Permian Basin Update: Notes from MS Summit

[dan_s]

North America Energy: Permian Summit: Reasons for Optimism
Evan Calio – Morgan Stanley
April 7, 2015 4:01 AM GMT
E&Ps remain optimistic amid falling service costs and the opportunity for M&A in 2H15. The midstream and services perspective, meanwhile, was more focused on the LT opportunity.
The Permian remains the US unconventional basin with: the highest long-term growth potential, the most exploration upside, and the broadest cast of operators - all key attributes in the shifting sands of an oil down-cycle. Our 2015 Permian Basin Summit in Midland, TX provided an in depth look at the E&P, service and midstream markets from both public and private companies. We provide key industry takeaways below and offer company level highlights below the cover.
E&Ps: well-positioned, remaining optimistic. Although the spirit around Midland was subdued relative to March 2014 (our last Permian Conference), we continue to view the Permian Basin as broadly one of the most exciting investment opportunities within global energy. Permian-focused E&Ps are likely well positioned due to their low cost structure, stronger balance sheets, and deep drilling inventory. Producers remain optimistic, highlighting efficiency gains, lower service costs, improving well performance and M&A potential. Like most E&P meetings today the focus remains on cost savings and M&A potential - lower costs are being realized (15-20%) yet M&A witnesses a wider bid-ask spread with first perceived potential to break in 2H15 when hedges roll and bank redeterminations appear on the horizon. Incrementally,
> PXD provided a more optimistic 2015 growth potential outlook (potentially adding 2 rigs per month in 2H14);
> CXO expects more M&A activity than most and believes it is well positioned to capitalize on these opportunities;
> FANG would consider increasing activity levels if prices improved and service cost continue trending down;
> RSPP sees value in protecting downside risk to prices with puts (closer to $60), but prefers to maintain upside to price realizations.