DJ Basin has seen to be picking up some momentum and attention over the years and was expected to grow through 2020. However, the crash of oil price forced operators in the basin to take a step back and re-evaluate their cash flow and reduce capital.
With the updated information released by the operators on capital and rig count reduction, GlobalData performed an analysis of how the price fall directly affect the production outlook of DJ Basin in 2020.
With the current economic crisis and speculations around US West Texas Intermediate (WTI) potentially falling to $10 per barrel (bbl) in coming months due to the global glut in oil supply, operators in DJ Basin are expected to rely heavily on their hedged production to sustain their cash flow. However, it will not be surprising if companies further adjust their capital expenditure later this year to the movement of oil production given such a volatile environment.
With respect to DJ Basin’s nine selected positions and their economic valuations:
- In our base case for the post-price fall scenario, an updated price expectation based on futures contracts, for 2020 and 2021 and 2022 is utilised. GlobalData valuations also use an updated operator-reported number of rigs for 2020 or reduction of capital expenditure as estimation whenever available, otherwise assumed a drop in rigs of 50%.
- From our sample of nine operators, which account for approximately 74% of total DJ Basin production, the total production is cut by 44,438 boed (30,911 barrels per day (bd) as oil production) due to reduction in capex and rig count.
- GlobalData analysis results in a reduction by five rigs by end of 2020, from 13 rigs to eight rigs reported at end of March 2020. Overall this rig reduction brings down operator’s capex an average of 29.5%.