Banc of America Securities LLC estimates that its exploration and production coverage group will increase aggregate organic production at a 3.8% compound annual growth rate (CAGR) through 2009.
That estimate compares with a 1.2% CAGR for the group of 25 E&P companies during the last 5 years. A majority of the companies said that a lack of drilling prospects is one of industry’s biggest challenges.
The anticipated production growth will come primarily from unconventional plays, including the Barnett shale around Fort Worth, Tex., and coalbed methane in the Rockies, said analyst Robert S. Morris of New York.
“In addition, we estimate our coverage group will generate nearly $110 billion of free cash flow,” he said. Of this, $40 billion is expected to be reinvested to increase production, while the rest will fund debt reduction, share buybacks, dividends, additional reinvestment, and acquisitions.
Morris and analyst Michael Schmitz said in an Apr. 1 research note that they expect “a solid uptick” in 2005 reserve replacement efficiency. Then, reserve replacement rates for their coverage group are expected to subside to a 10-year average in 2009.
“This would be due largely to a projected moderation in oil and natural gas prices, combined with the continued escalation in costs,” Morris and Schmitz said. “Returns for our coverage group are projected to subside to more normal levels by 2009.”
Oil services
BOA oil service analyst Jim Wicklund of Houston expects drilling activity to trend up for the foreseeable future.
“We expect the capital construction cycle to ramp up with approximately 850 more land rigs needed worldwide by 2012 at a cost of over $8 billion, just to meet our current expectations of demand,” Wicklund said.
In an Apr. 1 research note, Wicklund and analyst Doug Becker forecast a 5% CAGR in US drilling activity through 2012. Canada is expected to grow at a 3% CAGR while the rig count outside the US and Canada grows at a 4% CAGR.
The analysts noted orders have been placed for 27 jack up newbuilds, the largest number of orders since 1981.