Good morning and Happy Mother’s Day to all the mom’s on this distribution.  You guys are great!

Here are a few observations from the last week’s earnings calls as well as a few additional field tour anecdotes.

  • E&P CapEx budgets continue to bleed lower with many companies cutting budgets again.
  • E&P Q1 conference calls, however, confirm a likely rebound in completion activity in 2H’20.
  • The U.S. frac crew count, we believe, is below 50, but we predict it will exceed 100 crews by year-end.
  • Our YE’20 view of 100-125 fleets is based on a forward curve which remains at/above $30/bbl.
  • Commentary on land rig trajectory a bit mixed as some E&P’s still reducing rigs (FANG, NFG, XEC, WPX, PDCE, etc.).
  • But, one glimmer of hope – channel checks with a private land driller indicates rig activity could rise in late Q3.
  • Final thoughts on the Permian/Mid-Con Field tour – we continue to see innovation despite the downturn.
  • Do you know how to tell if oil storage tanks are full?  We do.  See below.
  • Per Baker Hughes, the U.S. rig count declined 34 rigs to 374 rigs.  Now down 52% from Q1 average.
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Disclaimer:  We were driving around all last week, thus we missed every single earnings conference call.  The good news is we had the chance to review a zillion transcripts this weekend.  We therefore include some observations below.  Admittedly, some of these data points may now be stale news for you.   If so, just delete.  For those who did not have the luxury of listening to the earnings calls or reading the transcripts, we hope some of these data points are helpful.

Final Permian / Mid-Con Observations:  No need to repeat the observations conveyed in the two notes published earlier this week, so we’ll stick with some takeaways from our final two days on the tour.  First, we visited with a land driller who has line of sight on adding as many  as six rigs beginning in September.  Pricing on these rigs was not conveyed, but the company believes these increases are actionable assuming no change to the oil market outlook.  In addition, while oil service companies are slashing costs as fast as possible, we visited with two capital equipment companies who continue to invest in their respective businesses.  One is in development mode of a new pump design while the other is seeking to expand its capital equipment offering.  The second player is presently investing capital dollars to increase its manufacturing capabilities with the pending delivering of more overhead cranes.  It is also evaluating options to build a new service center.  The luxury of being private is the ability to act contrary to conventional wisdom.  Both of these players will be well positioned when the market turns.

Cushing Storage Tanks:  Cushing is an interesting place.  Everyone tied to energy should go there at some point in their life.  On our father/son tour, we spent Thursday morning in Cushing where we visited with a team whose history is tied to oil storage tank construction.  In our meeting, we learned how to tell if a storage tank was full.  Most likely, all the energy gurus on our distribution list already know this, but for the skinny finance guy from Houston, this was news to us.  First, the roof of the tank is floating.  Most people know that.  Therefore, as oil fills the tank, the roof rises. From the ground, it’s not always possible to tell where the roof is.  Therefore, look at the ladder on top of the tank.  When a tank is not full, the slope of the ladder will point down.  Alternatively, when it is full, the latter will be parallel to the ground.   We have attached two photos to this note.  Hopefully, your spam filter let the photos through.  What you will see in one photo is a ladder which is parallel to the top of the tank, indicating it is full.  The other photo shows the ladder in a ~45 degree angle downwards.  This tank is not yet at capacity.   Counting every tank in Cushing is not possible as each Midstream companies’ tanks are behind a fence, thus we can only see what’s near the periphery.  While we wanted to gently trespass to do an actual count, we opted to be chickens and just observe what we could see from the road.   Our conclusion – a number of tanks still have room for crude.   Also, on the southwest corner of Cushing, a new tank farm is under construction.  This tank farm, we believe, will hold up to 4.0M barrels of storage which is an estimate based on the number of tanks we saw under construction.  The tank farm is being developed by Matrix Services.

Major E&P Takeaways:  Q2 will likely mark the bottom in completion activity as multiple E&P’s are now indicating prospects for higher frac crew counts in 2H’20.  Last week, we heard CNX Resources state prospects for a spot frac crew in Q4 while QEP also indicated plans to pick up activity in Q4 as well.  This week a multitude of E&P’s indicated the prospects of higher 2H’20 completion activity (PXD, MRO, FANG, PDCE, NBL, etc.).  Meanwhile, our Permian/Mid-Con tour identified additional anecdotes of higher 2H’20 activity.  For example, one drilling contact claims it could increase its working rig count by 6 rigs in September.   The simple fact of the matter is the U.S. market can’t forever operate at zero frac crews.  At some point, wells need to be completed or you go out of business.   And, we remain in the camp that demand will come back.  As an FYI, on Friday the traffic on I-45 from Dallas to Houston was bad.  We had to wait at Buccee’s in Madisonville in order to find an open gas pump.  A friend in the downstream business claims they have seen a sharp uptick this past week in gasoline demand.    

