Top shale firms slash budgets
Drillers cut $7.6 billion from capital plans as crude oil prices plummet
The most prolific shale drillers in Texas have cut at least $7.6 billion from their combined 2020 capital expenditures budgets while several more are expected to follow suit as crude oil prices fall to lowest levels since the bottom of the last oil bust, which was considered worst in a generation.
Exxon Mobil, the Texas-based oil major, Concho Resources of Midland and Pioneer Natural Resources of Irving this week became the latest oil and gas companies to promise cuts to their spending as the coronavirus outbreak brings the global economy to a halt and erodes energy demand. Oil fell to $26.95 a barrel in New York Tuesday, just above the low of $26.21 a barrel reached in February 2016.
Prices are only to fall further as a price war between Russia and Saudi Arabia promises to flood global markets with even more crude oil even as demand for crude oil, jet fuel, gasoline and diesel shrinks around the world.
U.S. shale drillers are not sitting idle. Seven companies that account for nearly one-fifth of the new oil wells drilled in Texas are pulling drilling rigs from the field, cutting back the number of hydraulic fracturing crews and slashing a combined $7.6 billion from their 2020 capital expenditure budgets — signaling that there will be a sharp decline of activity in the Permian Basin and elsewhere around the state.
The figures exclude Exxon, which have not yet disclosed details of their spending reductions. Other major oil companies such as Chevron and ConocoPhillips are expect to follow with their own budget cuts.
“That’s what they should be doing,” said Ed Hirs, a economist with the University of Houston. “Their planned 2020 capital expenditure budgets would have only given, at best, a 10 percent return at $50 per barrel. And now at $30 per barrel, the price of oil is lower than what they can produce it for.”
With a combined 2,100 drilling permits filed with the Railroad Commission of Texas last year, EOG Resources, Occidental Petro
leum, Pioneer Natural Resources, Concho Resources, Ovintiv, Apache Corporation and Marathon Oil accounted for nearly one-fifth of exploration and production activity in Texas.
Houston oil company EOG Resources reduced its budget to $4.7 billion from $6.8 billion, a 30 percent cut or $2.1 billion reduction.
Regarded as one of the most efficient shale drillers in the United States, the company maintains that it will remain profitable even with oil at $30 per barrel.
“Our business is more resilient today than it has ever been in the company’s history,” EOG Resources CEO Bill Thomas said in a statement.
“By significantly improving the economics of our premium inventory, maintaining operational flexibility and strengthening our balance sheet, we are well positioned to weather the storms of low commodity prices.”
Pioneer Natural Resources cut its $3.3 billion by 45 percent to $1.8 billion, a 45 percent cut.
Active in the Permian Basin in West Texas and the Eagle Ford Shale of South Texas, Pioneer plans to cut the number of drilling rigs it uses in in half from 22 to 11 over the next two months.
“Our balance sheet is among the best in the energy sector and provides us ample financial flexibility to manage through a period of prolonged low oil prices,” Pioneer Natural Resources CEO Scott Sheffeld said.
The budget cuts are expected to be felt by oil field service companies and their workers. The companies range from drilling rig operators and equipment manufacturers to hydraulic fracturing specialists.
Overall, exploration and production companies are expected to spend 30 percent less on U.S. shale this year, said James West with the investment banking advisory firm Evercore. Oil companies are already putting pressure on service companies to discount prices, he said. The oil price drop marks the second downturn for the industry in less than five years.
“No one has a clear sense of how any of this unprecedented collapse in oil prices will actually impact the industry except that it will not be in a positive way,” West wrote in a research note.