Schlumberger 3Q16 Earnings Call Notes

Schlumberger’s (SLB) CEO Paal Kibsgaard on Q3 2016 Results

We have indeed reached the bottom of the cycle

“After seven quarters of unprecedented activity decline, the business environment stabilized as expected in the third quarter, confirming that we have indeed reached the bottom of the cycle.”

Optimism in Argentina

” In Argentina there is clear optimism amongst the industry players that the new government will take the required steps to further encourage E&P investment in the country as they seek to reduce the oil import dependency, which should have a positive impact on E&P investments in 2017.”

Supply and demand of crude is more or less in balance

“Turning now to the oil macro, the supply and demand of crude is now more or less in balance as seen by the flattening global petroleum inventories and the start of consistent growth towards the end of the quarter in particular in North America. In addition, oil demand was again revised upwards in September and is now forecasted to be around 1.2 million barrels per day for both 2016 and 2017. At the same time global supply is plateauing as non-OPEC production continues to experience significant declines and even offsetting record production levels from OPEC in September. ”

The period of oversupply is over

” the period of oversupply and inventory build is over and that market segments should soon change, paving the way for an increase in oil prices and subsequently E&P investments. ”

See a clear path to profitability in drilling

“So in terms of the reason for mobilizing more equipment into the drilling side is clearly that we have a clear path towards profitability. So given the unique technology offering we have and the technical challenges of drilling these very, very long horizontals we are able to get pricing which is going to give us I think ultimately the returns that we’re looking for. And this is why we are prepared to put more capacity into play on the drilling side or what’s going on in West Texas. As I said on the fracturing side, still there is no clear path towards profitability and this is why we are still maintaining presence and basically holding the fort until we believe we can justify putting more capacity into play going forward.”

Recovery in most places around the world and an uptick in investment

“we believe that there is early signs of recovery in most places around the world. If you look at next year for international, we expect solid growth year-over-year in the Middle East and Russia on a full year basis. But we also see, I would say an uptick in investment and activity in Latin America and in Europe, Africa. The only place where we don’t see any signs of recovery at this stage is in Asia.”

Not a big turnaround in exploration yet

“I don’t think there is yet a big turnaround I would say in the exploration market or in the seismic market. But I think we have positioned ourselves very well in both of those markets. “

Apache 2Q16 Earnings Call Notes

Apache (APA) John J. Christmann on Q2 2016 Results

I don’t see us departing from conservative budgeting approach in 17

“The first thing I would say is we’re going to be a member of the returns club, is the club we want to be focused in and focused on full cycle, full cost, fully burdened returns. And that’s the club we’re focused in. I think above $45 this year, you would have seen our volumes grow and been able to do that. So as I think about joining a $50 club, we probably already were in the $50 club. So we just haven’t planned accordingly. We budgeted $35 this year, and you’ve seen us let a little bit of capital out. So I think the market today is more constructive than it’s been, both on oil and natural gas. I think it got a little bit ahead of itself here in the last few months, and we’ve seen it come back as we went back and touched $40. I think we’ll see what kind of price band we look at as we get into 2017. I don’t see us departing from a conservative budgeting approach, gearing things to the low end of the band.”

Anadarko 2Q16 Earnings Call Notes

Anadarko Petroleum (APC) R. A. Walker on Q2 2016 Results

Oil price recovery playing out as anticipated

“The cautious approach we outlined for oil price recovery at the beginning of 2015 has played out much as we anticipated. It now appears U.S. oil supply peaked at around 9.6 million barrels per day. And we expect it to bottom out around 8 million barrels per day, all the while with global demand now exceeding expectations.”

Encouraged that a sustained $60 oil price environment is likely to emerge

Given this dynamic, I am now encouraged that a sustained $60 oil price environment is likely to emerge as we move into 2017. This price level should provide the necessary cash margins and resulting cash cycle improvements to encourage us to accelerate activity and achieve strong returns. In this scenario we would evaluate redeploying some of the incremental proceeds from asset sales towards our highest quality U.S. onshore assets later this year.”