Frac Crew Count:  We believe the U.S. frac crew count is now below 50 crews.  This is based on channel checks with industry contacts.  The good news: we believe the U.S. frac crew count will reach ~100 fleets by YE’20.  This estimate is based on E&P Q1 commentary, which assumes oil prices are approaching the $30/bbl range by the end of the year.  Looking into Q1, we believe we will see frac activity move higher again, likely into the 125-150 range.  DUC inventories are growing and E&P’s will need to show higher EBITDA, thus we suspect they will complete wells.  Moreover, we suspect the first move by E&P’s will be to ramp cash flow and EBITDA, ahead of reinstating dividends and buybacks.  One thing to consider, however.  If our view on frac activity is right and the market realizes it’s poised to rebound, do we see fears of oil oversupply develop such that the market once again worries about U.S. oil production?  It’s a bit of a circular argument, but something to ponder.

E&P Earnings Call / Press Release Observations:   We’ve done our best to capture the salient data points.  There are still a few transcripts which we intend to read later this evening.  For those E&P’s who provide granularity into your operations, we applaud you. 

Occidental Petroleum
  • Reduced 2020 capex budget again.
  • New budget is $2.4B to $2.6B, down ~61% y/y.
  • Q1’20 capex = $1.3B, thus ~50% of the 2020 budget was spent in Q1.
  • Q2’20 capex guided to $500M.
  • Capex budget by region
    • Permian resources = $900M vs. original budget of $2.2B
    • Rockies = $300M vs. original budget of $900M.
    • Permian EOR = $200M vs. original budget of $400M.
  • Permian resources averaged 14 rigs in Q1, but have been reduced to 2 rigs for the balance of the year.
  • Permian Resources brought 80 wells online in Q1, but only 35-45 wells are expected the rest of 2020.
  • Rockies rig count averaged 3 rigs in Q1, but will average zero the balance of the year.
  • Rockies brought 64 wells online in Q1, but only 10-15 expected the rest of 2020.
  • Mgmt noted its big reduction in well service rigs.  They did not quantify, but we’ve heard a reduction of 50 to 4 rigs in the Denver City area.
  • Operational highlights:
    • Drilled a 10,000 ft horizontal in the Delaware in 15 days, four days faster than the prior record.
    • Set a new record by achieving 18 frac stages in one day.
    • In the DJ Basin, Oxy drilled a 10,000 foot horizontal in four days.
Pioneer Natural Resources
  • Reduced 2020 capex budget again.  Cutting an additional $300M.
  • 2020 capex budget is $1.4B to $1.6B, a 55% reduction from the original budget.
  • Q1 capex = $620M or ~41% of the 2020 budget.
  • Running one frac fleet now, but expects to average 2-3 fleets from Q2 to Q4, thus look for crew count to rise.
  • Running 7 drilling rigs today with plans to average 5-8 rigs from Q2 to Q4, thus it could go up/down from here.
  • Recall the original budget contemplated PXD running 23-24 rigs and 6 frac crews.
  • 2020 capex budget reaffirmed at $1.3B, down 51% y/y.
  • Spent $579M in Q1 or ~45% of the budget.
  • Activity reduced to ~3 rigs and ~2 frac crews in 2H’20 vs. ~11 rigs and ~4 crews in Q1.
  • Suspended Q2 completions.
  • 2H’20 well completions weighted to Q4.
  • Eagle Ford
    • Operated 4 rigs and 2 frac crews in Q1.
    • Suspended completion activity in Q2.
    • Will transition to two rigs and one frac crew in 2H’20
    • Averaged 7+ stages per day in Q1.
  • Bakken
    • Operated 4 rigs and one frac crew in Q1.
    • Suspended completion activity in Q2.
    • Will transition to one rig and one frac crew in 2H’20.
  • Oklahoma
    • Operated 3 rigs and one frac crew in Q1, but suspended all D&C activity before the end of March.
    • No plans to complete any wells in Oklahoma this year.
  • Delaware
    • Suspended all drilling the rest of the year.
    • Brought 6 wells online in Q1 with only a limited number expected the rest of the year.
  • Reduced headcount by 16% and contractor base by 70%.
  • Executive management team taking 10% salary cuts.
