble Energy issued one of the first Q2 operations reports July 9. It revealed the company’s production declined by 40,000 boe/d from Q1, leaving 350,000 boe/d in Q2. Oil volumes were less affected –130,000 b/d in Q2 compared to 139,000 b/d in Q1.
But 32,000 boe/d of shut-in production is currently being restored and that most of that task should be complete by the end of July, Noble said.
The sector has finally stabilized to some degree, Evercore’s Richardson said. “And … our regular quarter-end conversations with corporates suggest little new is to come over these next few weeks,” he added.