We see a window to better oil prices. We anticipated this hleg down

“for the first time since January of 2015 I think we see a window to better oil prices. And I foreshadowed this a little bit at the Wells [Fargo] conference a few months ago when I made the comments there that we anticipated we’d have a leg down as the market tried to absorb the 3 million barrels associated with disruptions from Venezuela, Nigeria, and Canada. And as the market went through that congestion, we were going to see the leg down that we’re seeing right now. And I think once we get that behind us – to use an economics term, ceteris paribus – we think we’re looking at a sustained $60 oil price environment for next year.”

Demand is going to put pressure on prices

“But I think if you think about it as a demand function that improves annually at the cliff of 1.2 million to 1.3 million barrels a day, you can see pretty quickly that in an expanding demand relative to supply, the demand’s going to move up the curve. And the intersection that creates P will put pressure on prices to move up to a level of around $60 a barrel.”

ingredients are there for $60 oil

“So I’m not going to go beyond $60. But I think clearly in our estimation the ingredients are there for a recovery to sustain $60 price environment for next year. And I’ve probably been as big a bear around oil price expectations as anyone since early 2015. And I think with this, if we continue to see the characteristics I just laid out continue to be prevalent in the market, that will be a great indication to us as for what we want to do.”

Forward curve isnt the indicator that it used to be

“Looking at the forward curve, I think you know as well as I do, that’s a little fragile. And as you look out further, particularly in light of our – the world we live in today and the lack of real – the lack of players in the market for the forward curve, it looks flat for a reason. Because we don’t have the same participants in the curve today that we had five years or certainly 10 years ago. So the curve itself probably is not going to be as much of an indicator of activity as the other things I just made reference to.”

Don’t see a lot of service price inflation at $43 oil

“David, I may very well be wrong, but I don’t see from, call it $43 today to $60, a lot of service cost price inflation. I do think as we approach $60, we will start to see it, depending upon the activity in the principal basins that would be driving our U.S. oil price – or U.S. production.”

Its a demand recovery not a supply recovery

“I still see the demand side, using IEA as the basis for that, with having 1 million to 2 million – maybe 1.2 million to 1.4 million barrels per annum of additional demand. It will be a demand recovery, not a supply recovery. And it’s really the basis of that demand expansion or the large and increasing portion of the pie that I think will give us some comfort around how that actually will be sustained.”

Robert G. Gwin – Executive Vice President-Finance & Chief Financial Officer

Transactions are being made but a lot of small ones

“Okay. Thanks. Charles, it’s really a market today where we are buying and selling, but in a lot of small transactions. So it’s things that are small enough they generally don’t get reported. The ones that we’re summarizing in our asset divestor program are generally our larger transactions. Or in some cases like even recently in the Permian, where we saw some acreage that we had in the portfolio. Felt like we wouldn’t get to that acreage for quite a while. And that it didn’t necessarily fit as well relative to our development plans. And so we saw it as a unique opportunity to sell something.”

Chevron (CVX) CEO John Watson Interview

Chevron (CVX) CEO John Watson said excessive regulation is hurting growth prospects

“The power has shifted towards regulators in this country.  And I think that’s a risk for the economy.  I don’t think that’s a coincidence that we’re seeing sub-par economic growth, I think it’s a burden.  Doesn’t matter if you talk to healthcare executives or bankers.”

 

Source: Video Interview https://charlierose.com/videos/28073

May 17, 2016

EOG 1Q16 Earnings Call Notes

EOG Resources (EOG) William R. Thomas on Q1 2016 Results

Shifting to “premium”

“The third item I would like to review is EOG’s shift to premium drilling this year. The shift is a game-changer with significant long-term implications. I will cover those implications in a moment. But first, let’s review what we mean by premium. Premium inventory is defined as drilling locations that generate at least 30% direct after-tax rate of return at $40 oil. Here are a few more clarifying points regarding this inventory. First, 30% return is not an average; it’s a minimum. Second, 30% was established as the minimum direct return to ensure that when indirect costs are included, the drilling program earns healthy full-cycle returns. Third, we fully expect to more than replace our drilling inventory with new premium locations every year. Therefore, and this is the most important point. Our shift to premium is permanent and not simply a temporary high-grading process in a low commodity price environment.”

