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Starr Spencer

Articles by Starr Spencer

US oil output could see change of pace as producers rein in spending

April 16, 2019

Upstream oil and gas producers in the US are trapped in a dilemma they might have previously thought would be desirable: abundant production at low cost.
For decades, higher production from oil companies was what the market wanted and rewarded. If producers had to borrow and overspend to do it, the attitude was “c’est la vie”. But in the last couple of years, it has become clear that what is desired, often voiced and certainly rewarded, is slower production growth and reined-in spending.

Capital discipline has been the watchword among upstream producers and Wall Street alike for at least 18 months. That could help brake production growth this year, along with small decreases in well productivity and efforts to return more capital to shareholders.
Increases in US unconventional production

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New projects, cost-cutting efficiencies driving US Gulf comeback: Fuel for Thought

February 4, 2019

Activity in what has been a mostly sluggish US Gulf of Mexico is expected to increase modestly in 2019, bringing production growth and more exploration aimed at finding the elephant fields of the future.
Brent crude has fallen $20 from highs in the mid-$80s/b months ago, but US Gulf operators, especially in deepwater, aren’t phased by volatile prices, analysts say. Instead, operators are deciding to grow in the gulf because of the industry’s increasing ability to make those fields more economic.

Logistical and operational efficiencies, lower oilfield service costs, scaled designs and better engineering have combined to make the region more profitable than it was even before the 2014 industry downturn.
“Generally, when industry is at peak efficiency and operating at its best, industry

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What will it take to re-start offshore drilling? | Fuel for Thought

May 21, 2018

As global crude oil has hit the $80/b mark, the industry is now wondering if there is a magic price that would jump-start the offshore sector which is lagging an otherwise steadily recovering oil patch.
Higher crude prices near-term may not be enough to entice operators back to the risky business of greenfield offshore projects—as opposed to the warm fuzzies and quick payoff provided by North American shale.
“Offshore is starting to look a bit better” as onshore breakevens rise due to high activity, S&P Global Analytics analyst Rene Santos said.
“For offshore, due to relatively low activity, service provider costs [for] rigs and fabrication yards continue to decrease, Santos said. “However, shale breakevens are still around $10/b lower than offshore—low $40s/b versus high $40s/b WTI.”

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As oil flows in the US, so does borrowing power: Fuel for Thought

April 16, 2018

Credit lines for US oil and gas producers set to rise in 2018
US E&P companies needing cash for drilling are likely to hear good news from banks currently preparing to size up borrowing profiles, as upstream activity continues to tick higher.
„„With crude prices sustained at above $60/b, the upcoming round of credit-worthiness reviews could see bank lending increase by the low double-digits.
Haynes and Boone, in its spring 2018 survey of oil and gas borrowers and lenders, saw a “modestly improved” outlook for the upstream industry.
The survey, which polled dozens of upstream lenders, producers, and oilfield service providers, showed most expected a 10%-20% increase in E&P borrowing bases.
“That is the most positive response we’ve had since we started the survey in 2015,” said Kraig

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Oil’s recovery quells concerns over rising costs

March 19, 2018

Will rapidly rising oilfield service costs derail efforts by companies to maintain fiscal austerity while hitting their production targets?
That question emerged as a major theme during fourth-quarter earnings calls, and analysts say the answer is an emphatic no. WTI oil prices that have risen from a 2015-2017 average of $48/b to roughly $60/b have buoyed the industry and settled a blanket of confidence over oil company boardrooms.
Low prices had stemmed from a rapid rise in shale oil output, which added nearly 4 million b/d of crude from end-2010 to end-2014. The event caught upstream companies, long used to outspending their incomes, off-guard.
Now that industry is well into recovery mode, most observers believe the painful recent past has made a deep impression that won’t easily be

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The challenge facing US shale companies as oil prices recover: Produce more crude or more cash?

February 5, 2018

As oil prices recover from the lows of 2014, US shale producers face a choice: continue to invest in record production or start returning cash to investors who helped them weather the downturn.
It used to be that investors rewarded US upstream operators that could quickly grow production. More crude output growth per quarter separated oil patch E&P champions from the rest of the pack. That paradigm came under pressure starting in 2014, when prices plunged and common wisdom said producers would curb output and ride out the storm.
But nimble US shale companies surprised everyone, finding ways to slash costs, drill more efficient wells, and pour cash back into drilling and production.
Onshore producers have added nearly 4 million b/d of production since 2011. Their innovations pushed US

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Increased M&A activity could boost oil production

January 22, 2018

More mergers and acquisitions could be in store for the oil patch in 2018, experts say, boosted by oil prices at levels not seen in 30 months and a flurry of available acreage as companies focus on their very best plays.
But some are concerned that more acquisitions, especially in the US, could mean surging production on top of the record 10 million b/d of crude output that the US Energy Information Administration projects for next month, and 11 million b/d late in 2019.
And in a market that has been oversupplied with crude in recent years, which in turn dragged down oil prices, any large-scale trend that hints at new production volumes could pull prices even lower.
“Acquirers aren’t buying properties for the [proved developed producing reserves] associated with the properties, but rather

