Headlines this week suggest Exxon is breaking ranks from the pack and turning the capex tap back on. Exxon’s growth plan will require billions of dollars in spending spread across U.S. shale fields, along with refinery expansions and deepwater megaprojects. The company said investments should drive profit to $31 billion in 2025 with crude prices at or above current levels. Wall Street was not immediately impressed, but it is clear the big players cannot rely on cost cutting as a substitute for growth, forever.
Exxon said projects in Guyana and the Permian Basin region of Texas and New Mexico, as well as refining and chemical plant expansions, should drive earnings gains. It reported an adjusted profit of $15 billion in 2017. To achieve its goals, Exxon said it will boost spending on capital projects to $24 billion this year, $28 billion next year and an average of $30 billion from 2023 to 2025. Meanwhile, peers including Chevron are cutting spending or promising to hold budgets flat.
“Capex is the price you pay for cash flow,” said Exxon boss, Woods, who added that every dollar in capital spending by Exxon in the past decade has generated $1.20 in operating cash flow.
Separately Baker Hughes reported U.S. energy companies added 10 oil rigs this week, the biggest increase since June, as crude prices rose to their highest levels in three years, prompting drillers to return to the well pad. The total rig count rose to 752 in the week to Jan. 12, the most since September, 2017. The U.S. rig count, an early indicator of future output, is much higher than a year ago when only 522 rigs were active after energy companies boosted spending plans in 2017 as crude started recovering from a two-year price crash.
The increase in U.S. drilling lasted 14 months before briefly stalling in the second half of last year as some producers trimmed their 2017 spending plans after prices turned softer over the summer. U.S. crude futures traded around $64 a barrel this week, near its highest since December 2014. That compares with averages of $50.85 in 2017 and $43.47 in 2016. Looking ahead, futures were trading around $62 for the balance of 2018 and $58 for calendar 2019.
In anticipation of higher prices in 2018 than 2017, U.S. financial services firm Cowen & Co said 23 of the roughly 65 E&Ps they track have already provided capital expenditure guidance for 2018 indicating a 12 percent increase in planned spending over 2017.Cowen said the E&Ps it tracks said they would spend about $66.1 billion on drilling and completions in the lower 48 U.S. states in 2017, which was about 53 percent over what they planned to spend in 2016.
Analysts at Simmons & Co, energy specialists at U.S. investment bank Piper Jaffray, this week slightly reduced their forecast for the total oil and natural gas rig count to an average of 996 in 2018 and 1,126 in 2019. Last week, it forecast 997 in 2018 and 1,126 in 2019. There were 939 oil and natural gas rigs active on Jan. 12. On average, there were 876 rigs available for service in 2017, 509 in 2016 and 978 in 2015. Most rigs produce both oil and gas.
Overall, U.S. production is expected to rise to an all-time high of 10.3 million barrels per day in 2018 and 10.9 million bpd in 2019, up from 9.3 million bpd in 2017, according to a federal energy projection this week. U.S. output peaked on an annual basis at 9.6 million bpd in 1970, according to federal energy data.
So perhaps we will see an uptick in used prices for good quality, comparatively new rigs and associated consumables/ parts, including drill pipe.
Silas Berry – AsiaConsult – asiaconsult.org