From Lehman’s downgrade of the E&P sector yesterday:
Posted by zmann on October 4, 2006
E&P companies “need to slash budgets to rein in out of control costs”
3Q conference calls “will lead investros to question the abilitty of E&Ps to fund ’07 drilling plans; and this could lead to reductions in ’07 production forecasts”
Exactly on the mark! The service companies and drillers are going to start to see a lot of pushback on the rates they charge the E&Ps. It’s not a question of if, but only when and I think it is now. When reserve values are recalculated at year end, borrowing bases will all be reduced due to much lower commodity prices. The capex budgets will therefore be constrained.