American Oil and Gas Reporter - January 2019 - 41

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Industry Outlook

Independents On The Move
AOGR mails its Survey of Independent Operators to producers
nationwide selected at random from the magazine's subscription
list. No attempt is made to identify survey respondents, and
AOGR staff compile and analyze the data.
According to those data, survey respondents expect to drill
22.1 percent more wells this year than last (Figure 1), led by a
59.8 percent increase projected by Category 1 respondents:
those who anticipate drilling 0-5 wells in 2019. Category 2 respondents (those that anticipate drilling 6-10 wells in 2019) are
predicting a 43.2 percent increase, while Category 3 respondents
(11 or more wells in 2019) project a 7.4 percent increase.
Those that drilled, or expect to drill, oil wells only ("oil
drillers") predict a 24.2 percent increase this year, while "gas
well drillers"-respondents that drilled any gas wells in 2018 or
plan to do so in 2019-come in at a more modest 2.1 percent
hike in planned drilling.
Two-thirds of those responding to AOGR's survey say they
expect to increase drilling this year (Figure 2), while 14.6
percent expect to drill the same number of wells this year as last
and 17.7 percent say they will drill fewer.
Again, Category 1 drillers are the most optimistic, with 73.2
percent saying they plan to drill more wells this year than last.
Category 2 drillers aren't far behind, though, with 72.2 percent
saying they will drill more, while exactly half of Category 3
drillers say they will drill more.
Interestingly, more gas well drillers anticipate an uptick than
do oil well drillers, with 77.3 percent saying they will drill
more compared with 63.9 percent for oil well drillers.
Spending plans also land in positive territory with 52.6
percent of survey respondents saying they anticipate larger
drilling budgets in 2019 while another 38.1 percent say their
budgets will remain constant (Figure 3). Only 9.3 percent of respondents say they will spend less this year.

Size doesn't seem to make much difference in this metric, with
55.4 percent of Category 1 respondents planning a budget increase,
50.0 percent of Category 2 respondents expecting to spend more
and 55.0 percent of Category 3 reporting a planned increase.
However, 78.3 percent of gas well drillers anticipate a budget
increase in 2019, compared with 44.4 percent of oil well drillers,
although another 44.4 percent of oil well drillers say their
drilling budgets will remain constant.
Activity Expectations
Not a lot of analysts project future rig counts, although in its
Onshore Oracle for oil field services released Oct. 18, Evercore
predicts the U.S. land rig count will grow 6.0 percent in 2019.
In its November Oil Field Services Newsletter, Rystad Energy
projects 3.0 percent growth in 2019 drilling worldwide.
For the United States, Bryan Benoit, partner-in-charge of
U.S. Energy Advisory for Grant Thornton, announced on Dec.
14 "indications that support rig count estimates (of) 1,100 in
2019," which tops Baker Hughes' Dec. 14 rig count of 1,017 by
2.7 percent.
In other comparisons, 61 percent of executives in Deloitte's
2019 Oil, Gas and Chemicals Industry Outlook report an anticipated increase in rig deployment in 2019, 56 percent project
increased exploration spending and 52 percent project an overall
increase in capital expenditures, although by unspecified amounts.
Evercore, in its Global E&P Outlook, projects exploration,
drilling and completion spending in 2019 will rise 8.1 percent
worldwide and 10.3 percent in the United States, explaining,
"We continue to believe investment in exploration will have to
return in order to alleviate an inevitable global supply crunch
that cannot be addressed by U.S. shale production growth alone."
Expanding on its view of oil field activity this year, Evercore
details, "We expect the industry to muddle through first-half
2019 from what we believe is short-term uncertainty and volatility
for oil prices before a true global expansion takes hold in the
second half. The main catalysts include a rebound in North
FIGURE 1
Change in Operators' Planned 2019 Drilling
Compared with 2018 Actual Drilling
70

Percentage Change

On the other hand, Norman Valentine, director of corporate
analysis at Wood Mackenzie, says in an Oct. 2 post, "The
recovery is much slower and shallower than past upcycles. Our
analysis shows investment rising from the lows of $460 billion
in 2016 to just more than $500 billion in the early 2020s-way
below the $750 billion peak in 2014. It's also patchy across the
subsectors. Only U.S. tight oil looks set for consistent growth
in investment in the next few years, driven by the Permian."
But a couple months later, citing a group of analysts,
Bloomberg opines, "Shale explorers likely will cut spending
budgets next year for the first time since the last price crash as
crude spirals down again."
The boots-on-the-ground independents who responded to
The American Oil & Gas Reporter's annual Survey of Independent
Operators aren't so reticent, predicting a 22.1 percent increase
in drilling activity from 2018 to 2019. Furthermore, two-thirds
of survey respondents say they expect to drill more wells this
year than last, while slightly more than half are planning larger
drilling budgets.
Again referring to its survey of oil, gas and chemical industry
executives, Deloitte advises, "For some upstream companies,
caution still tempers optimism, but activity is picking up, with
more than half saying they expect to increase development and
exploration spending, rig deployment and headcount in 2019."

60
50
40

59.8%
43.2%
24.2%

30
20
10
0

7.4%
Category 1 Category 2 Category 3

Oil

22.1%
2.1%
Gas

Total

Category 1 respondents are those that plan to drill five or fewer
wells in 2019. Category 2 respondents say they will drill 6-10 wells
this year, while Category 3 respondents expect to drill 11 or more.
Respondents included in the "oil" category drilled only oil wells in
2018 and expect to drill oil wells only in 2019, while the "gas"
category includes all respondents that drilled any gas wells last
year or anticipate doing so this year.

JANUARY 2019 41

American Oil and Gas Reporter - January 2019

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