Energy Stat of the Week by Justin Jenkins

Energy Stat: Lower Oil Prices Will Hit 2019 U.S. Oilfield Activity: How Bad Will it Get and When Will Activity Rebound?

December 17, 2018

With the recent collapse in oil prices, it is now clear that 2019 will not be as strong of a year in the U.S. oilfield as was expected even one month ago. This quarter’s drop in prices came squarely during E&P budget season, giving some U.S. operators second thoughts about their 2019 capex plans. Put simply, E&P cash flows available for drilling at $75/bbl WTI oil prices are MUCH, MUCH higher that at $50/bbl. Since we see oil prices remaining challenged in early 2019, our forecast for 2019 E&P cash flows, capital spending and oilfield drilling and completion expectations have been reduced. More specifically, we are now assuming the following: 1) U.S. E&P cash flows will decline by ~7% y/y at current $53 WTI “strip” prices; 2) U.S. E&P initial budgets will likely decline by ~10% y/y in 2019; 3) the U.S. rig count will decline from peak to trough by 7-10% in 1H19; 4) U.S. completion activity will relatively outperform drilling activity; and 5) oilfield service pricing will generally be under pressure through 1H19.