OIL PRODUCTION INCREASING
Oil companies in Oklahoma and throughout the country are projecting increased production in 2019 even as drilling budgets are cut
Oil production is set to increase in Oklahoma and throughout the country even as companies cut their drilling budgets.
Oil and natural gas company executives over the past two weeks have begun outlining their 2019 drilling budgets to shareholders and analysts. A clear pattern is forming.
Executives are lowering 2019 budgets following the fourth quarter of 2018, when oil prices tumbled, reigniting fear in the industry. Despite the spending cuts, however, increased efficiency and a better understanding of the rock they are drilling has led executives to increase their production forecasts.
Devon Energy Corp. executives this week said the company will spend about 10 percent less in 2019 than in 2018 on drilling but that they plan on completing 15 percent more wells. The company spent about $2.6 billion on wells in 2018 and is expected to spend $2.1 billion to $2.3 billion this year.
“The big question in the industry is with the fall of commodity prices, most people planned on $65 oil, but now it's at $55 or less. People are having to adjust to that,” Devon CEO Dave Hager said in an interview with The Oklahoman on Tuesday. “We are delivering increased capital efficiency.”
Based on the results of the company's earlier drilling program, Devon officials have adjusted the number of wells drilled per section in northwest Oklahoma's STACK play.
“We reduced the density, and now we're generating very strong returns,” Hager said.
Continental Resources officials this week also announced plans for decreased spending and increased production. Officials said the company has a 2019 capital expenditure budget of $2.6 billion, including about $2.2 billion for drilling and completion expenses. That spending compares to non-acquisition capital expenditures of $2.8 billion in 2018, including $2.4 billion in exploration and development drilling and completion.
While drilling is down slightly, oil production is likely to surge. Officials said they expect the company to produce between 190,000 and 200,000 barrels of oil per day in 2019, up from 168,177 barrels per day in 2018.
“Our 2019 budget reflects our fiscal discipline, as we gauge rebalancing of oil supply,” CEO Harold Hamm said Tuesday during a conference call with analysts.
Hamm also expanded on the company's larger plans for the next several years.
“Our vision over the next five years is to deliver a unique combination of several billion (dollars) of free cash flow generation while simultaneously nearly doubling our 2018 production from our much larger current production base,” he said. “We plan to deliver significant and sustainable value to our shareholders, driven by a strong free cash flow generation.”
Overall, U.S. producers have reduced their drilling budgets by 4 percent, but are expecting production to increase by 7 percent, according to a report this week by RS Energy Group.
A report by the U.S. Energy Information Administration this week was more conservative, projecting the country's production to grow by 1.45 million barrels of oil a day this year, down from 1.6 million in 2018.