  • Noted U.S. completed well costs down 10% from 2019.
  • Set a quarterly record for average stages completed per day in the Bakken with ~10 stages per day.
  • Our interpretation:  To increase activity beyond the 2H’20 levels will require ~$40 oil.
  • Reduced 2020 capex budget again.
  • Budget is  now $1.9B vs. original $3.0B budget, a 37% reduction.
  • Q1’20 capex = $631M or 33% of 2020 budget.
  • Hess averaged 6 rigs in Q1, but will reduce to one rig by the end of May.
  • Drilled 41 wells in the Bakken in Q1.  Average 12 days spud-to-spud.
  • Completed 50 wells in Q1.
  • The company plans to drill a total of 70 Bakken wells, thus 29 for the balance of 2020.
  • Hess will continue to complete wells with expectations to bring online 110 wells.
  • The company will maintain its one rig program until WTI prices return to $50/bbl.
Devon Energy
  • Reduced 2020 capex budget again.
  • Capex guided to ~$1.0B, down from the original $1.8B plan.
  • Company stated it reduced its completion activity levels by 65% compared to Q1.
  • Completion activity will be slow in Q2/Q3, but will ramp back up in Q4.
  • The company did not quantify the ramp, but would assume they are picking up at least one frac crew.
  • DVN is expected to have ~100 DUCs at YE.
Noble Energy
  • Reduced 2020 capex budget again.
  • Capex now set at $750M to $850M vs. an original range of $1.6B to $1.8B.
  • 2020 spending is down ~63% y/y.
  • Q1 capex totaled $399M thus NBL has spent ~50% of its budget already.
  • The company averaged 4.5 rigs in Q1 (2.5 DJ and 2 Delaware).
  • Total wells drilled in Q1 = 56 with 59 wells completed.
  • NBL is currently running one rig in the DJ
  • All completion activity has been suspended.
  • The company is reserving ~$75M to $100M for potential Q4 completion activity.
  • Will exit 2020 with 100 DUC’s.
  • Delaware drilling days reduced to 13 days, a ~15% improvement q/q.
Diamondback Energy
  • No change to the March 2020 budget.
  • Will spend $1.5B to $1.9B this year, down 42% y/y.
  • Running 14 drilling rigs today with plans to reduce to 7 rigs by Q4.
  • Will average less than one frac crew in Q2. 
  • Running no crews today.
  • The company’s slide deck implies the YE’20 frac crew count could be between 3-5 crews while the rig count could be between 5-8 rigs.
  • One would assume the implied guidance is based on a rising oil price, but the intent is what matters – companies need to eventually complete wells.
  • Revised capex budget lower again.
  • New range is $1.8B to $1.9B, a 31% reduction from the original budget.
  • OVV spent $790M in Q1.
  • Originally planned to spend $800M in Q2, but dialing that back to $250-$300M.
  • This leaves ~$750M to $800M remaining in 2H’20.
  • This suggests to us OVV will increase activity in 2H’20, but it did not specify on its call.
  • Dropped 16 rigs.  Went from 23 to 7 (3 Permian, 2 Anadarko and 2 Montney).
  • Dropped all 8 frac crews.
  • If Q1 spend of $800M = 8 frac crews and 2H’20 quarterly spend of ~$400M is right, we suspect they could pick up 2-4 crews.
Cimarex Energy
  • 2020 capex will range between $500M to $600M, down ~58% y/y.
  • Q1’20 capex totaled $274M or nearly ~50% of the 2020 budget.
  • Running two rigs today, but dropping to one in mid-May.
  • The company is running zero frac crews.
  • Cimarex noted its base plan includes bringing rigs back mid-summer, but deferring completions until 2021.
  • If oil prices rise, they would consider some completions in 2H’20.
  • In the conference call Q&A, management stated it would like to see a “3” handle on oil before new drilling and completion gets interesting.
  • Management stated later in the call:  “if you told me that there was some sign in the heavens that said the strip was what we are going to see, I think there’s a high likelihood we would bring some completion crews back in 2H’20 and get after it.  The challenge is with what’s happened.  We don’t have much faith in the strip”.
  • Company noted that in general it can run 10 rigs and 2 frac crews, a 5-to1 ratio.  Not a bullish endorsement for the frac industry.


