Posted on 07/29/2015 11:45:52 AM PDT by thackney
The CEO of Anadarko Petroleum Corp. says it’s still unclear when his company should go back into growth mode across U.S. shale plays. And that’s not necessarily because of volatility in the oil market, but rather because oil field service companies haven’t cut prices for equipment and other work deep enough yet.
“Even with a tremendous amount of hardship that service providers have gone through in the first half of the year, we as an upstream company still don’t have the margins we had a year ago,” Anadarko CEO Al Walker said in a conference call with investors Wednesday.
Analysts estimate and a survey by the Federal Reserve suggests oil companies have been able to get 20 percent to 30 percent discounts on oil equipment and services amid the sharp downturn in crude prices. Oil prices are less than half what they were worth this time last year.
“We still see the uncertainty that we made reference to in the first quarter with respect to sustainable prices … and I don’t think the rest of this year is going to create that,” Walker said.
Oil prices, he noted, have fallen faster than service costs in places like the Wattenberg field in Colorado and the Delaware Basin in West Texas. But even an increase in crude prices might not stir Anadarko back to into an expansion phase because the margins, not top-line revenue growth, are most important.
Anadarko reported Tuesday its second-quarter profits came in 73 percent lower than the same period last year. Still, the Woodland-based oil explorer’s crude production rose compared to last year, and it has become cheaper to maintain production levels overall.
Earlier in the year, before initial declines in service costs, Anadarko had estimated it would take $3 billion in capital expenditures to keep production levels flat. Now, Walker said, it would take about $2.7 billion, and there is still room for improvement.
The cost to bring a well into production have fallen by about 45 percent this year in one of its major regions, the Wattenberg in Colorado. It’s drilling costs in the area have fallen below $1 million per well. That means it’ll be able to drill 70 wells in the area this year, compared to 35 last year, said Darrell Hollek, Anadarko’s executive vice president of U.S. onshore exploration and production.
Overall costs to drill and complete a well in the Wattenberg now sit at $3.5 million per well, he said. In West Texas, the Delaware Basin has offered up similar efficiencies, and Anadarko is moving in an eighth drilling rig into the region and is considering a ninth, as costs have come down by about $1 million a well.
Still, getting back into “growth mode” remains elusive, Walker said. Shale wells deplete their natural rate of production by 50 percent to 80 percent a year, so it’s critical to get the timing right on when to bring those wells into production.
With oil prices sitting below $50 a barrel, Anadarko is planning to hold more wells back heading into next year. It’s previous estimate of the number of wells it would drill but not bring into production by the end of the year was 125; now, about 200 wells. That means more oil production will be available next year if crude prices and service costs improve.
“We as an industry are not anywhere close to the type of margin improvement that’s needed before we get back into a growth mode,” Walker said.
Thats impressive.
Unless you had a business or job selling products and services for drilling or completing a well.
An industry wide loss of 150,000 oil field workers to date doesn't go far with this CEO. As a service company we all took 20% pay cuts (all across the board) and have lost 30% of our staff from layoffs and resignations. You can only cut so far as fixed costs remain. Those who have been through this before planned by leasing instead of buying equipment, and small operators with poor work practices are shed too. Outside of town both north and south, you see yards full of hundreds of idle trucks, tanks and trailers. A few months ago we thought we were coming out of the recession, but this deal with Iran and a slow world economy has driven the crude price down to the high 40's per barrel.
In NM the only ones happy with the current situation (as oil and gas provides just under one-third of state revenues) are the environmentalists who never stop trying to derail oil and gas production with more emission controls to curb CO2, to additional endangered species listings for lizards and prairie chickens, to preventing more drilling in the historic San Juan Basin by requiring more environmental studies to further "protect" ancient Indian ruins already protected by National Park status. Gasoline prices have not gone down substantially yet; maybe at the end of the summer.
This downturn is hurting all of us in the industry, especially those local businesses indirectly helped by earnings of industry workers. Better national policy, including not purchasing Iranian oil and allowing exports of some product would help. But until things recover, belt tightening by all of us is necessary.
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