Intelligence

Some costs falling, but don’t expect a 2023 response from E&Ps

byErin Faulkner

Over the last few quarters, executives at U.S. upstream operators have grown accustomed to analysts asking about cost inflation. It’s an inevitable part of every conference call. During the late July to mid-August earnings season for Q2, the question shifted to possible deflation, with companies across America’s shale patch making small note of an improved cost environment. Falling H2 costs were broadly predicted, but companies don’t seem to be making significant changes to their 2023 plans as a result.

The consensus is that there will be lower costs in some specific categories such as sand, steel, tubulars, chemicals and services. Some companies have reaped savings; Eagle Ford pure-play SilverBow Resources, for example, says it has realized 5-10% in drilling and completion savings this year. Others haven’t, because of specific needs or because they locked in pricing at the end of 2022 or early this year. A deflationary environment looks to benefit their 2024 outlook more than 2023.

Callon Petroleum CEO Joseph Gatto said spot market items like steel casing and sand are down 15-20% and chemicals and service equipment costs have softened. “We recently re-contracted two drilling rigs at rates that were below our previous rates. Overall, we expect to realize an incremental $15 million in savings in the second half both from service costs and the early impacts of structural design modifications,” Gatto said.

EOG and Pioneer’s preference for high-spec rigs keeps them out of spot market.

Pioneer Natural Resources COO Richard Dealy also noted declines in steel, casing, tubular goods and chemicals, but says the rigs that have seen price declines so far aren’t for Pioneer. “We’ve heard commentary about rig rates and frac fleet rates coming down. From what we have seen, those are mainly on spot rates, and they’re on, what I’d call, less efficient rigs and Tier 2 equipment on the frac side. And when we look at our contracts, just given our size and scale, our contracts today are still below where those spot prices are being quoted,” Dealy said.

Similarly, EOG Resources COO Lloyd Helms said his company is also picky about its equipment. “As a company, we focused on sustainable cost reductions through our operational efficiency gains. As a result, we do seek out the highest-performing equipment in crews, super-spec rigs, electric frac fleets, etc., that’s really less exposed to some of these headline inflation numbers that we’re seeing on the more marginal-end equipment on the spot market,” Helms said.

Big waves of sourcing & contracting coming for 2024; spot buyers may save now.

If Permian player APA Corp. saves any money in H2, it’s going to count its cash. CEO John Christmann said that despite deflation in service costs, the company is operating at a “good cadence,” so any benefits from lower costs “would come to free cash flow and the [D&C] program will be pretty stable.” He noted that lower costs at this point in the year are more actionable in 2024 depending on the commodity price outlook.

“We do try to go in every year with a pretty set framework on the capital side,” Christmann said. “And so, a lot of what’s going on this fall will dictate what our service costs will look like for the portions that we will try to lock down for next year… And clearly, you’ve had a little bit of softening in some areas right now, but I think everybody is waiting to kind of see what prices do in the back half of the year to really steer next year’s capital.”

Multi-basin operator Coterra Energy is also looking toward the future. CEO Thomas Jorden lamented that while costs have moderated, they have not come down as “significantly as we hoped.” He expects 2024 wells costs to fall 5% with some “big ticket items” potentially dropping as much as 10-15%.

Appalachian and Haynesville driller Southwestern Energy is also making a 10-15% deflationary call on 2024. Gas-producing peer Chesapeake Energy anticipates a 5-7% drop in D&C costs next year. However, oil-weighted Occidental Petroleum’s CEO Vicki Hollub isn’t ready to say 2024 costs will come down or acknowledge much softening YTD.

“We’re seeing some things start to plateau in terms of cost. We’re seeing labor being still a bit tight,” Hollub said. “But we’re not seeing as many people wanting to change jobs. It’s just a matter of getting the skills that we need in the field, and that’s where the big challenge is to get truckers to drive trucks and people to do the welding and those kinds of fill jobs are so important to us. While we’re not seeing much reduction in service company costs, we don’t expect that. But I don’t think we’ve settled on expecting any kind of increase next year.”

