U.S. shale firms, struggling to profit with $30 oil, slash spending more

Wed Jan 27, 2016 5:22am EST
 
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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 profit.

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 percent.

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 be repeated.

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 million bpd.   Continued...

 
Pumpjacks and other infrastructure for producing oil dot fields outside of Watford City, North Dakota January 21, 2016. REUTERS/Andrew Cullen