Three aggressive independent Permian Basin upstream operators released capital budgets for 2019 in the last few days that are lower than either prior expectations or actual 2018 spending by at least 12% to 15%, as corporate executives attributed reduced activity to the recent plunge in oil prices. But large players Diamondback Energy and Parsley Energy and small cap Rosehill Resources, which have had high production growth rates in the West Texas/New Mexico basin in recent years, particularly from crude oil, said in separate releases they will grow total production by at least 20% next year and in some cases, oil production by even larger year-on-year rates. Total production includes natural gas and NGLs.
WTI oil prices have dropped more than 35% in the past 11 weeks. This week it fell below the psychological watershed of $50/b – which was also the average price between 2015 and 2017. “I do think the $50/b is an important crossroad for many operators, as it seems to be the minimum price mark many operators need to start talking about meaningful production growth,” S&P Global Platts Analytics analyst Sami Yahya said.
As the curtain closes on 2018, what will be the 5 themes to watch in energy and commodity markets during 2019? Martin Fraenkel, President of S&P Global Platts, delivers his verdict, “However, it is also important for them to know what can be sustained and what can’t in terms of price trends,” Yahya said. “Just because we dropped below $50/b, it does not necessarily mean that operators will react quickly to it.” But as Yahya notes, the difficulty for operators right now is that oil prices are falling at the same time when they are outlining their 2019 capital budgets.