How Will Capex Budgets Respond?

The story in the oil markets for the last two days has been the one-two punch of tariffs and OPEC+ quotas.  As we've said before, we're not here to opine on either.  But the undeniable impact has been a substantial reduction in prices, with CME's Domestic Sweet (WTI) contract losing just about $10 in that time.  



If prices stay this low, we are certainly approaching prices where some producers in some regions might have to reconsider their CAPEX plans.  When prices were mentioned during the most recent quarterly earnings reports, producers were talking about the upper $60s/$70 for planning numbers.  Only they know for sure where their pain points are, but one thing is for sure:

The place where the capex rubber meets the road in the US is rig count and frac crews.  

And the only place where you can get reliable, up-to-date numbers for those is Hyperion.  No surveys, no delayed state data - just satellite observations of actual rigs and crews plying their trade. 

Every region is important in one way or another.  Bakken, or the DJ basin certainly have higher breakevens that the Delaware Basin - but most US activity is in Permian, and there is a great range of breakevens across the basin, so depending on the producer - their only choice might be to reduce activity in Permian.  This is a long way to get to it's tough to say where the first changes might occur.   In addition, as seasoned observers know, a reduction in activity in the oil patch doesn't stay confined to the oil markets.  With substantial associated gas in most oil basins, a reduction in activity in oil will have knock-on effects on US gas markets at a time of increasing consumption from LNG and power.

So what are we looking for?  Downward trends in rigs and crews. Here is an example for North Dakota, from Hyperion's Data Center, where activity has been relatively steady.


Finally, Hyperion has recently released a new feature, Production Studio, that will allow you to forecast the production effects of different levels of rigs and crews.  This is a simulation of 71 wells or about 15 frac crews per month (approximately current levels) for the next year (click for higher-resolution version).
 

How will Capex budgets respond?  We're not going to hazard a guess, but we can guarantee that you'll find out about what's actually happening on Hyperion.


Hyperion Feature Release Webinar - Introducing Production Studio
We’re excited to invite you to our upcoming webinar showcasing Production Studio, the latest feature in Hyperion designed to help you model and analyze production scenarios with ease.