New York (Platts)--24 Jan 2018 556 pm EST/2256 GMT



Having worked to improve drilling and completions, as well as right-size asset portfolios, North American exploration and production companies are expected to enter 2018 focused on delivering rewards to shareholders.

As E&P companies prepare to release their fourth-quarter and full-year 2017 earnings results, many industry players are expected to post only moderate production growth in the first half of this year, Gabriele Sorbara, senior equity analyst at the Williams Capital Group, said. 

Many producers who achieved remarkable capital efficiencies in recent months through the use of advanced technologies -- such as drilling longer laterals and increasing proppant volumes during fracking operations -- in 2018 will dial back on practices that increase costs for testing and completion, he said.

"You'll see companies planning on the use of completion designs that work in a $50[/b] to $55 oil world," Sorbara said. 

In recent statements, executives with a number of producers, including Encana, Chesapeake Energy and Gulfport Energy, stressed that along with increasing oil and gas production, their focus would be on capital discipline and increasing returns to investors.

"We have established a powerful track record of meeting and beating our targets, continuously driving efficiency and capital discipline," EnCana CEO Doug Suttles said in a January 9 statement updating the producer's 2017 results.

Chesapeake Energy CEO Doug Lawler said the Oklahoma City-based producer continues "to improve our capital efficiency and cost structure as we drive toward free cash flow neutrality."

Gulfport in 2018 expects to generate about 30% production growth year on year from its assets in the Utica Shale play and the SCOOP oil play in Oklahoma, while maintaining a disciplined capital program, CEO Michael G. Moore said in the company's Q3 release.


The producer would "remain focused on cash flow neutrality for the 2018 calendar year, aligning drilling and completion capital to operational cash flow," Moore said.

Several equity analysts agreed that producers in 2018 would largely try to avoid production growth for its own sake.

Gordon Douthat, senior analyst with Wells Fargo, said the renewed focus on capital discipline, along with stronger crude oil prices and reasonable valuations, would help many producers to prosper in 2018.

"Many operators, led by Anadarko Petroleum (APC), have already begun to take action to return cash to shareholders, sell non-core assets to shore up balance sheets, or announce growth programs that are limited to internally generated cash flows," he wrote in a recent note to investors.

"We see the potential for US E&Ps to rally another 15%-20% into 2Q as the group discounts less downside risk to oil prices,? Morgan Stanley analysts said in a January 16 note. "We expect the vast majority of E&Ps to deliver on promises of greater capital discipline in 2018. This moderated increase in drilling activity relative to the increase in oil prices should limit cost inflation."

All this is not to say that no operators are likely to see production growth in Q4. A number of gas producers in the Marcellus and Utica shales of the Appalachian Basin can be expected to report continued output growth in the quarter.

For example, Appalachian producer Cabot Oil and Gas said it expected to report net gas production of 1.78 Bcf/d to 1.85 Bcf/d in the quarter compared with 1.75 Bcf/d in Q3 2017. The company?s Q4 production guidance would likely have been higher, except that it reflects the divestiture of some of its West Virginia properties, which closed in the third quarter.

Meanwhile, producers who are active in rapidly expanding oil-producing plays, such as the Permian Basin of West Texas and southeastern New Mexico, are expected to continue to post impressive production results from those plays. Gas production from these plays largely will be associated with oil.

Oklahoma City-based Devon Energy is expected to see increased oil and gas production in Q4 2017 from the STACK, where in the third quarter it drilled 14 new Meramec formation wells that achieved average 30-day rates of greater than 2,300 boe/d, with 55% of the output comprising oil.

In the same quarter Devon said it drilled four new Bone Spring formation wells around the state-line area of southeast New Mexico that attained 30-day rates of 1,750 boe/d (75% oil).

--Starr Spencer,