Believe that it will take $65 oil for the industry to return to growth

“First, a brief word on our macro views and how they relate to EOG’s plans. The substantial reduction in capital investment by the industry in 2015 and 2016 is causing oil supply to decline in many producing regions around the world. Led by steady declines in the U.S. and supported by strong gasoline demand, the market continues to rebalance. We agree with consensus that this process will accelerate in the second half of this year and into 2017. We believe that in the U.S., it will take a sustained $60 to $65 oil price and 12 months of lead time for the industry to deliver a modest level of growth.”

We have a robust exploration effort ongoing

“Yes, we have a very robust exploration effort on new plays, and so we have various plays actually we’ll be testing this year. We’ll update you that when we have some meaningful results. And then we’re also picking up acreage. It’s been a great time to pick up low-cost acreage in places that we couldn’t get acreage in, in previous years. So we have an active program going on. Of course, we’re very selective. We only want premium plays to fit into our capital program. So we’re identifying rock that would meet that category and deliver those kinds of returns. So we’re not shortchanging that effort at all.”

Peyto Gas And Exploration (PEYUF) Q4 2015 Earnings Call Transcript

Peyto Gas & Exploration (PEYUF) CEO Darren Gee said the company is laser focused on why they exist

“You know, the primary objective of Peyto is to invest capital to make a return to generate a profit. We always think about the dollars and cents. We don’t get distracted by the plays, by the production, and by some of the other things that a lot of our competitors do because we know this is always about the book ends.  It’s about the money in and the money out and despite the fact that we’re looking, now, at a really low gas price, not dissimilar to what we saw in 2012, we know where our strengths lie and we know where our focus needs to be and when we don’t lose focus on what’s important, we don’t lose focus on the returns that we can generate on investing that capital wisely and efficiently and on driving costs down, we always come out stronger and better from some of this commodity volatility than going in.”

Peyto Gas & Exploration (PEYUF) CEO Darren Gee said they are producing more oil at less cost by being more efficient

“I think the more important thing for investors to focus on this year is the costs and the efficiencies that we have achieved. We were already known by most as a super low cost producer. We were already leading the industry in terms of our efficiencies. We managed to drive those costs down and to improve on those efficiencies and I think that’s amazing work by the team.”

Utilizing increased technology has been one of the drivers to reduce cost

“Over the past three years we have seen our operating costs drop by nearly 30%. A portion of this reduction has come through an intensive effort to use technology and by making key changes to process. We have employed a more focused effort on remote well monitoring using the [indiscernible] system we have in place and the result is that we have been able to increase the number of wells that each operator looks after in the field. We are also working with our water haulers to optimize fluid transport in the field.”

Also reduced costs by reducing third party contractors 

“We have also worked hard to reduce maintenance costs by moving away from expensive third-party labor and instead bringing top quality compressor mechanics in-house. We have also started recycling water using produced water for fracs, which has helped to reduce volume and the distance required for transport as well as reducing our volume disposal cost. And these fundamental changes are providing with us with a means to make lasting reductions to our overall operating cost.”

Improved drilling performance in 2015 

“Our capital costs were reduced in the order of 25% year-over-year from 2014 to 2015. And of that 25% admittedly the largest portion was the result of service cost reductions. However, approximately one third of these reductions were the direct result of improved performance in technical revision to our program. We feel confident that these improvements are tangible and will be retained even in the event of an industry activity increase that will undoubtedly result in a pricing increase to the service industry.”

Peyto Gas & Exploration (PEYUF) Vice President of Drilling Lee Curran says the company has a continuous improvement operating culture regardless of the price of energy

“We employ a core group of extremely engaged and loyal and competent staff, both in the Calgary office and at the field level. Every individual in this group adds value and seeks ways to improve our efficiencies. This has long been the culture here at Peyto. Many companies contain elements of this culture. However, I would be amiss to find a peer where it exists with the level of commitment as it does here through all disciplines of both the office and field operations.”

Peyto Gas & Exploration (PEYUF) Vice President of Land Tim Louie says the company is being opportunistic about acquiring acreage at attractive prices when some of their competitors are being forced to sell

“In 2015 Peyto acquired 58 net sections for $8.6 million at an average price of $230 per acre. Out of the 58 sections 37 sections were picked up at land sales, while the remaining land were acquired through asset deals. Peyto seized 181 drill able locations on the lands we acquired last year.”

