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Analyzing the Top 5 Upstream Energy Companies

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Capex in the upstream oil and gas industry

The upstream oil and gas industry is highly capital intensive. The industry’s capital expenditure is driven by energy prices because oil and natural gas prices determine a project’s future returns.

Following the steep drop in crude oil prices in 2014, several producers decided to cut back on their capital expenses or capex. With oil prices picking up last year, producers seem to have regained confidence. Many of the producers have increased their capex budget for 2018.

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In this series, we’ll discuss the top five upstream companies based on the highest forecast capex growth in 2018 compared to 2017. The data are based on upstream companies included in key energy sector ETFs—the Energy Select Sector SPDR ETF (XLE), the SPDR S&P Oil & Gas Explore & Production ETF (XOP), and the iShares U.S. Oil & Gas Exploration & Production ETF (IEO).

Penn Virginia’s 2018 capex

Penn Virginia (PVAC) has the highest forecast capex growth in 2018. The company forecast a capex budget of $340 million in 2018—compared to ~$116 million in 2017, which represents ~194% growth.

The high capex came after Penn Virginia acquired certain Eagle Ford Shale assets from Hunt Oil Company for $86 million. The acquisition closed on March 1, 2018. In a press release, Penn Virginia said, “capital expenditures for 2018 are also projected to be higher due to anticipated drilling on the acquired Hunt acreage.”

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2018 capex plans

Around 95% of Penn Virginia’s 2018 capital will be directed to drilling and completions in the Eagle Ford. The company plans to drill a total of 55–60 gross wells or 45–50 net wells. About 33–35 of the wells will be drilled in “Area 1” in the Eagle Ford where the company holds 278 net drilling locations. Around 22–25 wells will be drilled in “Area 2” in the Eagle Ford where the company holds 222 net drilling locations.

Penn Virginia also expects to drill 22 extended reach lateral wells in 2018.

 2018 production growth forecast

After the Hunt Oil Company acquisition, Penn Virginia’s working interest in “Area 1” in the Eagle Ford increased from 58% to 77%. As a result of the higher interest and the anticipated higher drilling, the company expects its production growth for 2018 to be ~127% higher than the levels in 2017.

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