The price collapse earlier this year forced players across the upstream industry to slash initial spending estimates and concentrate resources on a smaller core asset base. With this year’s budgets averaging roughly 60% of 2019 levels, capital efficiency and consistency of returns were key considerations as companies refreshed their 2020 guidance.
Relative capital allocation provides an interesting reference to multi-basin operators’ internal valuation of their remaining acreage quality and the associated economics. Figure 1 shows how select producers deployed resources to the Eagle Ford over the past three years. Post-price crash, EOG Resources and Marathon Oil opted to further prioritize development in the play while Chesapeake Energy, Murphy Oil, Devon Energy and Noble Energy shifted activity elsewhere. Without disclosing a capital breakout, ConocoPhillips spoke about running four of its seven rigs in the Eagle Ford for the balance of 2020 during its second quarter earnings call.
In an age when investors are focused on generating free cash flow and returning capital to shareholders, low-risk, repeatable returns are paramount. Exposure to the core of the Eagle Ford continues to provide select operators with some of the strongest economics within their portfolios, but a largely non-core position or limited remaining high-quality inventory justifies a reallocation of resources to other assets, in our opinion.
FIGURE 1 | Eagle Ford Capital Allocation Between 2018 and 2020
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