American Oil and Gas Reporter - January 2020 - 37

Special Report: Outlook 2020

Price Response
AOGR asks its survey respondents the prices at which they
would increase or decrease their 2020 drilling plans (Figure 3).
At $60 a barrel WTI, about a quarter of survey respondents
indicate they would drill more wells. That percentage moves
above 50.0 at $66 a barrel and hits 64.9 at $70. At $75 a barrel
WTI, 86.5% of AOGR survey respondents say they would
increase drilling.
On the downside, 30.3% of AOGR survey respondents
indicate they would drill fewer wells at $50 WTI. That stands at
60.6% at $45, but immediately balloons to 72.7% when WTI
drops below $45 and hits 90.9% at $40.
Evercore also tracks prices at which capex would change in its
survey, which includes majors and integrated oil companies. It
reports in its 2020 Global Spending Outlook that 31% of respondents
would increase spending at some WTI price below $65 and that
another 20% (cumulative 51%) would jump up at $65.
Interestingly, Evercore observes, 27% of its respondents say
they will not increase capex no matter how much prices rise.
"We think most are planning budgets that are based on conservative price forecasts and are planning to stick to those
budgets, even if they were to get some upside to oil prices,"
West reasons.
Narra doesn't disagree. "We do think north of $65 oil you
are going to see change to peoples' rig activities," he allows.
"But we think the first consideration for public E&Ps is they

want to show free cash flow. They are unwilling to risk that for
certain short changes in oil prices."
Betting On LNG
In the words of Thomas Petrie, the outlook for natural gas
"is a little tougher. We just don't have enough infrastructure yet
to move it to the relevant markets."
RBC Capital Markets, in a global commodity strategy report
on natural gas issued Dec. 11, doesn't disagree-entirely.
"Supply has rightfully been viewed and felt as a dark cloud
over market prices," RBC writes. "While demand grew, it has
been unable to keep up. But in the coming years, with supply
growth slowing and a ramping up of exports, there is more to
the story."
RBC says its 2020-21 narrative "continues to be dominated
by slowing supply growth, a normalization of domestic demand
and a ramping up of liquefied natural gas exports."
The firm places average U.S. natural gas supply growth this
year at 3.0 billion cubic feet a day, although "when comparing
year-end to year-end, that growth looks more like 1.0 Bcf/d," it
observes.
EIA offers similar numbers, calling for average annual daily
dry gas production this year of 95.05 Bcf compared with 92.05
Bcf in 2019. However, EIA estimates fourth quarter dry gas
production at 95.04 Bcf/d compared with 95.42 Bcf/d for fourth
quarter 2019.
The timing-and market-for U.S. LNG exports are key to the
outlook for gas in the eyes of many. Petrie notes that as the
current build-out of export capacity is completed, "We will be
able to export close to 9%-10% of our total production; something
FIGURE 3
Crude Oil Prices at Which Operators
Would Alter 2020 Drilling Plans
100
Cumulative Percent of Operators

Elsewhere, Goldman Sachs expects 2020 U.S. upstream
capex to drop 8%, according to oilandgas360.com, and a blog
posted Nov. 22 on FinancialPost.com attributes analysts at Simmons & Co. and investment bank Piper Jaffray to forecast the
U.S. rig count will slide from an annual average of 951 last year
to 906 this year before rising to 957 in 2021.
AOGR's Survey of Independent Operators doesn't project a
rig count, but does ask respondents how many wells they
anticipate drilling in the coming year compared with the
previous. This year's response was nearly flat, at up merely
1.9%. As shown in Figure 2, 37.8% of AOGR respondents anticipate drilling more wells this year while 48.9% will hold
drilling flat and 13.3% will drill fewer wells.
Figure 2 also shows that 34.1% of AOGR respondents expect
to increase their drilling budgets while 52.3% will hold them
flat and 13.6% will spend less than they did last year.
In a somewhat similar measure, the Kansas City Fed's third
quarter survey indicates 21% of respondents expected an increase
in "drilling/business activity" six months out from the late-September survey date while 41% anticipated no change and 41%
expected a decrease.
That same Kansas City Fed survey also shows 24% of 10th
District respondents expected to increase capital expenditures
six months out, 34% were expecting no change and 41%
projected a decrease.
And the Nov. 22 FinancialPost.com blog this time quotes
Cowen & Co. reporting that of the 22 E&P companies tracked by
the financial services firm that to that point had reported 2020
spending estimates, 16 were decreases, one was flat and five
were increases "implying a 13% year-over-year decline in 2020."

90.9

86.5
72.7

64.9
60

30.3

27.0

20
0
35

45 50
55 60
65 70 75
80
WTI Spot Price at Cushing (Dollars per Barrel)

Percentages in Figure 3 represent the cumulative total of survey
respondents that indicate they would have altered their 2020
drilling plans by the time the spot price for West Texas Intermediate
crude oil at Cushing, Ok., reached the indicated amount. Prices at
which drilling would decrease are plotted to the left of the graph in
a downward curve; prices at which drilling would increase are
plotted to the right of the graph in an upward curve.

JANUARY 2020 37

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American Oil and Gas Reporter - January 2020

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