About Enverus Intelligence Publications 
Enverus Intelligence Publications presents the news as it happens with impactful, concise articles, cutting through the clutter to deliver timely perspectives and insights on various topics from writers who provide deep context to the energy sector. 

Picture of Erin Faulkner

Erin Faulkner

Erin Faulkner is a senior editor at Enverus and has been covering the U.S. upstream industry for more than 10 years. She is a graduate of Creighton University.

Subscribe to the Enverus Blog

A weekly update on the latest “no-fluff” insight and analysis of the energy industry.

Related Content

How the One Big Beautiful Bill Act could change clean energy tax credit economics
Energy Transition
ByAlex Nevokshonoff, Enverus Intelligence® | Research (EIR) Contributor

The One Big Beautiful Bill Act (OBBBA), enacted on July 4, introduces sweeping changes to U.S. energy policy, significantly altering the tax credit landscape for clean energy projects.

Enverus Press Release - Upstream M&A climbs to $105 billion in 2024
Trading and Risk
ByKiana Cruz

In today’s fast-paced markets; traders don’t just need data, they need decisions. At EVOLVE 2025, the Trading & Risk session, “AI-Powered Trading Intelligence: Streamlining Decision Workflows,” spotlighted how artificial intelligence is evolving from a buzzword to a business-critical tool for...

data-center-demand
Energy Transition
ByAdam Robinson, Enverus Intelligence® | Research (EIR) Contributor

The Texas Tech University (TTU) System and Fermi America announced an 11 GW data center powered by a mix of natural gas, utility grid power, solar, wind and nuclear energy. The newly founded power company is building one of the...

Enverus Press Release - Enverus PRISM® now available for Europe
Trading and Risk
ByKiana Cruz

EVOLVE 2025 brought together leading voices across energy trading, analytics and clean fuels to unpack today’s most pressing market dynamics. From evolving benchmarks to retail analytics, one thing rang loud and clear: adaptation isn’t optional, it’s strategic. We attended four...

Black-lady-with-powerline
Energy Transition
ByCorianna Mah, Enverus Intelligence® Research

A massive heat dome swept across the eastern U.S. last week, driving temperatures into the triple digits and pushing the PJM Interconnection grid to its highest peak load since 2006.

Enverus Press Release - Redesigning ancillary markets: Reliability in a renewable future
Power and Renewables
ByRobin Grathwohl

Are you struggling to find substations with real injection potential? In this blog, you’ll learn how developers use planning models and historical ATC data in PRISM to identify viable POIs, avoid costly surprises in the queue and confidently move forward...

Enverus Press Release - Upstream M&A sails on with $30 billion in 2Q24
Minerals
ByEnverus

Digital oilfield advances have transformed many facets of the energy enterprise, yet when it comes to partner data sharing, the industry is stuck in a rut. Sensitive financial data and personally identifiable information (PII) are routinely sent to working interest,...

Class VI applications signal slowdown
Energy Transition
ByAmyra Mardhani

The U.S. Senate proposed amendments to the One, Big, Beautiful Bill, increasing the 45Q tax credit for CO2 enhanced oil recovery (EOR) from $60 to $85/tonne, matching the rate for permanent sequestration. From an economic standpoint, this shift could have...

Enverus Press Release - Tapping Alberta’s overlooked lithium brines
Oilfield Services
ByAdriana Bickford

The sun rises on a wellsite in North Dakota where hydraulic fracturing operations have been running through the night. A line of water-hauling trucks idles nearby, keeping a steady supply flowing downhole. Handwritten field tickets for those loads exchange hands,...

Let’s get started!

We’ll follow up right away to show you a quick product tour.

Let’s get started!

We’ll follow up right away to show you a quick product tour.

Sign up for our Blog

Register Today

Sign Up

Power Your Insights

Connect with an Expert

Access Product Tour

Speak to an Expert