Investors Await Detail on Shale Plans -- WSJ
July 31 2017 - 3:02AM
Dow Jones News
By Lynn Cook and Alison Sider
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (July 31, 2017).
Some American oil producers may be pumping the brakes on new
drilling, but as the leading shale players get set to report
earnings this week, investors will be watching closely to see how
much the industry is really slowing its ambitious plans for
growth.
Investors and analysts are eager to hear management teams at
Pioneer Natural Resources Co., EOG Resources Inc. and other shale
companies detail their plans for the second half of 2017.
Anadarko Petroleum Corp. and ConocoPhillips already reported and
could serve as bellwethers for this earnings season. They lost more
than expected in the second quarter as crude languished under $50 a
barrel for most of the period, prompting them to announce plans to
rein in spending. Together, they shaved a combined $500 million out
of their $9.2 billion budgets.
Investors, initially skeptical, came around to the idea of belt
tightening -- when they learned where it was happening. Anadarko's
stock dropped 3% in overnight trade last Monday after its cuts were
announced. But the stock rallied back Tuesday morning when Chief
Executive Al Walker and other executives explained that the
preponderance of cuts would cut from international and deep-water
divisions, not U.S. shale operations.
In fact, Anadarko is in the process of restarting 3,000 wells in
Colorado shale country that shut in the wake of a deadly home
explosion in the spring.
"We're going to continue to watch the market, see what oil
prices do, try to pace our spending this year and next year," Mr.
Walker said.
ConocoPhillips said it is now track to end the year with less
than $20 billion in debt thanks to extensive oil-and-gas field
sales in Canada and the natural-gas-rich Barnett Shale near Fort
Worth, Tex. The company is dialing down spending for the rest of
this year by $200 million, but continues to ramp up in oily areas
like the Eagle Ford shale of South Texas. Conoco shares rose 6%
last week.
While enthusiasm for shale hasn't waned, investors are more wary
of companies that want to increase production at any cost, said Dan
Pickering, head of the asset-management arm of investment bank
Tudor, Pickering Holt & Co.
"The market is signaling spending less is OK," he said. "The
market is very afraid of U.S. oversupply."
U.S. oil drillers have redeployed more than 240 rigs since the
start of the year, but those increases are slowing dramatically.
The second quarter rig count was only 23% higher than the first
quarter, and so far in July it is up just 5% over the second
quarter, according to a report from RigData.
Even if U.S. energy outfits take a break from drilling, oil
production is likely to keep rising. That is because many producers
in the Permian Basin of West Texas and New Mexico have hedging
contracts on 65% of their production for the rest of this year at
$50 a barrel, ensuring they will get that price even if crude
trades lower, according to a new analysis from IHS Markit Ltd.
Also, many wells around Texas have been drilled but not yet
fracked, the so-called completion stage that unlocks fuel from the
ground. According to the latest federal estimate, the number of
drilled-but-uncompleted wells is now over 6,000 -- a backlog that
could take the next 18 months to work off as wells are hooked up to
pipelines, analyst James West of Evercore ISI said.
Pioneer, which reports Tuesday, expects to drill its 1,000th
well in the Permian later this year as it charts a path to pump 1
million barrels a day in a decade, up from a little more than
235,000 barrels a day in 2016.
Pioneer executives have long been bullish on U.S. shale despite
low oil prices, in part because the company has hedged much of its
production to get higher-than-market prices, but also because the
company continues to wring out costs from its operations.
But even Pioneer has signaled its outlook for this year and next
could be tempered if low oil prices persist -- an idea that is
getting more traction since the head of Royal Dutch Shell PLC last
week warned that oil prices might be "lower forever."
"We're not going to drill ourselves into oblivion," Tim Dove,
chief executive of Pioneer, said in late June at an energy
conference hosted by J.P. Morgan. "It just doesn't make sense."
Bradley Olson contributed to this article.
Write to Lynn Cook at lynn.cook@wsj.com and Alison Sider at
alison.sider@wsj.com
(END) Dow Jones Newswires
July 31, 2017 02:47 ET (06:47 GMT)
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