NEW YORK—If there was one message that resonated at the 21st annual OGIS energy conference it was that E&P companies said they are positioned to “come out the other side” of the current downturn. When the oil-price rebound will occur is still open to debate.
Over the course of three days and some 75 corporate presentations, executives explained how their companies are maneuvering to survive, by driving down costs and reducing drilling times. Speakers said companies are protecting the balance sheet, reducing rig counts and cutting costs.
At the same time, CEOs talked about continuing to pursue greater efficiencies in the field as they emphasized great assets in core acreage. Most claimed 2015 production will be flat to up slightly, making the oil price recovery more uncertain this year.
“There’s a lot of good PR going on here while everything is on sale,” quipped one capital provider. “I think there’s still a lot of denial going on,” an investor said.
Nevertheless, investor interest appeared strong as most general sessions were standing room only. Many of the breakout rooms, where investors have a chance to ask questions, had lines running out the door. Nearly 2,000 investors and financial analysts registered and there were more than 800 one-on-one sessions as well.
Devon Energy Corp. (NYSE: DVN) president and CEO John Richels, who retires July 31, said the company has a disciplined approach with a focus on only the highest-return projects and a balance sheet that is in “excellent shape. We are investing where we want to, not investing where we have to.”
Devon Energy is doing minimal exploration and no appraisal activity, Richels said, and yet production growth will be achieved even with 20% less capital spending this year.
“We really think you need three things to be successful in this business: a premier asset portfolio, great execution by the right people who are very focused, and the third leg of the stool is a solid balance sheet,” he said.
Since its blockbuster acquisition in the Eagle Ford last year, Devon has doubled production there. It brought 64 wells on line in the fourth-quarter 2014. It is pumping more sand and changing the completion recipe, and it has raised its type curve in DeWitt County, Texas.
The company will spend $1.1 billion on its Eagle Ford asset this year. Devon’s most active area, however, is the Permian Basin, where it is significantly increasing its sand use, testing up to 3,000 pounds of sand per lateral foot. It is also testing tighter spacing of eight wells per section in the Lower 2nd Bone Spring and the upper portion of the Bone Spring.
Creating value and focusing on returns was a recurring theme, gaining as much weight as production growth. “We’re not focused on liquidity issues or creative financing. Our borrowing base of $2.4 billion was affirmed last week, so at this point we’re focused on creating value,” said SM Energy Co. (NYSE: SM) president and CEO Jay Ottoson. To that end, Ottoson said SM Energy plans to slow down drilling activity and move more of it to the Eagle Ford Shale, where returns are higher. In May, it is planning to run nine rigs split between Eagle Ford and the Bakken, with one rig in the Powder River Basin drilling just enough to hold leases.
Many companies said that costs are coming down partly due to greater efficiency in drilling and completions, and partly because service companies have been forced to cut their prices. “We had planned for cost decreases of 10-15% while doing our 2015 budget, but now we’re finding drilling costs alone are down that much, whereas completion costs are down even more, 20-25%. In the Eagle Ford alone, where the bulk of our spending is going, our costs are down by about 25%,” Ottoson said.
At the same time, however, SM said on its fourth-quarter conference call that it planned to build its inventory of drilled but uncompleted wells (DUCs) throughout the year, banking on completion costs being much lower going into 2016.
Like many companies SM is experimenting with pilot tests for downspacing and better fracturing that, if successful, would double its inventory of Eagle Ford locations. The company is testing the viability of the Upper Eagle Ford with 900-foot spacing. Three different facies are stacked within the play. In the Bakken/Three Forks play, where SM holds a dominant position, Ottoson said he sees “a lot of opportunity to drive efficiencies.”
The conference is sponsored by IPAA.
Contact the author, Leslie Haines, at lhaines@hartenergy.com.
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