Why Oil Drilling Could Resume 'Sooner Than Advertised'

According to a new report by Susquehanna, U.S. oil exploration and production (E&P) companies could be back drilling again sooner than many experts expected.

Susquehanna analysts see an improving landscape for many oil projects due to higher well productivity and lower service costs.

Earnings Calls

Analysts picked up on several key themes from E&P Q1 earnings calls. While many of the companies believe that $70 oil will be necessary before offline rigs will begin starting up again, Susquehanna analysts believe that rig count numbers could begin expanding in the second half of 2015 if oil prices remain above $60/bbl.

Susquehanna is projecting WTI oil prices of around $65 per barrel for the remainder of 2015.

Related Link: Crude Oil Back Above $60

Price Relief

Almost every E&P in Susquehanna’s coverage universe reported higher-than-expected Q1 production. Service prices have fallen faster that many E&Ps anticipated, and most are expecting further price relief throughout the remainder of 2015.

Production Growth Coming

Analysts believe that clarifications from the upcoming OPEC meeting and the Iran sanctions negotiations could pave the way for E&Ps to start adding more rigs later this year. Many companies have mentioned these two events as potential negative catalysts for oil prices.

Overall, analysts predict that U.S. oil production growth could resume as soon as 2016, although at much more muted levels than were seen before the price collapse.

Stock Picks

Susquehanna has a generally bullish view on E&P stocks at current prices. The firm has a Positive rating on the following stocks: Continental Resources Inc (NYSE: CLR), Devon Energy Corp (NYSE: DVN), EOG Resources Inc (NYSE: EOG), Gulfport Energy Corp (NASDAQ: GPOR), Newfield Exploration Co (NYSE: NFX) and Range Resources Corp (NYSE: RRC).