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Next US Gulf lease sale may be its ‘largest’: Fuel for Thought

November 6, 2017

US Gulf of Mexico Lease Sale 250, scheduled for next year, was touted last month as the largest such auction to be offered in the nation’s history—but Trump Administration touters may have confused an offering with an outcome.
True, the event—tentatively slated for March 2018—will feature 77 million acres in federal waters offshore Texas, Louisiana, Mississippi, Alabama and Florida in the second region-wide US Gulf sale since 1983. That’s a lot of acreage, although it was only about 1.5% more than in the most recent auction—Sale 249—in August.
But simply serving up a lot of acreage does not necessarily mean a significant amount of money will be offered for it. And at a time of relatively low crude oil prices when US Gulf offshore exploration is scanty, operators have largely chosen to

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Global offshore oil struggles to find its footing: Fuel for Thought

June 12, 2017

Global offshore oil production has been the most sluggish and recovery resistant sector in the oil industry during the last three years of slumped oil prices, but the arena is showing signs of adaptation and resiliency thanks to new cost-paring measures that in some cases allows offshore projects to compete with shale.
The need to reduce costs is not only critical for private companies and national oil companies. The world needs oil from those projects to meet future demand.
“The offshore sector, which accounts for almost a third of crude oil production and is a crucial component of future global supplies, has been particularly hard hit by the industry’s slowdown,” the International Energy Agency said in a recent report.
“In 2016, only 13% of all conventional resources sanctioned were

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History repeats as US E&P operators grow by acquisition: Fuel for Thought

January 30, 2017

Barely three weeks into the New Year, US upstream merger and acquisitions have sizzled as players in a charged-up industry, hungry to get moving after two-plus years of low oil prices and curbed activity, position not just for the up-cycle but the next decade or two.
Overwhelmingly, the Permian Basin of West Texas and southeast New Mexico, has been the main site of recent acquisitions, as its vast geography and multistacked shale and unconventional pay zones offer huge potential. Just one zone, the Wolfcamp in the eastern Permian, is said to contain 20 billion barrels of recoverable oil and 16 Tcf of recoverable natural gas.
But while shale oil is relatively new, operators’ recent bids to expand their shares of it represents the latest in a long series of reinvention cycles in a 150-plus-year-old industry. As baseball legend Yogi Berra, famous for funny quips, said in another context: “It’s deja vu all over again.”
“These things go in waves,” Canaccord Genuity analyst Sam Burwell said. And “the Permian will be the best bet for the foreseeable future.”
The biggest recent Permian deals came last week, as ExxonMobil announced a $6.6 billion acquisition to beef up its holdings in the New Mexico Permian. Also, Noble Energy said it will buy small Clayton Williams Energy for $2.7 billion, largely to capture West Texas Permian acreage contiguous with its own inventory.

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End of downturn at hand? Operators’ behavior suggests so: Fuel for Thought

November 21, 2016

The way US E&P operators are adding rigs, planning activity ramp-ups, preparing to raise capex and looking forward to renewed production growth in 2017, you’d be tempted to write finis to a harrowing two-year industry downturn.
During third-quarter 2016 earnings calls in the last few weeks, oil operator after operator unveiled what became surprisingly repetitive near-term plans: stirring the production pot by slipping a rig or two into the field during the final months of this year, kicking up the capital budget modestly and then returning to production growth in 2017.
“Third quarter results tell the story of good, old fashioned American ingenuity,” Robert W. Baird analyst Ethan Bellamy told S&P Global Platts. “Costs are down, productivity is up, and capital is flowing into the most productive regions.”
CEOs certainly displayed sunnier dispositions on conference calls than a couple of quarters ago when the specter of what then was a recent period of $30/b oil was fresh in their minds.
But now, with a new year looming, oil executives seemed energized by their victory over a low-priced oil world after two years of squeezing costs and efficiencies from oil fields and developing precise completion designs to extract still more oil and gas per well.

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Q2 was a turning point for US upstream operators: Fuel for Thought

August 22, 2016

The second quarter was a pivotal three months that saw rising crude prices and rig counts, well performance improvements and a brighter tone from US upstream operators who had weathered a tough downturn, and ominous crude prices in early 2016.
When crude prices fell back to $40/b from yearly highs over $50/b just as they were going through their quarterly earnings calls, US operators didn’t flinch from their production plans, Evercore ISI analyst Stephen Richardson said.
“If anything, the market was rewarding clarity on 2017…and telling us it still has confidence” in next year—at which point crude should be at least $50/b, Richardson said in an audio clip.
Jefferies analyst Jonathan Wolff went a step farther, characterizing upstream company managers on quarterly calls as “surprisingly, outspokenly, bullish on oil… markets, with most pointing to the supply impact of underinvestment.”
Even so, capital budget additions for the 25 producers Wolff covers were minor—about 4% on average for the 10 operators that hiked capex, while two cut budgets for the year. And lower costs prompted a number of his companies to increase their volume of expected well completions this year with no capex hikes.
About half Wolff’s companies plan to add a total of 20 rigs in the year’s back half, he said, including 11 rigs in the Permian Basin.

