It’s ironic, really, that in an age when E&Ps are promising coy investors that they will behave more grown-up and spend within cash flow, that first-quarter 2019 proved the worst outspend in two years. That’s according to the folk at Wood Mackenzie in a late-July report titled, “Is Tight Oil on the Verge of Sustained Free Cash Flow Generation?”
WoodMac reported that the outspend by tight oil independents reached $1.58 billion in the first quarter, the most since third-quarter 2017 when WTI averaged $48 per barrel, and compared with “just” $360 million of red ink year-over-year. But they had good reason, the analysts defended: E&Ps sought to take advantage of weakened service rates while oil was on an upswing.
“The increase in WTI at the start of the year presented a rare opportunity for companies to accelerate activity in the midst of relatively low service pricing.” That outspend trend might play out again in second-quarter numbers too once they’re all in. “U.S. independents may choose to continue to invest heavily in 2Q since the window to lock in lower costs is still open.”