U.S. E&Ps plan substantial increases to their drilling and completion budgets for 2018 and beyond. This is according to Westwood Global Energy Group, which released its basin-by-basin outlook for the U.S. onshore market in mid-January.

The expansion trend began last year. Significantly, E&Ps spent 82% more capital overall on the onshore in 2017. Included in that growth were 60% increases in drilling and 27% hikes in completion activity for the year.

On the completion front, Westwood noted, the opening of supply chain constraints was even more meaningful for the industry, “as service providers add further frack sand and spread capacity into 2018, therefore allowing completion activity to accelerate—resulting in a 54% increase in completion spend this year.”

In total, according to the Westwood analysts, some $633 billion is likely to be invested across the six basins covered in the report during the 2018 to 2022 time period. E&Ps will put plenty more rigs to work, with the report forecasting 1,216 active in 2022, an 83% increase over the rig count average last year.

Completions will continue to absorb a greater degree of capital dollars, reaching 69% of total expenditures over the five-year period.

The commodity prices underpinning Westwood’s forecast reflect a “gradual upwards increase within the $55-$65 per barrel (bbl) range through to the end of the decade, before climbing to $68/bbl in 2022,” according to the report. These expectations were below crude prices currently.

Not surprisingly, the report expects the greatest expenditures to target the Permian Basin. In 2017, those dollars totaled some $40 billion; by 2018 they could hit $60 billion and by 2022 they could top $100 billion. That would assume some 800 rigs at work in the Permian alone by 2022.

The Denver-Julesburg Basin, by contrast, will see about $10 billion in spending in 2018 and more than double that in 2022. The Midcon will similarly see its capex spend surpass $10 billion by 2022, more than twice the investment projected for 2018. The Eagle Ford is projected to grow by about a third from its forecast level of about $10 billion for 2018.

Forecast for slower, but stable growth through the period are basins/plays such as the Williston and the Haynesville.

The active rig count, according to the Westwood report, could surge from about 800 by the end of this year to about 1,000 midway through 2020 and 1,200 by 2022.

To support those spending plans while not exceeding cash flow, many E&Ps have significantly expanded their hedging positions as they embark on a new year, according to IHS Market. A group of 43 North American E&Ps that IHS studied for its Comparative Peer Group Analysis had hedged a quarter of their 2018 oil production, at $53.40/bbl, at the end of third-quarter 2017. They had hedged 36% of their gas production at $3.13 per thousand cubic feet, compared with 12% of oil and 31% of gas production hedged for 2018 at the end of second-quarter 2017.

Small and mid-sized E&Ps had hedged nearly 50% of this year’s total production by the end of the third-quarter of 2017.

“The higher level of hedging is less about supporting aggressive production growth and more about increasing investor confidence that these companies are serious about becoming more financially disciplined,” Paul O’Donnell, principal energy analyst at IHS Markit and author of the hedging analysis, said.

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