shale firms, struggling to profit with $30 oil, slash
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[January 27, 2016]
By Anna Driver and Ernest Scheyder
HOUSTON (Reuters) - Three major U.S. shale
oil companies have slashed their 2016 capital spending plans more than
expected in a bid to survive $30 a barrel oil prices, with one of them
saying prices would need to rise more than 20 percent just to turn a
The cuts on Monday from Hess Corp, Continental Resources and Noble
Energy ranged from 40 percent to 66 percent. This marks the second
straight year of pullbacks by a trio of companies normally seen as
among the most resilient shale oil producers.
The cuts were steeper than expected. Analysts at Bernstein Energy
had forecast an average 2016 spending cut for the sector of 38
The reductions show budgets may shrink more this year than they did
last year, when spending fell between 20 percent and 50 percent.
Output at some companies may fall for the first time ever.
"It's very rare to have spending decline two years in a row," said
Mike Breard, oil company analyst with Hodges Capital Management in
Dallas. "Any budget you see published now is going to be much lower
than last year."
But last year many operators managed to lift output as they devised
new ways to coax more oil from rock, a feat that seems unlikely to
In a sign that a reckoning has come, Continental admitted it will
pump about 10 percent less oil this year as it can no longer afford
or innovate and sell more oil at depressed prices.
The U.S. government projects domestic crude output to fall by about
700,000 barrels per day (bpd) by the end of this year to around 8.5
Depressed spending typically means fewer drilling rigs. All three
companies said they would cut the number of rigs boring new wells in
U.S. shale oil fields across Texas, North Dakota and elsewhere.
"If you cut your budget 60 percent, you may drill 40 percent fewer
wells and your production is going to drop a considerable amount,"
Continental, North Dakota's second-largest oil producer, said it
would slash its 2016 capital budget by 66 percent. The company made
the risky move of getting rid of hedges in the fall of 2014.
[L2N15A2MB] Led by billionaire wildcatter Harold Hamm, Continental
plans to spend $920 million this year, down from $2.7 billion in
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Oklahoma City-based Continental said it will not become profitable
until oil prices return to $37 per barrel. U.S. oil prices closed
Tuesday at $31.45 per barrel.
Meanwhile, New York-based Hess plans to spend $2.4 billion in 2016,
down 40 percent from $4 billion last year. [L2N15A1U5]
Noble cut its quarterly dividend 44 percent and said it will cut
spending about 50 percent this year. [L2N15A2MJ]
On the other end of the spectrum, Pioneer Natural Resources, known
for its aggressive hedging program, said this month it would spend
between $2.4 billion and $2.6 billion this year.
Though Pioneer will fund its 2016 budget in part from a $500 million
asset sale, the modest increase from $2.2 billion in 2015 makes the
company a relative outlier at a time when most companies are
trimming capex by amounts similar to last year's drastic cutbacks.
(Reporting By Anna Driver and Ernest Scheyder; Editing by Terry Wade
and David Gregorio)
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