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Technology forged during downturn preps oil industry for upturn: Fuel for Thought

June 6, 2016

Upstream operators have masterfully used the current downcycle to prepare for the years ahead, achieving stunning efficiencies in drilling and completions even though tweaks and improvements were continuous in the years leading up to late 2014 when oil prices plummeted and kicked off what has arguably been industry’s worst slump.
Some of these advancements “absolutely” would not have happened if not for the downturn, Allen Gilmer, CEO of, said.
One of the first ways operators cut costs and drove what has become known as “efficiencies” was simply getting better at the logistics and coordination of supplies and equipment.
Efficiency gains have varied by operator and play, but results obtained by the best operators “look like step change–two times as much as before per same quality of rock,” Gilmer said.
An even more exciting way that companies improved their cost structure was getting better at how oil was extracted and delivered. And one method that made this happen was better geosteering–the ability “to land in the right spot…the sweet spot” of a reservoir, Muqsit Ashraf, Managing Director for Energy at Accenture Strategy, said.
“You can be off a few feet [from the optimum target] and see significantly different levels of production,” Ashraf said.

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US oil industry business models to change post-recovery: Fuel for Thought

April 4, 2016

Green shoots of optimism are poking through the parched ground of the oil patch lately as industry focuses on the aftermath of a downturn they hope has troughed. But the US E&P sector that emerges from the latest carnage will be different as business models will be forced to change.
With crude oil hanging just shy of $40/b, industry-watchers say capital is still available to survivors of the downturn that are in relatively good financial shape. But lending criteria will be stricter as more will be asked of borrowers and production hedges may be more prevalent, they say.
Nearly $39 billion of private equity funds were raised in 2015, and on top of that there was a “substantial” amount of dry powder remaining from funds raised in 2014, Doug Reynolds, managing director and head of US business for Scotiabank, said at the Hart Energy Capital Conference last week.
“The majority of US production is owned by companies that are financially strong and there is new equity [raised] that will make them more so,” Reynolds said.
US E&P companies have recapitalized to the tune of nearly $11 billion in equity so far this year, compared to $8.6 billion in Q1 2015, he and others noted.
While many oil companies will likely disappear, victims of liquidations and takeovers, “we think for the guys that make it through, it will be somewhat of a golden era for them,” Reynolds said.

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The oil industry will survive its wounds, but the pain isn’t over: Fuel for Thought

March 7, 2016

Two of the biggest names in the oil industry believe that the wounds inflicted by cratering crude prices will heal slowly, but the result will be a patient stronger in the broken places and better prepared for future growth.
John Browne, former chief executive of UK major BP, and Mark Papa, ex-CEO of EOG Resources, one of the biggest US shale operators, said during the CERA conference in late February when the price lift comes, the industry will be changed in ways that prepare it for the coming decades, Browne said.
“I think we’ll see a pretty fundamental restructuring” in the industry, said Papa, longtime EOG chief from its 1999 spinoff from now-defunct Enron until mid-2013. He is now a partner at private equity firm Riverstone Holdings.
But in the next six to 12 months there may be a “decimation” of the industry, with many bankruptcies, he said. Of companies that survive, “a lot will be grievously wounded financially.”
Management teams that do weather the storm will be more conservative, and as conditions improve they will not stretch their balance sheets even if oil gets to much higher levels, Papa said. They will also be very careful in making acquisitions of other companies.
“Industry is going to act in a more mature fashion, particularly the independents,” he said, although he added “it will be interesting to see how majors respond to this.

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Upstream oil execs agree: Low, long and living within means

September 22, 2015

The recent Barclays CEO Energy-Power Conference came at a crucial time in the current lower-for-longer oil price environment and clarified upstream CEOs’ plans to weather what could be 2015 all over again for a couple of more years.
The gathering, which typically represents the highlight of the post-summer back-to-serious season and an important way station along the road to third-quarter conference calls, this year showed bare-bones budgets amid improving performance as key upstream themes during the rest of 2015 and potentially also 2016.
Executives’ remarks at the September 8-10 conference, which also followed a brief but worrisome few days of sub-$40/b oil the previous week, before bounding up to the mid-$40s/b, showed a generally somber attitude. That contrasted with several months ago, when the accepted wisdom was that the industry downturn would last maybe a year or so and then return to business as usual (although maybe at or around $70/b).
Now, oil company chiefs appear to have accepted that oil prices are going to be around the $50/b mark for awhile and that they need to find a way to be profitable for the long while.
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