  • Reduced 2020 capex budget again.
  • Expects to spend $3.3B to $3.7B vs. an original budget of $6.5B. 
  • 2020 capex spending will be ~44% lower y/y.
  • Q1 capex = $1.7B
  • Q2 capex budgeted at $600M to $700M.
  • Sequential declines expected in Q3/Q4.
  • Implies 1H’20 Capex = ~65% of total 2020 capex
  • Completion crews reduced from 16 to 5.
  • The 5 crews, we believe, are under long-term contracts otherwise we wonder if it would be lower.
  • Reduced drilling rig fleet from 36 rigs to 8 rigs.
  • Efficiency gains continued into Q1.
    • Days to drill in the Wolfcamp averaging 12.2 days, down from 13.4 in 2019 and 18.0 in 2018.
    • Completed lateral feet per day improved to 1,432 from an average of 1,179 in 2019.
WPX Energy
  • Reduced budget again.
  • 2020 budget expected to range between $900M to $1.2B.
  • Q1’20 capex = $313M or ~30% of the budget (using mid-point of guidance).
  • The company began the year with 15 rigs, but will exit 2020 at six rigs.
  • The company dropped all four completion crews.
  • The budget indicates WPX will resume completions in either Q3 or Q4.
  • There are two scenarios presented, but the math implies about 25 wells completed per quarter.
  • In Q1, WPX completed 42 wells (25 Delaware / 17 Williston). 
  • We would assume the four frac crews worked all quarter.
  • Thus, back of the envelope math would suggest the company could pick up 2-3 crews in 2H’20.
  • WPX will shut in ~30,000 b/d of production in May. 
PDC Energy
  • Reduced 2020 capex budget again.
  • 2020 capex to range between $500M to $600M vs. the original budget of $1.0B to $1.1B.
  • Q1 capex totaled $260M or ~50% of the total 2020 budget.
  • Q2 spend budgeted at $100M, Q3 = $50M and Q4 = $100M.
  • The company offered a preliminary 2021 outlook which would call for spending in the $500M to $600M range.
  • The 2021 preliminary view assumes $30 WTI and $2.50 nat gas.
  • The trajectory is good given Q4 is estimated at $100M.
  • The company is running 3 rigs in the Wattenberg now, but will move to one rig by the end of this month.
  • The company is running 1 frac crew in the Wattenberg.  This crew will be released soon, but it is expected to be picked up in Q4.
  • The 2020 capital program in the Delaware has been completed for the year.
Parsley Energy
  • Reduced 2020 capex budget again.
  • 2020 capex budgeted at $700M.
  • Q1 capex = $379M or ~54% of the 2020 budget.
  • PE had been running 15 rigs and 5 frac crews in January/February.
  • In April, all of this was suspended.
  • The company noted it would reactivate ~4-5 rigs and ~1-2 frac crews when oil fundamentals improved.
  • Based on our read of the conference call transcript, this could happen at ~$30 WTI.
Centennial Resource Development
  • 2020 capex budget = $240M to $290M.
  • Q1 capex = $175M or ~66% of the 2020 budget.
  • Dropped all five rigs and two frac crews.
  • Suspended completion activity.
  • Will curtail 40% of production in May.
  • Stages completed per day = 8.2 vs. 6.4 in 2H’19 and 5.7 in 1H’19.
  • Q1 spud to rig release = 19.4 days, down from 21.9 days in 2H’19.
Bonanza Creek
  • 2020 capex budget of $60M – $70M, down 70% from 2019.
  • Q1 capex = $41M or ~65-70% of 2020 spend.
  • All drilling and completion activity was suspended.
  • Company has 30 DUC’s.
  • Management noted it will likely complete these wells in 2021.

Friendly reminder:  The observations on the E&P companies above are not stock opinions or investment advice…just our operational observations on a multitude of press releases, earnings call transcripts and IR slides.

Weekly Rig Count.  Another decline.  Go figure.  This Friday, BKR announced the U.S. land rig count stands at 374 rigs, down 34 rigs w/w.  The rig count is now tracking down 52% q/q, but more declines are likely.


Daniel Energy Partners is pleased to announce the publication of its first market research note. In this note, we reached out to executives across the oil service and E&P sectors to gauge leading edge sentiment.

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