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A Year in Review: Looking Back at 2019

Share Print Bookmark    |    Friday,January 03,2020

Shale Experts its taking a look at 2019 and the notable events of the year.

Themes from 2019

• 10% reduction in capital investment from 2018 to 2019
•  Limited access to the public markets
• Investor request for "Free cash flow" from E&Ps
• E&P selling water midstream assets
• Widening of the bid ask spread in the E&P M&A Market

Ed Burke said it best: "Those who forget the past are doomed to repeat it."

We go into further detail and unpack what occurred in 2019 below.

We entered 2019 with E&Ps disclosing plans to invest/spent -10% less than the prior year.

The reduction in spending was further aggravated by the new mandate from the public markets, which challenged E&Ps to:

• Stay within budget guidance
• Return cash to shareholders (buybacks)
• Achieve free cash flow (revenue from operations minus capex)

Shale Experts' own internal operator database shows that E&Ps have always spent more than they generate from operations.



In what could be considered a genius move or natural tendencies, most E&Ps spent (on average) a whopping 59% of their planned 2019 budget by the end of the 2nd quarter.  During this time, oil, natural gas and natural gas liquids prices were higher.



To further compound the problem, realized prices for natural gas and natural gas liquids (NGLs) fell 40% and 50%, respectively.  





E&Ps now face lower prices as well as the pressure to stay within budget guidances.  The only option they had left was to reduce rig counts and do it as quickly as possible.

As a result we saw rig count fall -25% and completion spreads/frac crews drop 31%.



US Active Frac Fleets / Spreads



As E&Ps cut rigs and reduced frac crews, the oilfield services industry contracted and did what it normally does, cut costs.  We saw massive layoffs and the closing of businesses, here and here.

Unfortunately, we regularly go through these cycles of boom and bust.  The one good thing that comes from operators exercising capital discipline is that the industry that supports them (oilfield services) can now better plan for the future demand.

Looking into 2020

E&Ps are currently indicating that 2020 bugets will be down -19% year over year.   Oil-focused E&Ps are guiding to a -9%,while gas-focused E&Ps are set to be down -19%.

• Gas-focused Basins (Marcellus, Utica, Haynesville) will see a ~12-16% reduction in activity
• Permian Basin, (flat to slight growth)
• Eagle Ford, Bakken (flat)
• MidCon - activity will be down ~15 - 18% year over year

Drilling & Completion activity will be front-loaded again this year and we predict that Frac Market demand for crews will average 320 - 340 crews/spreads.

See Also:

- Operator Adding 5 Rigs to Eagle Ford, Permian in 2020

- Here are the Companies Increasing Spending in 2020