Austin, TX – Drillinginfo, the leading energy SaaS and data analytics company, has released Let Your Cash Flow, the latest installment of their FundamentalEdge series. In this report they present the company’s current view of the oil, natural gas, and NGL markets and where they are headed over the next five years.
“We continue to see the influence of Wall Street driving operator decisions,” said Tyler Hoge, Senior Financial Analyst at Drillinginfo. “With more demands from investors to live within cash flow and return cash to shareholders, rather than reinvesting or drilling more wells, most E&Ps have released guidance with lower anticipated capital expenses than last year – with the exception of some companies that have recently merged. Despite reduced capital plans, almost all operators and consensus estimates show an increase in production from 2018 averages. How are they reducing operations but still increasing production? The answer is through a combination of efficiencies, lower expected service costs, and a focus on more established, predictable assets,” Hoge said.
Let Your Cash Flow focuses on a variety of variables affecting today’s oil, natural gas, and NGL markets, including OPEC cuts and quotas, changes in production from Venezuela, Iran, and Russia, midstream infrastructure, price volatility, LNG exports, as well as global supply overhangs.
Key Takeaways from the Report:
- Crude oil prices have recovered from the lows at the end of 2018 as OPEC+ supply cuts and declining Iranian and Venezuelan production reduced the supply overhang. However, further reductions are necessary to balance the market or demand needs to start to pick up. Therefore, volatility in prices is expected as the market finds its way through news on OPEC+ supply cut extensions, Iranian and Venezuelan sanctions, U.S. production increases, and trade wars in the upcoming months.
- Natural gas prices for Henry Hub are currently trading under $3.00/MMBtu. On a regional basis, the story is very different as supply and demand dynamics are causing peaks (PNW and California) and troughs (Permian/Waha) across the U.S. Even though gas prices are relatively low, production continues to grow. On the demand side, LNG exports will extend the gains as additional projects become operational. Looking ahead, natural gas prices of $2.60 – $2.75/MMBtu will balance the market, allowing production to increase at a rate to meet the expected demand growth.
NGL production continues to climb, with PADD 3 leading the growth. Y-grade pipelines are scheduled to come online in 2019 and 2020 but may have issues running full, with limited available frac capacity. Frac capacity along the Gulf Coast is running full, and projects aren’t expected to relieve the constraint until 2020. A slate of petrochemical projects is expected to hit the market by 2024, increasing ethane feedstock demand by ~1.36 MMBbl/d. Once frac capacity is relieved, export capacity could be the next bottleneck.