Peyto Gas & Exploration (PEYUF) CFO Kathy Turgeon says the company is conservatively financed even in this low energy price environment

“Well, these are certainly challenging times Peyto continues to focus on maintaining a strong balance sheet and conservatively managing our debt levels, as always. As disclosed in the MG&A we are well within our financial covenants and our budgeting and forecasting models for 2016 give us confidence that this situation will continue. We don’t foresee having to seek any kind of covenant relaxation or relief even in this low commodity price environment.”

Apache 4Q15 Earnings Call Notes

Apache (APA) John J. Christmann on Q4 2015 Results

Taken decisive action to position for an extended low price environment

“we have taken other decisive actions to position Apache for an extended low price environment, which included aligning our capital spending with cash flows, attacking the cost structure, continuing to high-grade and build an inventory of attractive opportunities that will deliver strong returns under a low oil price environment, and strengthening our financial position and liquidity.”

We are well positioned for whatever lies ahead

“Apache is now very well positioned for whatever lies ahead. We are living within our means and anticipate being cash flow neutral in 2016 and beyond, until such time that the price environment warrants higher investment levels. ”

Conservative $35 price deck

“Similar to our approach in 2015, we are using a conservative price deck for 2016 budgeting that reduces the risk of inadvertently putting ourselves in the position of a material outspend and helps to sustain our credit quality. Our capital allocation process for 2016 is built around four key themes: living within our means and achieving cash flow neutrality for the year at $35 oil, focusing capital spending on protecting the asset base and optimizing and building inventory, maintaining a relentless focus on both capital costs and operational expenses and remaining flexible, opportunistic and ready to react as conditions change.

80% decrease in capital budget from 2014

“With this in mind, we announced in this morning’s press release a 2016 capital budget of $1.4 billion to $1.8 billion, the midpoint of which represents over a 60% decrease from 2015 and over an 80% decrease from 2014 levels.”

Strategically designed organization for $50 plus world

“we strategically designed this organization for a $50 plus world. So, we do not envision needing to add a lot of staff to be able to flex back up. Clearly, I think if you get into a significantly lower time period where you’ve got lower prices, 24 months, 36 months out at that point you’d probably reduce further. But, we’ve maintained the flexibility so we can ramp up our capital programs when appropriate.”

We were very aggressive about cutting

“we took actions and we’re very aggressive last year. So you look back to 2015 and 2016, we’ve had a track record of reducing activity and really trying to gear our business and mirror our activities to the price environment we’re in.”

See costs coming down even further this year

“In terms of our Permian well cost, we see things coming down and even further this year. As a rule, we’re looking at mile-and-a-half laterals. We have seen the intensity of the frac concentrations going up. So those are the types of parameters we’re going to use or using in those estimates.”

Stephen J. Riney – Chief Financial Officer & Executive Vice President

Not having to cut dividend

“Yeah, this is Steve again. So you make very good points. We cut early, we took a lot of actions in 2015 that a lot of our peers didn’t. And I think for that reason, we feel like we’re very well positioned not to have to cut the dividend now. We’ve done all the things to strengthen the financial position, the liquidity position, our refinance risk on the debt portfolio.”

The opportunities to invest are going to be even better in the future than right now

“We’ve chosen to live 2015 and 2016 as close to cash flow neutral as possible. We’ve done that because we believe that, especially in North America, the opportunities for investment are going to be better in the future than they are now. There are some good ones now, but we believe they’re going to be even better. So we’ve chosen to be cash flow neutral. So we’ve added $1.5 billion of cash on the balance sheet, chosen to be cash flow neutral, we don’t really need to reduce the dividend at this point in time.”

Anadarko 4Q15 Earnings Call Notes

R. A. Walker – Chairman, President & Chief Executive Officer

Don’t find returns in this environment compelling

“Frankly, even with two of the best assets in North America, we don’t find the returns in this environment to be compelling. Therefore, we are choosing to fund a reduced program in the Wattenberg field and only a delineation and a lease preservation program in the Delaware Basin as we seek to preserve the shorter-cycle opportunities for a better day.”

