Expand Energy sees net gas-field drilling and completion (D&C) cost deflation of up to 2% and possibly more in the wake of $60 oil as OPEC+ plans to up its output, while U.S. tariffs on most imported goods may further squeeze oil-basin associated gas producers’ margins.
The pureplay gas operator is the nation’s largest, putting 6.8 Bcfe/d net into pipe in the first quarter from its 1.9 million net acres in the Haynesville, Marcellus and Utica shale plays.
Some of Expand’s D&C cost savings are coming from merging with Southwestern Energy in October, giving it a stronger negotiating position for gas-field goods and services, Josh Viets, COO, said in an investor call April 30.
But what may create “a little bit of a tailwind for us as well is the outlook in the oilier basins, specifically within the Permian,” Viets said.
J.P. Morgan Securities analyst Arun Jayaram reported oil-focused E&Ps may drop 50 rigs if $60 oil persists—and to up to 100 rigs may go idle at $55.
“There are a lot of predictions out there right now of cuts to rigs in the Permian,” Expand Energy President and CEO Nick Dell’Osso said.
“We've seen anything from 20 to 50, but we haven't seen a lot of specific plans just yet. So we're going to be watching that really closely.”
The Permian Basin is the U.S.’ No. 2 gas producer behind Appalachia (36 Bcf/d) and ahead of the Haynesville (15 Bcf/d), putting 25 Bcf/d of associated gas into the market from its oil wells, according to the U.S. Energy Information Administration.
“If we see any material pullback in activity there, I think you could expect some additional deflation showing up across our [gas] business,” Viets said.
Dell’Osso said the pattern in the Permian has been that operators have plenty of associated gas to put into pipe—when new pipe is built.
“We saw how quickly Matterhorn [Express pipeline] filled, even though it didn't appear that there were a lot of DUCs in the basin leading into that,” Dell’Osso said.
“And so I think … the basin continues to prove that associated gas is available when pipeline capacity is available.”
If Permian drillers start dropping rigs, though, “that'll change and that could be a really interesting development for the dynamics of Lower 48 [gas] supply,” Dell’Osso said.
OCTG cost
With 11 rigs drilling, Expand is already seeing some weakness in oilfield service costs, Viets said.
“And so, as we look out to the rest of the year and specifically around tariffs, there is clearly going to be a little bit of pressure … that is going to show up within our casing cost.”
Roughly 80% of Expand’s casing—that is, oil country tubular goods (OCTG) used in making oil and gas wells—is manufactured in the U.S., though.
“So there is some level of insulation,” Viets said. “But we know, as import costs rise, that will likely bleed into some of the domestic cost as well.”
However, Expand has most of its casing under contract through September, “so the exposure to those related impacts is somewhat muted.”
Expand broke down its price-change expectations for D&C through 2025 in an investor presentation.
While OCTG costs are expected to climb, the rest of the goods and services in D&C are expected to decline, Expand reported: rigs, mud and directional, pressure pumping and sand and logistics.
Cement and labor costs would be unchanged. All of the price-change expectations are single-digit. The net average is between zero and 2%.
Expand’s largest spend in D&C is for the frac job, with pressure-pumping, sand and logistics representing between 20% and 40% of a well’s cost.
Drilling costs, consisting of OCTG, rigs, cement, mud and directional, represent between 23% and 36%.
Fuel, labor and other costs are between 18% and 26%.
John Freeman, analyst at Raymond James, wrote of Expand’s outlook, “Bottom line: Despite [a] tariff impact to items like pipe and casing, overall total costs are flat to slightly down.”
Devin McDermott, an analyst for Morgan Stanley, reported in mid-April that most E&Ps don’t expect steel tariffs to affect expenses until later in 2025 “as OCTG needs for the next few months have already been procured.”
If tariffs stick, though, “well costs could rise 2% to 3% on a run-rate basis, although this could be offset by efficiency gains or deflation in other areas,” McDermott wrote.
Credit-rating agency Morningstar DBRS reported April 23, “The double whammy of a tariff-induced global economic slowdown and gradually increasing OPEC+ supply will continue to pressure the oil price in the near term.”
The firm cut its 2025 outlook for WTI to $60/bbl from $65/bbl.