After two brutal years, Bakken shale drillers entered 2017 gushing with optimism due to a view that crude prices would stabilize in the mid-$50s. While still nowhere near its peak, that level would be high enough so that Bakken producers could deliver healthy production growth this year while living within cash flow.
Unfortunately, crude is currently about $10 a barrel below that level, which makes those plans seem overly optimistic. Because of that, we could see Bakken producers announce spending decreases when they report second-quarter results in the coming weeks. Here's a look at what to watch at leading Bakken drillers Whiting Petroleum (NYSE: WLL) , Continental Resources (NYSE: CLR) , Oasis Petroleum (NYSE: OAS) , and Hess (NYSE: HES) .
Setting the tone
Whiting Petroleum and Hess are first on deck this quarter, with both expecting to report earnings on July 26 after markets close. In Whiting's case, it's coming off a monster first quarter after several robust Bakken wells fueled expectation-beating results. Because of that, the company remains on pace to come in slightly ahead of its guidance to increase output 23% by the end of the year as a result of doubling its drilling budget to $1.1 billion. That said, Whiting's plan requires $55 oil to break even. Given the company's weaker balance sheet, including the fact that it has $1.5 billion of debt coming due over the next few years, it's increasingly likely that the Bakken driller might trim its 2017 budget.
Hess, likewise, is ramping up its activities in the Bakken. After running just two rigs in the play last quarter, the company added a third in March and a fourth in April, with plans to add two more later this year. Because of that, the company is on pace to increase its production in the play from 99,000 barrels of oil equivalent per day (BOE/d) in the first quarter to an average of as much as 105,000 BOE/d for the full-year. Meanwhile, the company's expanding rig count puts it on a trajectory to boost output up to 175,000 BOE/d in the future. That said, analysts are starting to think that the company could tone down those projections and cut its estimates for 2018 given the weakness in crude prices this year.
Practicing what's preached
Continental Resources will follow those reports on Aug. 8 when it expects to unveil its second-quarter results after markets close. We already have a hint at what to expect given that the company noted in its first-quarter report that production for the second quarter was "trending ahead of forecast" and anticipated to be in the range of 220,000 to 225,000 BOE/d. That said, with oil prices weakening during the quarter, Continental's CEO warned its rivals in an interview with CNBC in late June that they needed to "be prudent and use some disciple" when it came to boosting output, adding "that's what we're doing at Continental." Given those comments, it's likely that the company will announce some of the actions it took, which might include a decision to slow the pace it completes wells. For example, during the first quarter, the company had seven well completion crews running and planned to be at nine by mid-year, but it could cut that number back given the drop in the price of crude.
The question mark
Unlike its Bakken peers, Oasis Petroleum has yet to set a release date for its second-quarter results, though given its history it will likely do so in early August. The company's current plan for the year is to ramp activities in the second half, including redeploying a second Oasis Well Services fracking fleet, which would help it meet its goal to increase production 8% this year. That said, the company's aim was to hit that target while living within cash flow, which is tougher to do at current oil prices. Because of that, it's possible that Oasis Petroleum will decide against redeploying that other fracking fleet until crude rebounds a bit. Though, the company does have ample liquidity under its revolving credit facility, which its banks recently increased, giving it more financial flexibility to continue spending in the current market environment than Whiting has, for example, since it has no meaningful debt maturities until 2020.
Taking a needed breather to lift a heavy weight
Given the nearly $10 a barrel difference between the current price of crude and what producers expected this year, it's growing increasingly likely that Bakken producers will announce spending reductions when they report second-quarter results. It's the prudent thing to do in the current environment, especially since the market doesn't need the incremental oil that these companies plan on producing, so they're better off keeping it in the ground for now. In fact, such announcements could prove to be a catalyst for these stocks -- which have fallen 30% to 60% this year on just a mid-teen slide in crude prices -- because it would ease investor concerns that these companies might drill themselves into the ground.
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