Expecting that oil is not going to be at $30 for the rest of our life

“I think these other longer-dated projects we believe today are worthy of spending capital, expecting that oil is not going to be at $30 for the rest of our life. And at some point, when we make a decision to take either to sanction or FID any of these longer-dated projects, it will be an environment which we believe we can recommend to our board first that we make that investment. ”

We do think the environment will probably be protracted

“we do think the current environment that we’re in will probably be protracted. We have concerns of events here that really are well beyond our control. And consequently, until we see events stabilize and we see oil prices in particular take on a new supply-demand dynamic than it’s currently in the market or anticipated in the near future, we will continue to be a very cautious investor in this environment.”

Shale short cycle adds a dynamic that we’ve not had previously

“Typically, when you go into a down cycle, you come out of a down cycle with a pretty good price increase. We are a little concerned that this time, there is one dynamic we’ve never had previously and that is shale response and a short-cycle investment to a rising price environment has not been in the equation previously, and that will probably add to greater volatility in the coming years than we have certainly seen in the last five and I would even say in the last 30.”

We’re not in the revenue business we’re in the margin business

“we’re not really in the revenue business; we’re in the margin business. And so in this price environment, we have a dislocation between what it costs to either operate or drill wells versus the commodities that are being provided by the markets. So that dislocation, we believe, is going to continue. We don’t find the margins that we’re seeing today to be attractive for the reasons I’ve talked about this morning.”

Maintenance CapEx is about $1.8B

“today, the number that we think of this maintenance CapEx to keep volumes flat is about $1.8 billion, which is down substantially from prior years and I think very, very reflective of the outstanding work our employees have been able to achieve by reducing that breakeven.”

Hedging probably not attractive at these prices

“at $30 and $2, just to use big round numbers, I don’t think any company has got a motivation to hedge until it’s probably a negative cost of replacement. So I’m not sure we or anybody else would find ourselves motivated to lock in prices that are lower than the marginal cost in order to develop.”

Conventional resources are an asset in this environment

“one of the things that has probably been lost in the scheme of just exactly who we are and what we are, but I’ve tried I think almost every call to emphasize it, we are a mix of conventional and unconventional resources. And in 2016, you’re seeing the benefit of conventional assets coming into the production profile and that’s a very different opportunity set than a lot of other companies have.”

Robert G. Gwin – Executive Vice President-Finance & Chief Financial Officer

The ratings agencies are placing everyone under review

“David, great question. Obviously, everybody has seen that both agencies are taking down their price cases again. Moody’s placed essentially the entire sector on review. We’ve provided them some preliminary numbers. We’re going to continue to work with them in the coming weeks and coming out of our board meeting next week to make sure they have the most recent and updated information available.”

Assets we are selling are ones that would not get funded relative to other opportunities

“I think without going into detail, some of the assets that we are looking to monetize in the near term are producing assets. Some of them are not. And it’ll take greater shape as we announce them either at March 1 or between now and March 1. I think it’s fair to say that these assets generally share the characteristic of our asset sales in the past and that is that they have sound economics, but not economics that rise to the point that they would get funded relative to our other portfolio opportunities over virtually any commodity cycle.”

The dividend is higher than it needs to be right now

” I mean, the dividend, it is costing us about $550 million a year currently. Obviously, there are other things we could do with that cash in the current environment yielding, say, 3% with the movement in the stock price. That’s a bit higher than we would normally target for the dividend. Though we’ve got a board meeting next week and obviously the decisions around the dividend are solely theirs. We’ll be talking to them about the overall financial picture and the cash flows during the year and we’ll see, as we come out of that, where we are relative to the appropriate level of dividend. I certainly do not expect us to eliminate the dividend. That’s a question we’ve gotten in the past. I don’t think that’s an appropriate step, but the current yield is certainly higher than we would have targeted in a much higher stock price environment.”

Chevron 4Q15 Earnings Call Notes

Chevron (CVX) John S. Watson on Q4 2015 Results

Supply was more resilient than most expected last year

“Consistent with many of you, we believe demand will continue to grow. The larger wild card, or uncertainty if you will, is supply. Non-OPEC liquids production, which is shown on this chart, remained much more resilient in 2015 than most predicted. With the significant contraction in global investment caused by low prices, the world would see supplies drop off. WoodMac shows that occurring this year, thereby pushing the oil market into better balance. Until that balance occurs, prices will continue to be constrained and the financial damage to the energy sector seen in 2015 will continue.”

