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Permian producers see growth

Two of the biggest independent oil companies focused on the Permian Basin say they might start adding drilling rigs in the coming months, spurred by a rise in oil prices and confidence the downturn has passed its bottom.

EOG Resources reported plans Tuesday to start adding drilling rigs once oil stabilizes at $65 per barrel. Pioneer Natural Resources on Wednesday discussed plans to add two rigs a month, beginning in July.

“If we add the two-rigs-a-month we are talking about starting in July, plus a few rigs in 2016, it’s not out of the realm of possibility we would be at a double digit growth rate again,” said Tim Dove, COO and president of Pioneer. “We are going to be drilling excellent wells.”

But those plans depend on the oil price gains remaining steady. After a steady upward climb in recent weeks, the regional Plains-West Texas Intermediate benchmark ended at $57.25 on Wednesday.

Plans to drill more could change if another dip happens in the months ahead. But the attitude also reflects a recent optimism that does extend to some of the smaller independents in the Permian Basin, even though not all plan to pick up drilling.

“It’s just the psychology of oil and gas executives seeing crude pass $60 a barrel and seeing costs come down,” said Steve Pruett, CEO of Elevation Resources in Midland. “We are all hopeful that this is going to stick.”

The Permian Basin drilling rig count was 238 as of May 1, according to Baker Hughes. That is less than half the amount operating in the region in November.

In related news, EIA report pegs Permian as only shale to increase oil production.

If indeed producers start drilling more, activity probably will not return to the levels before the oil plummet in November, but prices even in the $70 range could push the region toward more than 300 rigs, Pruett said.

Pioneer had 10 rigs operating in the Permian Basin on Wednesday, compared to about 28 rigs a year ago, executives said. Adding the two rigs per month in July, and then adding more rigs next year “might get us essentially back to where we were,” Dove said.

The announcements from the large independents accompanied reports of losses that added to a string of poor earnings in the industry as oil prices remain about half of what they were last June.

Pioneer reported a $70 million first quarter loss on Tuesday, despite plans announced in February to cut spending by 40 percent for the year to about $1.85 billion.

EOG reported a net loss on Monday of $169.7 million for the first quarter.

EOG also announced plans earlier to cut spending by about 40 percent from 2014 to roughly $5 billion. But plans also called for increasing spending in the Permian as the company expected to complete 95 wells, more than twice as many as the year before.

But executives of the companies argued their finances remain healthy.

“We’re going to be really patient and disciplined about it and kind of gradually increase the activities we go forward, making sure that the price is going to hold up,” EOG’s CEO Bill Thomas told investors on Tuesday.

There were several factors behind the recent optimism: falling national production, an unexpected uptick in oil consumption and the muddled state of negotiations between the United States and Iran, which stood to release the country’s oil supplies into the glut-addled market.

A report from the Energy Information Administration also increased speculation that a storage glut is not as severe as it seemed.

Crude piles nationally fell by more than 3.8 million barrels last week after inventory builds over the past several months, according to the Energy Information Administration.

Stockpiles at the storage hub in Cushing, Oklahoma where West Texas Intermediate prices are set dropped by more than 510,000 barrels since mid-April, according to the agency.

In the wake of these developments, Pruett said Elevation Resources is also considering adding another drilling rig after cutting down to one earlier this year when the company slashed its budget from about $227 million to about $110 million.

A more aggressive approach the company considers could mean another $50 million invested in developing the region, Pruett said.

“These are plans, and we are going to put ourselves in a position to drill, but if the outlook gets weak again or fuzzy we won’t implement the plans to accelerate or reactivate drilling,” Pruett said. “We will stay in the wait-and-see mode.”

Some of the public companies focused in the Permian Basin still are waiting and instead focusing on improving performance of scaled back programs, such as Diamondback Energy.

CEO Travis Stice on Tuesday told investors that “for us to increase activity is going to require continued service cost (reductions) and some stability in the oil price, probably in the $65 to $75 range.”

Concho Resources, which at the beginning of the year cut down the 40 rigs running in the region, is also planning to hold off on adding rigs.

Today, the company has about 18 rigs operating in the Permian, according to a Tuesday announcement of from the company.

CEO Tim Leach on Tuesday described a strategy to maintain that rig program, which is about 30 percent fewer than executives expected for the rest of the year back in January.

The company expects to keep focusing on its best producing areas and spend less than the $2 billion budget announced in January, after finding savings in drilling and completion costs of about 20 percent.

“Everybody wants to know at what oil price would you kind of spend more and that’s not really the way we think about it,” Leach said in a conference with investors. “All the conditions kind of factor in — the oil price, the service cost, and our well performance. So that’s kind of how we’re thinking that 2016 shapes up and we think it looks pretty good.”

But Leach said that when that turnaround comes, it could happen quickly because of strategies adopted to save money during the downturn, such as operating in some cases only at daylight instead of 24-7.

“So you can kind of ramp up the activity without having to add any equipment or people,” Leach said. It’s just kind of turning the intensity knob back up.”

This article was written by Corey Paul from Odessa American, Texas and was legally licensed through the NewsCred publisher network.

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