E&P CapEx up 70% in 2017
As the oil and gas industry reacts to improvements in commodity prices over the last year companies are beginning to ramp up activities, according to analysis by KLR Group released yesterday.
According to KLR, total E&P CapEx in 2017 will be about $62 billion. This is an increase of 70% from the $36.6 billion spent in 2016. If prices rise in the next two years, total E&P CapEx in 2018 and 2019 could rise to $87 billion and $100 billion, respectively.
This spending is far below pre-downturn levels, Barclays estimated U.S. E&Ps spent $144 billion in 2013, but capital efficiency has increased. In fact, despite the tremendous drop in capital spending during the downturn production has increased. According to the EIA, both oil and gas production in 2016 were higher than in 2013 or 2014.
Of the companies analyzed by KLR, Consol Energy (ticker: CNX) and Approach Resources (ticker: AREX) predict the largest increase in CapEx in 2017, showing CapEx spending 3.8 and 3.2 times higher than 2016 levels. Only one company, Rex Energy (ticker: REXX), predicts a decrease in 2017 spending, with a drop of 38%.
KLR predicts that the total production of the E&Ps analyzed will increase by about 7% annually for the next three years. Parsley Energy (ticker: PE) and Synergy Resources (ticker: SRCI) predict the highest production growth, averaging 49% and 39% yearly growth, respectively.
Most companies have taken advantage of higher prices by hedging 2017 production. The median company analyzed by KLR has hedged about 55% of its production this year. Antero Resource (ticker: AR), Eclipse Resources (ticker: ECR) and Rice Energy (ticker: RICE) have all hedged at least 90% of expected 2017 production volumes. On the other hand, Apache (ticker: APA) and Hess (ticker: HES) have not hedged any 2017 production at all.
