What oil price pullback? asks Pioneer

On the face of it, the 16pc drop in US crude futures since May couldn’t have been more ill-timed for US independents.

Prior to this week, WTI futures had gained nearly 40pc from their low of $43/bl in March. That had spurred a small but growing club of producers such as Occidental, Devon, Chesapeake and WPX to raise their 2015 output guidance, in part by starting to clear a backlog of wells that were drilled but not completed.

Most of those independents have budgeted an average WTI price of $60/bl for 2015 while finalizing their plans. The step up also seemed to spur a nascent revival in the US rig count

But US crude prices will continue to fall, with October WTI declining to $45/bl as seasonal peak demand ends, US bank Goldman Sachs said this week. “The search for new equilibria in commodity markets has once again resumed, following a mid-year pause that was beginning to create complacency that the spring rally had established the new set of equilibria,” the bank said.

Making matters worse, medium- to small-sized oil and gas producers such as Devon, Oasis Petroleum and EP Energy, have their hedges rolling off starting later this year. The cushion from hedges has in part helped them secure funding from lenders to boost liquidity.

Unfettered by the bleak outlook, Pioneer Natural Resources added two rigs to its drilling operations this month and is sticking with a plan to add two more every month for the rest of the year. The increase in drilling activity, which will boost its 2015 capex by $350mn to $2.2bn, will continue “as long as the oil price outlook remains constructive,” chief executive Scott Sheffield said.

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