E&P Stock Perspectives Per Underlying Commodity Price Drivers
Post Q1’13 Update: U.S. Natural Gas Production Still Projected To
Be Flat In ‘13 Despite Sharp Drop In ‘Dry’ Gas Spending
16 May 2013 ¦ 17 pages ir.citi.com
Post Q1’13 Update On U.S. Natural Gas Production, E&P Spending Slates – Post
Q1’13 earnings, we have updated our outlook for the E&P sector’s U.S. natural gas
activity, spending and production outlook for 2013 (see our prior note: March 14th Post
Q4’12 Update). Based on projections for our 27-company E&P coverage group, which
accounts for ~1/3 of total U.S. natural gas production, this group plans to reduce
spending on U.S. natural gas directed drilling activity by ~32% (~$3.3bn) to $7.3bn in
2013. Meanwhile, total U.S. natural gas production for this group is projected to decline
just ~1% year-over-year, primarily due to asset sales, without which gas volumes would
be essentially flat. Further, our analysis of the top 45 U.S. natural gas producers, which
account for a combined ~55% of domestic output, also reveals that total U.S. natural
gas production is likely to be flat versus 2012 (after accounting for asset sales) as
strong growth from the Marcellus and liquids-rich plays offsets declining Haynesville
and conventional volumes. In the Haynesville shale, which accounts for ~9% of total
U.S. natural gas production, output is projected to decline by ~1.1 Bcf/d in 2013, largely
driven by CHK and XCO although ECA is currently running 3 rigs in the play (from 0 in
Q4'12) and plans to ramp up to 5 rigs during the year. In the Barnett (~7% of U.S.
total), production is projected to increase ~0.1 Bcf/d as high uncompleted well counts
offset lower activity levels by DVN, CHK and EOG. In the Fayetteville shale (~4% of
U.S. total), SWN should underscore a ~0.1 Bcf/d year-over-year uptick. In the
Marcellus (~9% of U.S. total), we continue to project that natural gas production will
increase ~2.7 Bcf/d in 2013 as nearly every producer expects to grow volumes here
despite lower spending. |
