Darcy Partners Host Third Series of Virtual Roundtable Discussions with Top Oil & Gas Executives on COVID-19 and Commodity Price Related Issues Specific to Upstream Industry

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On Thursday, March 26, 2020, Darcy Partners brought together senior leadership of the oil and gas industry from around the world to analyze impacts of current market disruptions. The goal of this series is to gain invaluable insight from industry leaders on best practices to handle projected upsets. The Virtual Oil & Gas Executive Roundtable series will be held weekly on Thursdays, 3:00-4:30pm CST.


The roundtable discussions gather insight from executives in attendance by providing multiple real-time questionnaires answered throughout the conference. Nearly all in attendance last week indicated that they had cut both CAPEX and OPEX for 2020 with the typical CAPEX cuts being 40-75% of prior plans. It was less clear on the magnitude of the OPEX cuts announced so far, but it is likely a moving target due to a mandate to keep costs as low as possible until the market rebounds.

It was also noted that while the downturn was abrupt for the lower-48, Canadian operators have been dealing with many of these issues for the last 12-18 months due to large differentials. This has allowed Canada to be one step ahead on cost cutting strategies and shutting-in production compared to the U.S. Throughout the conversations it became apparent that identifying and then executing shut-in operations is time consuming and cumbersome. Leading to an interesting statistic that roughly 20% of operators had begun shutting in production.

Production Shut-ins

As of now the extent of shut-ins appears to be minimal, with clearly marginal wells being curtailed to date. However, the conversations highlighted key challenges associted with shutting-in production.

Next Thursday, April 2, 2020 the roundtable will delve deeper into those stated challenges.

Key Considerations

  • The need to understand in depth the intricacies of the leases and which leases have not only HBP clauses, but also getting the buy-in of the leaseholders and ensuring they understand the rationale
  • The difficulty in determining the true incremental economics of each well – almost every attendee highlighted the challenges with understanding exactly which wells were truly economic on a go forward basis due to:
    • Fixed cost absorption
    • Allocation of costs across wells on a pad, particularly in wells with
      stacked pay
    • The regulatory challenges and costs associated with temporarily
      plugging wells
    • How difficult it would be to bring the well back online if pricing does

Best Practices

  • Multiple operators referenced having daily or weekly “marginal well” meetings which included personnel from planning, operations, corporate strategy, etc.
  • The need to double click to a level well below the LOE statement to understand if any specific wells were over/under-burdened
  • Active understanding and dialogue with the regulators around what would and would not be required
  • Active review of all lease agreements to identify the nuances of each holding which may have an either real or opportunity cost associated with them
  • Typically these are easier exercises to run on single wells relative to pads
    Role of OFS

It was brought to attention that activity levels have been coming down in much of the U.S. for roughly 6 months and pricing for many services has also declined resulting in:

  • Service costs likely to not decline as rapidly as they have in past cycles – while there are certainly cost savings which have materialized (Chemicals, VRUs, Compression and Trucking were specifically cited) the magnitude of the decline in pricing has been much smaller than anticipated – likely representative of the service sector also being pressured to show profitability vs. focusing on cutting costs in downturns to gain market share
  • The potential impact of incremental cost cutting on the OFS vendors was highlighted as being front of mind where operators are aware many vendors are operating below cost, which can potentially lead to unsafe & inefficient field operations.
    • Examples were cited from those with experience in the Bakken and in Canada where operators were willing to pay (slightly) more for a vendor when there were clear operational safety, efficiency benefits

Activity Levels & Spending

  • The market dynamics during this cycle are far more pronounced than in past downturns – largely due to the concurrent supply and demand imbalances coupled with the broader economic uncertainty – which wasn’t present during the 2014/2015 downturn
  • The activity decline in the 2014/2015 cycle were partially offset by HBP activity primarily in the Permian as the stacked pay potentially really came into focus, so wells were drilled and completed to hold acreage, which may not have otherwise moved forward
  • There is not much appetite to transact currently with the commentary being that most PE firms and operators focused on internal initiatives first before being to look at what acreage could be bought or sold. Additionally, the investor appetite (both public & private) to put incremental capital to work in the space was already pressured and the dual impact of COVID-19 and the OPEC+ actions have decreased this even further
  • Most operators indicated that aside from already in progress programs, everything else was going to be reviewed in light of the new conditions – with less appetite to drill-through this downturn as it is unclear that there is a steep recovery in commodity pricing on the horizon
  • NGL bottlenecks are negatively impacting gas producers. However, dry gas supply/demand is likely the near-term beneficiary of the current slowdown


Most operators are running COVID-19 response teams, have office personnel working remotely, and have reduced non-critical personnel in the field. Operators stated that while they are impressed with the efficiency of employee transition, there was concern if morale will last.

“I am amazed at how productive we have continued to be in the 1st week of remote work, but I am concerned that it will drop off quickly if this lasts weeks or months.” – stated a roundtable executive in attendance

They emphasized concern of losing collaborations and personal bonds if remote working lasts an extended amount of time. The next step of handling COVID-19 is planning and executing protocals for spotting potential cases within the workforce.

Best Practices for Presumptive/Actual COVID-19 Cases:

  • Fully close and deep clean offices/sites of exposure
  • Contact people who could have been exposed back “x” number of days; each operator is following their own guidelines for how far back they go
  • Recommend “x” number of days of quarantine to those who were exposed; look to CDC for recommended days without seeing symptoms

Additionally, many operators are seeking extended support from their analytics and data science teams to alleviate workforce concerns. “The group that they [workforce] listen to most is their employer,” stated on roundtable executive. These teams are able to assist executives in frequent and accurate communication on what is happening externally and interanlly to an anxious workforce.

Internationally Operators from Argentina shared their experiences with dealing with the impacts of COVID-19. Those in Argentina relayed that they are under much harsher moving restrictions and they are worried that their infrastructure might not be able to support the amount of bandwidth needed for the number of people moving to web conferencing and other virtual platforms, not to mention competing with the millions already streaming Netflix. For those operating internationally, this adds another layer of complexity.