Three recent data points indicate the state of the U.S. oil and gas industry this summer and the outlook for the rest of the year.

First, the U.S. rig count continues to show signs of stabilizing at a trough, according to Baker Hughes Inc. (BHI). Second, Cowen & Co.’s noted mid-year spending survey of majors to small caps shows they have cut spending more dramatically—by more than a third—than predicted last December when oil prices began tumbling. Third, the Federal Reserve Bank of Kansas City’s survey found expectations have also stabilized, although energy companies fear a further oil price drop this fall.

On July 10 the Baker Hughes weekly rig count declined by just three horizontal rigs and showed an upturn of two vertical rigs nationwide, for a net change of one rig down, the smallest change in the rig count in many weeks. A handful of E&P companies have reported sending a few rigs, one or two at a time, back to work in various basins.

The Kansas City Fed’s second-quarter energy survey revealed that the decline in Tenth District energy firm activity continued but at a slower rate. (The district includes Oklahoma, Kansas and Wyoming, but not Texas.) Firms on average said an oil price of $73 per barrel (bbl) would be needed for a substantial increase in activity to occur, and they expected prices to stay below that level through 2016.

Meanwhile, Cowen & Co. released its respected annual mid-year “Original E&P Spending Survey,” which was initiated by Cowen analyst James D. Crandell in 1982 when he was employed at another investment banking firm. This mid-year survey polled 474 companies.

“Based upon an average price expectation of around $60/bbl WTI, our survey forecasts that E&P spending in North America will drop by 37.3% in 2015, with the U.S. declining by 36.5% and Canada falling by 40.8%,” Crandell said.

“These totals compare with 22% and 24% declines in our year-end survey [conducted in December 2014], as companies have responded to the sharp drop in oil prices in early 2015 by implementing sharp cuts to their budgets.”

Total global E&P expenditures in 2015 are now estimated to be down 22% from the 2014 level to $545 billion, according to the survey. This compares with 17% in Cowen’s year-end survey “and is primarily due to much larger drops in spending in the U.S. and Canada,” he said.

“The outlook for 2016 is unclear with possible increases in the U.S. perhaps offset by further declines internationally.”

In past downturns international E&P spending has usually held up better than in North America, and Cowen’s survey found this downcycle to be no exception. Cowen is now estimating a 15.8% decline in international E&P spending compared with -14.5% in its year-end survey. The somewhat greater cuts have come primarily from national oil companies (NOCs).

In the U.S., E&P spending will fall by 37% in 2015 to approximately $106.2 billion. “This drop compares to the 38% decline in 2009 and approaches the 40% plunge in 1986, when oil fell below $10 per barrel,” Cowen said. “When we conducted our yearend survey that showed a 22% drop, oil was in the midst of declining and budgets were based upon an average price expectation of $70.05/bbl.

“Now, with budgets based on a price of about $58 per barrel, E&P budgets have been cut substantially. Almost every company has cut back on the number of wells they are drilling, and costs of drilling and completing a well have fallen by an average of 30-35%,” Crandell said.

Among the larger E&P companies cutting back substantially on spending are:

  • Apache Corp. (APA)—down an estimated 63%;
  • Halcón Resources Corp. (HK)—down an estimated 63%;
  • Comstock Resources Inc. (CRK)—down an estimated 61%;
  • Goodrich Petroleum Corp. (GDP)—down an estimated 69%;
  • Rosetta Resources Inc. (ROSE)—down an estimated 71%, although the company is being acquired by Noble Energy Inc. (NBL) later this year;
  • Approach Resources Inc. (AREX)—down an estimated 59%; and
  • Linn Energy LLC (LINE)—down an estimated 66%.

Contact the author, Leslie Haines, at lhaines@hartenergy.com.