In this Insight, we evaluate the Q4 17 results for a broad sample of US producers. Our 2017 dataset covers over 33 bcf/d of production from 52 firms, allowing us to compile a representative snapshot of activity in the upstream sector. The sample from Q4 17 includes results from 50 firms, after EQT acquired Rice Energy and EXCO Resources filed for Chapter 11 Bankruptcy.
Record results in Appalachia and a continuing upward trend in the Permian saw production rise considerably in Q4 17, with firms specialising in Oklahoma’s SCOOP and STACK plays also boosting total output. Production among our sample across the US grew by 1.6 bcf/d y/y (5%) and 0.5 bcf/d q/q (2%) in Q4 17. This nearly matches the EIA’s growth figures of 7% (5.4 bcf/d) y/y and 4% (2.9 bcf/d) q/q for US production in the quarter.
We continue to adjust reported production for firms which divested from upstream holdings, including removing that output from past periods to better reflect organic growth. The largest Q4 17 divestitures came from QEP Resources (which sold Pinedale Anticline assets that accounted for 40% of its gas production in 2016) and ConocoPhillips (which finalised the sale of its San Juan assets). Several other firms have announced plans to divest from assets in 2018, including QEP (from the Bakken), Ultra (from its Pennsylvania resources), and Pioneer (from the Eagle Ford).
Macroeconomic policy and trends played a key role in lifting 2017 revenues, with a majority of the firms in our sample citing the changes to the US corporate tax law as being particularly significant. Several reported hundreds of millions in savings after being allowed to remeasure their previously deferred net tax liabilities, and all are budgeting less tax expenses for the future.
At the outset of 2018, firms have increased their hedging of the year’s projected production. Our sample of producers shows hedging of 56% of production on average, up from the 42% that was reported in Q3 17 filings. The average price for swaps has fallen by 3 cents to 3.14 $/mmbtu q/q in Q4 17, the second straight quarter of declines, reflecting the continued low-price environment at Henry Hub. Our sample of firms have hedged 23% of 2019’s projected production, although not every producer has committed to a position yet.
2018 points towards impressive output gains, with a projected y/y increase of 15% in gas production from firms that have reported their production guidance for this year. An important risk factor cited by companies with assets in Appalachia is the timeliness of crucial takeaway projects like Rover Phase 2 and Atlantic Sunrise. Firms operating in Appalachia have staggered their 2018 output forecasts by quarter, with growth increasing q/q throughout the year as new pipes are projected to come online.
|Fig 1: 2018 Hedging positions, mmbtu/d|
|Source: Company reports, Energy Aspects|