Barclays: US onshore upstream budgets up 9% in 2018

Preliminary upstream budgets from the top 40 US onshore producers show a 9% rise this year, according to an updated Barclays’ E&P spending survey. This is well below Barclays’ previous estimate of an increase of 21% for North America E&P spending in last December’s survey.

Preliminary upstream budgets from the top 40 US onshore producers show a 9% rise this year, according to an updated Barclays’ E&P spending survey. This is well below Barclays’ previous estimate of an increase of 21% for North America E&P spending in last December’s survey (OGJ online, Dec. 14, 2017).

“Based on only 10 companies had announced a 2018 budget for North American spending at the time of the December survey, we relied on estimates of reinvestment rates on discretionary cash flow at [West Texas Intermediate] strip oil prices ($55 WTI in December vs. $62 WTI currently),” Barclays said. “We do believe E&Ps will exhibit greater capital discipline this year, but also think most budgets have been set at conservative price decks, many at around $50/bbl.”

The updated survey also shows E&Ps increasing Permian spending by 19% compared to relatively flat in other oil basins.

Barclays also mentioned potential for upward budget revisions likely tempered several factors, despite that WTI has been solidly above $60/bbl since January.

“First, the potential for the recent $6 blow out in Permian differentials to linger into 2019 will weigh on E&Ps without committed takeaway capacity and/or differential hedges. Second, a number of E&Ps have accounted buyback/dividend programs, though market reaction has been mixed. Third, oil field inflation will limit purchasing power (steel, water, labor tightness, frac sand rail disruptions, etc.) with some E&Ps budgeting 10-15%, impairing D&C activity levels.”

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