Citi Global Energy & Utilities Conference
Takeaways from E&P Company Presentations
15 May 2014 ¦ 50 pages ir.citi.com
Sixteen E&Ps in Our Coverage Group Presented – Sixteen E&P companies –
APC, CHK, CNQ, COG, DNR, DVN, EPE, EOG, MHR, MRO, NFX, OAS, PXD,
RRC, SWN and UPL – made presentations during the two-day Citi 2014 Global
Energy and Utilities Conference in Boston. While most of the key takeaways were
company specific and are highlighted on the following pages, several clear trends or
observations were noted.
Permian Ramp Begins to Sway Oil Field Services Costs – Most companies
admitted that the recent ramp up in drilling activity in the Permian Basin has begun
to put some pressure on oil field services costs, albeit not significant at this point.
Pioneer, who added 11 rigs here during Q1, said it is beginning to see some
tightness in rig availability while Anadarko has not experienced any cost increases
since 2/3s of its Delaware Basin ramp up to 8 form 0 rigs one year ago has been
the result of moving rigs from targeting the Bone Spring and Avalon elsewhere in
the Basin. Notably, several companies said that the ramp in the Permian has begun
to be felt in the Eagle Ford shale where EOG has observed a “tad” on the drilling
side and Marathon noted a “sucking sound” from the Permian on the Eagle Ford
shale in just the last 60 days. Otherwise, there were no real apparent OFS cost
pressures in the Marcellus, Bakken, Rockies or elsewhere apart from labor.
Good Things Just Keep Getting Better – Echoing what we heard during the Q1
earnings calls recently, nearly every company highlighted the ongoing improvement
in drilling efficiencies throughout core plays with well performance exceeding many
type-curve expectations, cycle times still declining, longer laterals, more intense
fracture stimulations, and potential in upper or lower intervals relative to already
identified formations. When asked what inning they thought most of the core shale
plays were in, the responses were the 3rd to maybe the 6th inning.
No Concern on Commodity Prices – Interestingly, or perhaps disconcertingly, we
did not hear one investor ask any company management about any concern, or
outlook for that matter, regarding crude oil or natural gas prices. And no company
management discussed any downside scenario to commodity prices.
Still No Interest in Putting New $s to Dry Gas – Apart from those focused on dry
natural gas plays, i.e. the Marcellus and Fayetteville, every management stated that
they were waiting to see higher and/or current natural gas price levels sustained
before considering allocating incremental capital to dry gas plays though this was
purely due to the relative economics versus oil and/or liquids-rich plays even though
many dry gas plays would have positive returns in the current environment.
Reiterate Ratings – We reiterate our Buy ratings on APC, COG, CHK, CNQ, EPE,
EOG, MHR, PXD, RRC and Neutral ratings on DNR, DVN, MRO, NFX, OAS, SWN,
UPL.
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