As second-quarter earnings season concludes, a major trend in the Permian was well cost savings from both efficiency gains and service cost reductions. Second-quarter guided well costs are down ~20% in the Midland and Delaware from initial 2020 budgets (Figure 1). Although how well these costs savings survive as rig count recovers is unknown, they will have a material impact on near-term economics.
The question, as near-term economics improve and prices recover, becomes what is priority: cash flow or growth? A handful of operators have disclosed a capital allocation of 70-80% of cash flow, which means these improving economics will lead to increased cash return to the corporation and help with de-levering goals. Lack of guidance from other operators raises the question what the industry will do. This time around, will top-tier operators generate meaningful cash flow or will they return to growth as economics improve?
Figure 1 | Second Quarter Well Cost Guidance ($/ft)
Note | Each number represents a different company guidance by operating area
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