Released January 06, 2023 | SUGAR LAND
en
Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--From South Texas, small-sized shale player Magnolia Oil & Gas Corporation (NYSE:MGY) (Houston, Texas) trimmed its production estimate for the fourth quarter by 5%, begging the question if the sector is indeed slowing down, as many analysts expect.
Magnolia holds around 460,000 net acres in parts of the Eagle Ford shale basin and the affiliated Giddings field, which the company considers to be "a re-emerging oil play with significant upside."
During the third quarter, the company reported net income of $245.5 million, a 79% increase over year-ago levels. Production during the period set a record for the company, with the 81,500 barrels of oil equivalent per day (boe/d) representing a 10% increase sequentially and a 7% increase from its high-end guidance range.
The Eagle Ford is something of a mid-tier reserve. The oil production forecast of 1.2 million barrels per day (BBL/d) contrasts to the Permian's 5.6 million BBL/d expected in January. Gas production of 7.4 million cubic feet per day contrasts with gas mega-producer Appalachia, with expectations for 300% of that volume for January.
But Magnolia is starting the new year seemingly on its backfoot. The company said it trimmed its production forecast for the fourth quarter from its midpoint guidance of 78,000 boe/d to a range of 73,000-74,000 boe/d.
The company attributed the decline to the late-December cold snap that brought sub-freezing temperatures to much of the country, weather that resulted in some well shut-ins at both of its South Texas assets.
Elsewhere, one large well pad was brought on later than expected in the fourth quarter. It's now fully operational, and Magnolia expects production volumes to return to the range of 80,000 boe/d.
"The company's 2023 guidance remains unchanged, and Magnolia expects to generate full-year 2023 production growth of 10% compared to last year, at current product prices," the company said.
West Texas Intermediate, the U.S. benchmark for the price of oil, was trading in the mid-$70 -per-barrel range during the first week of January. Executives surveyed in the latest energy survey from the Federal Reserve Bank of Dallas put that level at the baseline for capital expenditure plans for the year.
Magnolia is small relative to others. Pioneer Natural Resources (NYSE:PXD) (Irving, Texas), among the largest shale producers, put its 2023 guidance at between 350,000 and 365,000 boe/d, a good 300% higher than Magnolia. Pioneer also reported third-quarter net income of $2 billion, compared with Magnolia's $245.5 million.
On its production delays in the fourth quarter, perhaps it's the lower-tier players that will be affected most--and first--by supply-chain concerns in the shale oil patch. That reflects many of the general concerns in Texas as those surveyed by the Dallas Fed were fretting over everything from the lack of qualified workers to supply-chain bottlenecks.
"Supply is very limited, and service companies are taking a long time to come and do the work," one respondent said.
Shale's potential is under scrutiny. Production this year is expected to set a record at around 12 million barrels per day (BBL/d), but the pace of increase year-to-year is on the decline.
Recent analysis from Swiss investment bank UBS shows U.S. crude oil production increased in 2018--when WTI struggled to break a $70 ceiling--by around 2 million BBL/d. Last year, when oil prices surpassed $100 per barrel during the summer, the increase was closer to a half million barrels per day.
"Shale producers are more focused on capital discipline today - such as reducing debts or paying higher dividends - instead of increasing production growth," UBS analysts wrote.
Those factors, UBS said, should continue to create headwinds for shale producers in 2023. Shale may not be dead, but it's unlikely to witness the boom that it did a decade ago.
If Magnolia's woes as a small player starting to feel bigger pains are anything of a bellwether, it could indicate the writing on the wall for the proponents of peak shale theory.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 trillion (USD).
Magnolia holds around 460,000 net acres in parts of the Eagle Ford shale basin and the affiliated Giddings field, which the company considers to be "a re-emerging oil play with significant upside."
During the third quarter, the company reported net income of $245.5 million, a 79% increase over year-ago levels. Production during the period set a record for the company, with the 81,500 barrels of oil equivalent per day (boe/d) representing a 10% increase sequentially and a 7% increase from its high-end guidance range.
The Eagle Ford is something of a mid-tier reserve. The oil production forecast of 1.2 million barrels per day (BBL/d) contrasts to the Permian's 5.6 million BBL/d expected in January. Gas production of 7.4 million cubic feet per day contrasts with gas mega-producer Appalachia, with expectations for 300% of that volume for January.
But Magnolia is starting the new year seemingly on its backfoot. The company said it trimmed its production forecast for the fourth quarter from its midpoint guidance of 78,000 boe/d to a range of 73,000-74,000 boe/d.
The company attributed the decline to the late-December cold snap that brought sub-freezing temperatures to much of the country, weather that resulted in some well shut-ins at both of its South Texas assets.
Elsewhere, one large well pad was brought on later than expected in the fourth quarter. It's now fully operational, and Magnolia expects production volumes to return to the range of 80,000 boe/d.
"The company's 2023 guidance remains unchanged, and Magnolia expects to generate full-year 2023 production growth of 10% compared to last year, at current product prices," the company said.
West Texas Intermediate, the U.S. benchmark for the price of oil, was trading in the mid-$70 -per-barrel range during the first week of January. Executives surveyed in the latest energy survey from the Federal Reserve Bank of Dallas put that level at the baseline for capital expenditure plans for the year.
Magnolia is small relative to others. Pioneer Natural Resources (NYSE:PXD) (Irving, Texas), among the largest shale producers, put its 2023 guidance at between 350,000 and 365,000 boe/d, a good 300% higher than Magnolia. Pioneer also reported third-quarter net income of $2 billion, compared with Magnolia's $245.5 million.
On its production delays in the fourth quarter, perhaps it's the lower-tier players that will be affected most--and first--by supply-chain concerns in the shale oil patch. That reflects many of the general concerns in Texas as those surveyed by the Dallas Fed were fretting over everything from the lack of qualified workers to supply-chain bottlenecks.
"Supply is very limited, and service companies are taking a long time to come and do the work," one respondent said.
Shale's potential is under scrutiny. Production this year is expected to set a record at around 12 million barrels per day (BBL/d), but the pace of increase year-to-year is on the decline.
Recent analysis from Swiss investment bank UBS shows U.S. crude oil production increased in 2018--when WTI struggled to break a $70 ceiling--by around 2 million BBL/d. Last year, when oil prices surpassed $100 per barrel during the summer, the increase was closer to a half million barrels per day.
"Shale producers are more focused on capital discipline today - such as reducing debts or paying higher dividends - instead of increasing production growth," UBS analysts wrote.
Those factors, UBS said, should continue to create headwinds for shale producers in 2023. Shale may not be dead, but it's unlikely to witness the boom that it did a decade ago.
If Magnolia's woes as a small player starting to feel bigger pains are anything of a bellwether, it could indicate the writing on the wall for the proponents of peak shale theory.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 trillion (USD).
