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Shale explorers will likely cut spending budgets next year for the first time since the last price crash as crude spirals down again, analysts said.
Bloomberg- U.S. benchmark oil prices have dropped by more than a third from an Oct. 3 high, the largest percentage decline since early 2016. On Thursday West Texas Intermediate briefly dropped below $50 a barrel, the minimum price most big shale companies plan their growth around, down from averaging almost $67 this year through September.
That means companies will sacrifice some production growth to keep a lid on expenditure, according to Wood Mackenzie Ltd. and RS Energy Group.
“Something has to give,†said Andy McConn, a Houston-based analyst at Wood Mackenzie. “We expected some minor increases in budgets going into next year but now we see risk to the downside, with budgets flat or down year on year.â€
Oil producers’ spending had been climbing until the recent price tumble. Before the recent price slump, 2019 was shaping up to be a promising time for shale explorers after years of disappointing investors by burning through cash as they sought growth. But signs of austerity are already beginning to emerge. Anadarko Petroleum Corp. said it plans to cut spending by about 3 percent next year.
Outside the U.S., other companies are already showing signs of altering their plans. BP Plc Chief Executive Officer Bob Dudley said Wednesday the British major will “reprioritize†activity after the recent price decline. Calgary-based Whitecap Resources Inc. deferred the release of its 2019 budget, citing market volatility.
An industry-wide cut in North America would be the first since 2016, when WTI plunged below $27 a barrel, according to data compiled by Bloomberg Intelligence. Most companies will announce 2019 capital plans with their fourth-quarter results in late January and early February. Chevron usually releases its capital plans early December.
The prospect for tougher times comes in stark contrast to third-quarter earnings reports that showed revenue was on the rise.
Companies such as Continental Resources Inc., Pioneer Natural Resources Co. and Devon Energy Corp. generated substantial free-cash flow in the quarter while still clocking production growth well into the double digits. EOG Resources Inc. made more than $1 billion in the period, putting it in the same league as veteran majors such as Italy’s Eni SpA and ConocoPhillips.
“At a $65 to $70 price deck we had a lot of free cash flow being forecasted but at these levels all that free cash flow is gone,†said Dane Gregoris, senior vice president at RS Energy Group.
Devon, Occidental and Anadarko were among companies that used excess cash to buy back shares this year, while others such as EOG hiked dividends.
“A lot of the big guys were doing buyback programs and shareholder friendly initiatives,†Gregoris said. “Maybe that’s the first thing that goes.â€
By Kevin Crowley
Photo used under CC0 Creative CommonsÂ
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Seadrill Limited announced that the West Neptune has executed approximately six months of term extensions with LLOG Exploration Offshore, L.L.C in the US Gulf of Mexico. The extensions will commence in direct continuation of the existing term, and will keep the rig busy until Q3 2024, furthering Seadrill and LLOG’s long-term association. Total contract value for the extension is approximately $79 million. Source: Seadrill Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
Semisub rig owner Dolphin Drilling has inked a new contract with Peak Petroleum in Nigeria for its 1974-built Blackford Dolphin. The firm contract, which follows the letter of award in January, gives the Euronext Growth-listed owner of three rigs the potential to extend the unit’s backlog by a minimum of 120 days and up to 485 days. The deal adds to and will be a direct continuation of the previously announced 12-month contract with General Hydrocarbon Limited (GHL). Øystein Stray Spetalen-backed company said the effective dayrate associated with the minimum firm period of the contract is $325,000, including the mobilisation fee. “The final award of the contract for Blackford Dolphin shows the opportunities in Nigeria at a strong dayrate, in addition to building on the backlog for the rig. It also underlines the attractiveness of our assets, and we look forward to returning to revenue-generating operations in 2023,” noted Bjørnar Iversen, CEO of Dolphin Drilling. Source: Dolphin Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
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