Insights
Q3 preview: U.S. oil and gas companies eye growing production
U.S. oil and gas producers are likely to start raising production while integrating new acquisitions into their portfolios in Q3 and Q4 in anticipation of improving market conditions in 2025.
Many producers have retained their 2024 full year production guidance, despite Q2 production being well below equivalent levels needed to meet those targets, according to Evaluate Energy data.
This suggests that they still plan to increase production in the second half of the year to reach full year guidance.
“Evaluate Energy users will be able to track these developments throughout the Q3 reporting season with our corporate financial and operating database,” said Nikki Zenonos, Managing Director at Evaluate Energy. “Producers will begin releasing results towards the end of this month.”
Other producers have already started to increase production in Q2 from 2022 levels. Permian Resources and Civitas Resources both nearly doubled global production in Q2 year-over-year, while eight other producers increased production in Q2 by at least 20%, according to Evaluate Energy data.
Permian said the increased production was driven “primarily by continued strong operational performance” — but it was also boosted by around 300,000 boe/d by its US$4.5 billion acquisition of Earthstone Energy. Additionally, the company has completed its US$818-million acquisition of Occidental’s Delaware Basin assets, adding 15,000 boe/d.
Civitas Resources boosted its production by adding 62,000 boe/d from its US$2.1 billion acquisition of Vencer Energy’s assets in the Midland Basin.
Total volumes for Civitas Resources in Q3 are anticipated to be between 335,000 and 345,000 boe/d, a 3% increase at the midpoint from the prior guidance with increases expected in both the Permian and DJ Basins.
ExxonMobil’s acquisition of Pioneer Natural Resources, which closed in May, helped contribute to its 21% year-over-year total production rise to 4.4 million boe/d in Q2.
“In the quarter, we once again set production records from our advantaged assets in Guyana and the Permian. Including Pioneer, our Permian production surged to 1.2 million barrels per day,” said CEO Darren Woods on the company’s Q2 results.
The company is expected to increase production levels again in Q3 and will bring more projects online in 2025. Its Q3 results are due on November 1, 2024.
Other producers also have significant year-over-year production increases from organic growth rather than M&A.
Hess Corporation saw Q2 net production of 181,000 boe/d from its onshore U.S. Bakken assets, above its guidance of 165,000 to 170,000 boe/d for the quarter, with approximately half due to strong operational performance, and the remainder from higher production entitlements.
Hess aims to steadily grow net production from the region to approximately 200,000 boe/d in 2025.
Some companies saw production growth simply because they decided not to curtail production despite low gas prices.
“Because we have a producer mentality…shutting off production and curtailing production is just not an option for us,” says Gregg Krug, Executive Vice-President of Marketing and Midstream at Matador Resources, which saw a 23% year-over-year production rise in Q2.
ConocoPhillips raised production guidance for the full year in Q2 following a rise in that quarter’s production to 1.95 million boe/d from 1.9 million boe/d in Q1.
“Our production profile this year…if you exclude the turnarounds…we’re basically growing up 1% each quarter,” said Andy O’Brien, Senior Vice-President of Strategy, on ConocoPhillips.
M&A pipeline
In addition to Permian’s acquisition of Occidental’s Delaware Basin assets, other significant upstream acquisitions completed in Q3, totalling over 725,000 boe/d.
Others closed in early October and will impact Q4 production figures, such as:
- Devon Energy’s acquisition of Grayson Mill in North Dakota
- SM Energy and Northern Oil & Gas acquiring XCL Resources in the Uinta Basin
- Chesapeake merging with Southwestern Energy to form Expand Energy Corporation
Several other major U.S. upstream deals are still in progress as of mid-October, such as Chevron’s planned acquisition of Hess and ConocoPhillips’ merger with Marathon Oil.
In addition, these companies are likely to accelerate organic growth of both their new and existing assets as the pricing environment — especially for natural gas — improves.
A shift in the supply-demand balance may also lead to a boost in production.
“While we aren’t great at predicting the exact day or quarter it will improve, the overall dynamics that are setting up for us are pretty positive,” said Chesapeake CEO Nick Dell’Osso.
The EIA’s short term energy outlook for 2024 sees gas production from the lower 48 states growing from 109.4 bcf/d in Q2 to 110.1 bcf/d in Q3 and 110.8 bcf/d in Q4.