Will gauge how industry ‘digs out from here’: analyst
Also provide early glimpse into 2021 capex, activity
Expect release of Q2 operations reports in coming days
US companies that had shut wells over the past few months will be expected during upcoming second-quarter earnings calls to give some estimates on production, forward activity plans and when they will restore output shuttered from the coronavirus pandemic.
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“A lackluster second quarter is on tap with lots of focus on how the industry digs out from here,” Evercore ISI analyst Stephen Richardson said in a July 9 investor note. “Overall, second-quarter looks to be something to be endured.”
“Discussions of when and how much volumes return [will] be topical, if less relevant, while the trajectory of second-half 2020 volumes and looming 2021 capital allocation decisions are likely to take center stage,” Richardson said. “Considering Q2 will be a mess for volumes and price, it’s the outlook and trajectory that will win the day.”
Operators that had been unwilling to accept oil prices in the $20s/b and $30s/b in recent months, or had shut-in wells made uneconomic from low oil prices related to the coronavirus pandemic, are expected to guide on when they will restore that output. They are also likely to discuss their second-half activity and outlooks for 2020 production.
“There could also be talk about how operators are lowering their costs to deal with the current price environment,” S&P Global Platts Analyst Matt Andre said.
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…