Despite pressure from investors to trim capital expenditures, major oil producers are adhering to their 2013 spending programs, according to a midyear review by UBS Investment Research.
High capital expenditures have hurt the stock-market performance of oil and gas producers as a group by limiting free cash flow in a period of elevated crude oil prices, UBS researchers wrote in an Aug. 14 report.
But second-quarter earnings reports indicate companies have few plans to trim spending.
“The underperformance of the sector tells us the market is concerned with capital intensity of oil producers, and this has manifested its way into concern around the top line for the oil services,” UBS said. “Surprisingly, given the chance to address these concerns during the recent reporting season, there was no obvious change in strategy from the producers.”
The firm noted two “major themes” in exploration and production spending by “nearly every US E&P management team” in second-quarter earnings reports.
One theme is continuation of the emphasis on liquids-rich resource development within existing asset positions.
The other is “material improvements in drilling efficiencies throughout onshore US resource plays as companies reduce spud-to-spud times and continue to drive down drilling times and completion costs.”
The latter trend, UBS said, “seems to be gaining momentum as [operators] are moving from the held-by-production/acreage-assessment phase to full-scale development.”