“Uncertainty” is the watchword from respondents to this year’s recent first-quarter energy survey conducted by the Baird Energy Equity research group. Baird asked buyside and industry side respondents which issues they thought would have the most positive and most negative impacts on the domestic exploration and production (E&P) industry during the next three to six months.
The 69 respondents ranked “increasing confusion around natural gas price outlook” as the top generator of “positive and negative surprise.” This resulted in a “very mixed outlook” on the subject. The still-high supply and stable demand for natural gas, the survey indicated, was the backdrop for this confusion.
Regarding crude oil prices, respondents were “increasingly neutral” following a recent pullback to less than $100 per barrel (bbl), Baird said, adding that while industry was bearish, the buyside was more neutral.
The long term range for crude prices still stands at $80-$100/bbl, although the buyside holds higher— $90-$100/bbl—than the industry side at $80-$90/bbl. The industry side is “in line with assumed U.S. breakeven.”
Views on what the marginal costs of crude production may be in some major domestic basins—Williston, Eagle Ford and Permian—also had “little consensus,” according to Baird. This was likely due to the dynamics of core and noncore acreage in these areas. If crude drops below $85/bbl, producers will begin evaluating their capex budgets, Baird indicated, noting that new ventures could run in the $80-$90/bbl range.
Acreage areas returning lower yields or holding fewer core spots could hover around $70/bbl, the group added.
Survey respondents indicated that the Utica is the favored established play for new E&P investment.
The rise in the Utica’s favorability is due to “strong core well results” and “an emerging dry gas window,” the research group revealed. Indicating that this year is “critical for economic development potential,” drilling activity there is ramping up, the research group said, adding that “infrastructure is finally starting to catch up with production.”
Utica acreage transactions are mainly confined to existing positions, and core acreage purchase prices are still at a premium, the research group noted.
Baird emphasized that E&Ps in the Utica should outperform this year.
Overall, survey respondents indicated that the Tuscaloosa Marine Shale (TMS) is the favorite emerging play for investment. The Permian remains the most favorable with year-to-date stock performance, while Marcellus “gained traction among the buyside” due to gas prices’ “robust” first-quarter 2014 showing.
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