US Land 2020 CapEx - Q1 Actual Spend vs the remainder of 2020

In the last couple of weeks, the majority of the publicly traded companies have released their quarterly earnings. With their earnings, the operators have either updated or confirmed their planned spending plans for 2020. It shouldn't come as a surprise to anyone that nearly all of the operators have revised their budgets down. Those operators that haven't revised their spending plans were already operating on a tight budget (gas focused companies) or front loaded their spending for the start of the year. 

With the downturn hitting near the end of the first quarter, all of the spending for Q1 was based on Original Capital Expenditure (CapEx) plans for 2020. All of the cuts for to 2020 will take effect after Q1. When the companies announced that their 2020 CapEx budget had been revised, they were talking about spending for the entire year. This means that Q1 spending from the previous budget will take up a larger portion of the new budget and leave less money for the rest of the year. 

This analysis will be to review CapEx changes for 2020, determine the remaining CapEx for the rest of 2020 and project how that CapEx will be spent during the rest of the year. The data in this post came from Operator Earnings and Financial reports and transcripts posted on their websites. If there was a range of CapEx spend for the year, I took the midpoint of the range. In the event that there wasn't a revised CapEx given, I estimated their spend based on rig count or activity in the area. 

I looked at 43 publicly traded companies and gathered their CapEx information for 2019, original 2020 CapEx forecast, updated 2020 forecast and their Q1 actual CapEx spend from their earnings reports and presentations. I tried to look at only US Onshore (Lower 48) CapEx but there were a few operators that did not split that information out (could include Gulf of Mexico or Alaska CapEx)

I first sorted the companies by area. If an operator works in more than one area, I listed them as Multi-Area companies. 

Table 1: US Onshore CapEx Spend, 2019 vs 2020 Original vs 2020 Updated 
(Source: Operator Earnings Reports, VDK Consulting Analysis)

The Eagle Ford CapEx had the largest downward revision in 2020, but this is represented by only one Operator (Murphy Oil). The Northeast had the smallest revision in 2020, showing a 15.7% decrease this year. The Northeast clients have been fighting low gas prices coming into 2020 and were already operating at low budgets. Most have shifted gears and are now operating in production maintenance mode, spending just enough money to maintain production at current rates.

The Permian focused clients saw a 46% downward revision while the Multi-Area clients revised their CapEx down by nearly 49.6%. Due to play economics, the Permian Basin has been the focus of the US Oil and Gas Industry. The other plays had already seen CapEx reductions coming into 2020. The Permian was the last area to see major cuts in spending and are therefore taking the largest hit.

The following chart shows 2019, 2020 Original Budget and 2020 Revised Budgets and 2020 Revised Budget percentage change.

Figure 1: 2019 Capex vs 2020 Original CapEx vs 2020 Revised CapEx
(Source: Operator Earnings Reports, VDK Consulting Analysis)

The two operators that didn't make changes were Cabot Oil and Gas and Gulfport. Cabot announced during their Q4 2019 review that they were going have maintenance CapEx in 2020 to maintain their production rate from 2019. They haven't made any changes to their CapEx for 2020 as they plan to stay in maintenance mode. Gulfport Energy front loaded their CapEx for 2020, spending the majority of the CapEx for the year in Q1. 

The chart in figure 1 shows that the gas focused operators have had smaller reductions in CapEx when compared to the oil focused operators. The gas focused operators came into the year with reduced budgets and there is a strong belief that gas prices should increase through 2020 and 2021 due to reduced gas production from oil plays

The following table looks at the individual companies in the list and compares Q1 Actual spend versus the revised 2020 CapEx spend.

Table 2: Q1 2020 Actual Spend vs 2020 Revised Forecast 
(Source: Operator Earnings Reports, VDK Consulting Analysis)

The cells are color coded to give a quick visual reference of the spending of the different operators. The green shaded cells spent less than 30% of their revised CapEx in Q1 while the red shaded cells spent more than 55% of the revised yearly CapEx in Q1.

Looking at the data, several operators have spent more than 60% of their planned 2020 CapEx in Q1. These include Bonanza Creek, Centennial Development Company, Extraction Oil and Gas and Murphy Oil. These companies have reduced operations to minimum levels and likely won't increase activity until 2021. 

When reviewing the earnings reports, 6 operators gave guidance on how much money they would spend in Q2 and the rest of the year. For the operators that gave only Q2 guidance, I calculated how much CapEx was remaining and split it out for the rest of the year.

Table 3: 2020 CapEx Spend Projections with Operator Guidance
(Source: Operator Earnings Reports, VDK Consulting Analysis)

I was expecting the operator guidance to show that there would be minimum spending in Q2 and then an increase in spending in Q3 and Q4. Ovintiv is following that plan with reduced spending in Q2 and then more spending in Q3 and Q4. EOG has reduced their spending but plan to spend a consistent amount through the end of 2020. The remaining operators appear to be spending a reduced amount in Q2 when compared to Q1 and then will have minimum spending for the rest of the year. 

Since this small data set of operator spending shows a wide variance in plans, I will project two different scenarios for remaining CapEx spend. Scenario 1 will take the remaining budget for 2020 and split it evenly among the remaining months. Scenario 2 show a larger proportion of spend in Q2 (40% spend of CapEx) following by reduced spend in Q3 and Q4 (30% each quarter). 

Table 4: Scenario 1: Even Spend of Remaining 2020 CapEx
(Source: Operator Earnings Reports, VDK Consulting Analysis)

Table 5: Scenario 1: Quarterly Decreasing Spend of Remaining 2020 CapEx 
(Source: Operator Earnings Reports, VDK Consulting Analysis)

Actual spending will probably be between these two scenarios and will depend on the operator requirements throughout the year. These scenarios also show that the operators that have spent most of their budget in Q1 will have very little activity for the rest of the year. The Gas Focused operators that were operating on tight budgets already will likely maintain their activity pace for the rest of the 2020.

Even though oil prices have risen in recent weeks, I would expect little to no impact on 2020 CapEx. Current oil prices are still below break-even prices for most operators. We will likely see increased oil production as shut in production comes back online. New Drilling and Completion activity will likely increase in 2021.