In the beginning of last year, Barclays examined the historical production guidance for a sample of 20 leading North American E&P companies and found that in aggregate, the total output for the group routinely met aggregate production guidance. In 2012, this group grew production by 1.9%, exceeding its aggregate guidance by 0.4%. The same companies are now guiding towards a 4% drop of natural gas output in 2013.
For 2013, and for the first time in at least three years, guidance by this group of companies points to a significant production decline.
“In aggregate, our sample group of producers expects their production to lower 4.1% from 2012 levels, or 0.82 Bcf/d. While some of the expected production losses are due to asset divestitures, the largest drops are projected by large cap producers that are seeing organic production declines stemming from minimal investment in dry-gas assets. Note that our sample of companies is heavily geared towards larger, natural gas intensive producers, and that perhaps skews the results compared with the overall trend for the country.” the Bank said in a report.
A larger sample of 52 producers, which includes the coverage universe of Barclays Equity Research colleagues and a handful of other companies, is also guiding towards a drop of output, albeit of a smaller 0.4% magnitude. Past performance by the 52-company sample group has mirrored overall US production trajectory directionally, although the magnitude of output swings has varied.
“Analysis of producer guidance for 2013 broadly aligns with our earlier analysis of regional-level production trends.We reiterate our expectation for US production to tip into declines in the second half of this year, and remain broadly unchanged from 2012 levels on an annual average basis.” the report noted.
In aggregate, the 52-company sample group is guiding towards a production decline of 0.4% y/y in 2013, following a 3.8% increase last year. The group was responsible for 45.4 Bcf/d gross output in 2012 (36.3 Bcf/d net of royalties), roughly 70% of US natural gas production.
Large cap E&Ps are expecting the largest drop, with the sector guiding towards a decline of 425 mmcf/d, or 2.2% , after a 4.5% y/y production increase in 2012. Production from these companies accounted for 54% of the total output of this sample for 2012. Mid Cap E&Ps accounted for 14% of the group’s 2012 production, and are guiding towards a 1.4% increase of output in 2013, following growth of 8.5% last year.
The majors in this sample group saw natural gas production declining 2.7% last year, and are expected to lose a further 3.3% in 2013. The six producers included in this sample, but not covered by Barclays Equity Research, have been growing production strongly for several years, and are guiding towards 27% growth this year, following a 21% increase in 2012. This group accounted for 6% of the production sample in 2012.
Past performance by this sample group has mirrored overall US production trajectory directionally. The magnitude of production swings, however, has varied, with the sample group’s production growth exceeding overall US in 2009 and 2010, but lagging in 2011 and 2012 on percentage basis.
Source: Barclays