Our priority is to pay and grow the dividend

“I’ve given the priority is to pay and grow the dividend, and in order to do that, obviously you do have to invest in the business because we are a depleting resource business. So those are always the first two priorities that we have consistent with good economics on the spending.”

I think the ratings agencies are moving in the direction of a downgrade

“Yeah, so as John said, the rating agencies need to do what the rating agencies need to do and they have conservative oil price scenarios out there and I think that’s understandable. If you were in their position, you would be doing the same thing. And I think it’s perfectly reasonable to think Chevron, along with everybody in the industry in this particular price environment, would be up for review. They’ve indicated that many of the companies are up for a review. I’m certain that Chevron will be in that queue right after the first tiering goes through. So if a downgrade does occur, and I think they’re moving in that direction, but if that were to occur, we would not be the only one that that would happen to. I don’t see it materially impacting our cost of funds or materially impacting our ability to secure financing.”

The world’s going to need deepwater oil. Those costs haven’t come down as much as onshore

“If you look at the macro environment on where supplies are going to come from to meet any demand estimate that might be out there, the world’s going to need deepwater oil. It is a significant resource, and over time those barrels are going to be needed. Now, right now the costs in the deepwater haven’t come down quite as fast as they have onshore. We obviously have seen some rig rate reductions, but in general as we get to deeper and deeper water, some projects are challenged.”

It’s a terrible market to be selling oil related assets

“I think your point is spot-on. I think it’s a terrible market to be trying to sell most assets out there, particularly obviously oil-related assets. And that’s why I’ve been pretty circumspect around asset sales.”

EOG at Wells Fargo Conference Notes

EOG Resources Presents at Wells Fargo Energy Symposium Conference

Billy Helms

Drilled a lot of uncompleted wells this year. Efficiency improved so much that will be more productive when completed next year

“we improved the productivity and we learned so much about how to better complete those wells. So, we’re actually going to get a better result at a lower cost by completing those wells next year than how we completed those this year. But, you’re right as far as going to the next year our capital efficiency should be greatly improved.”

Drilling cost is 1/3, completion 2/3 of well cost

“Typically from a well cost perspective, drilling cost is about a third of the total well cost, the completions are about two-thirds. So you can think about it in that sense that ratio as far as their capital efficiency improvement.”

We’re not sure how many rigs we’ll keep running next year

“we’re still going to have some rigs running. We’re not sure exactly what that level is going to be yet. We’re waiting to determine really what we see the oil price outlook is going to be before we set that number.”

Focus on rate of return

“ultimately, if you’re not generating a good rate of return you’re destroying capital. And we don’t want to do that as a company. So we’re always focused on rate of return”

Going into next year unhedged

“typically, we like to have about 50% of our production hedged. Obviously we don’t have that now. We don’t have hardly any production hedged next year. And so, we’re going to be looking for the opportunity to do that, we don’t currently see the current market is an opportunity to place any hedges. We’ll be looking to see what the forward curve looks like and try to take advantage of that opportunity, when it presents itself.”

Marginal cost of supply now probably in $75-$80 range

“the break-even perhaps used to be $90 to $100 probably. The marginal cost of supply was $90 to $100, now it’s probably $75 to $80. For EOG we would be tickled to death for $60, $65 price. I think we’d be able to generate really strong rate of returns and grow the company at very healthy level at $60 or $65 price environment.”

We entered the year thinking we may do an acquisition, but we never found anything that made sense

“You’re right we started off the year thinking okay in this down cycle we might seen an opportunity for a corporate acquisition. And we’re not really used to the company to doing that, but we’re hoping at the opportunities. And we looked at the lot of different things, so that we never really saw anything that would compete with our portfolio here that we’ve shown. And we do evaluate everything on a rate-of-return basis. So if they didn’t stack up, we’re just not going to do that.”

We still get >10% returns on $40 oil

“we probably need to update it with the $40 oil price, we haven’t updated this slide with that. I would say that a year ago we had this slide and we said that $40 oil, all those budgeted and rated at least 10% rate-of-return. And that was a year ago and we made steady improvements in lowering cost and productivity gains.”