$4.9 billion increase largest since at least 2012
Capital expenditures for onshore oil companies increased in Q4 2017, the first year-over-year increase in CapEx since 2014. According to the EIA, CapEx in Q4 2016 increased by $4.9 billion, or 72%, compared to the fourth quarter of 2015. This increase was the largest year-over-year increase for onshore oil production companies since at least Q1 2012.
WTI prices bottomed out at $26.21/BBL on February 11, 2016. Since then prices have somewhat recovered, with the current price of WTI at $50.24/BBL. Producers have responded to the price resurgence with a surge in investment.
Earnings, however, have not recovered as quickly. According to the EIA, cash from operations was lower in Q4 2016 than it was in Q4 2015. Lower investment levels in the past two years are likely to blame for this decrease, as prices were higher in Q4 2016 than they were in Q4 2015. Spending on exploration and development was far below historical levels in 2015 and 2016, meaning that drilling decreased. Decreased drilling led to decreased production, which somewhat offset the effect of higher prices.
Hedging increasing on higher prices
Companies are eagerly looking to lock in prices for 2017 production. To determine the amount of future production oil companies have hedged, the EIA examines the number of short positions on the market. These short positions consist of futures and option contracts held by producers and merchants. Many companies have increased their use of short positions since oil rose above $50/BBL in the fourth quarter of 2016.
Several unconventional plays, especially the Permian, are economic at $50/BBL oil prices. This gives operators a strong incentive to lock in prices in an effort to guarantee operations will be economic.
