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U.S. oil and gas producers to slash spending for second straight year in 2020

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11/15/2019 | 01:08am EDT
A pump jack operates in front of a drilling rig owned by Exxon near Carlsbad

The U.S. shale industry plans another spending freeze next year, and a sharp slowdown in production growth, as prolific oil and natural gas output has pressured prices and squeezed profits.

Blistering growth in shale fields propelled U.S. crude output to a record 13 million barrels per day (bpd) this month.

As production swelled, U.S. crude futures dropped 7.5% in the third quarter on worries about global trade tensions. Investors have fled the sector as returns have lagged those of market indexes for years. Shale companies have been cutting spending under investor pressure to improve returns, and OPEC Secretary General Mohammad Barkindo said this week that U.S. shale supply could underperform in 2020.

“All of these companies need to start posting a profit and free cash flow. Investors are demanding it," said Alex Beeker, analyst with Wood Mackenzie. “You have to cut capex to make that happen.”

Producers have already said they expect to spend about $4 billion (£3 billion) less in 2019 than in 2018, according to U.S. financial services firm Cowen & Co. So far, 21 exploration and production companies tracked by Cowen have released 2020 capex guidance with 15 projecting declines, five with increases and one unchanged, for a 13% year-over-year spending decline.

The spending cuts coincide with expectations for a sharp slowing in U.S. production growth. U.S. oil output is expected to average 12.3 million bpd for 2019, up by 1.3 million bpd from 2018, according to U.S. Energy Department data. The DOE expects 2020 growth at 1 million bpd, but numerous analysts expect much slower growth.

Goldman Sachs this week lowered its 2020 U.S. oil growth forecast to 600,000 bpd year-over-year, and the bank's current 2020 capex forecast implies an 8% reduction relative to 2019 levels, which was 3% below 2018 spending.

JBC Energy researchers expect crude output to rise by 780,000 bpd. But they said a falloff in well completions and other factors could slash that to 350,000 bpd or less.

IHS Markit said U.S. crude output growth will slow to just 440,000 bpd in 2020 before flattening out in 2021.

“Going from nearly 2 million bpd annual growth in 2018, an all-time global record, to essentially no growth by 2021 makes it pretty clear that this is a new era of moderation for shale producers,” said Raoul LeBlanc, vice president for North American unconventionals at IHS Markit, in a release.

Occidental Petroleum Corp said it plans to slash capital spending by 40% next year to about $5.4 billion to generate cash and help pay down debt taken on to buy rival Anadarko Petroleum Corp.

Apache Corp expects to cut its upstream capital by 10% to 20% from this year's $2.4 billion budget and plans to lay off 10% to 15% of its workforce by the end of March.

The Permian Basin, the top U.S. shale field in Texas and New Mexico pumping 4.6 million bpd of oil, will likely “slow down significantly over the next several years,” Pioneer Natural Resources Co Chief Executive Scott Sheffield said during the company’s latest earnings call.

By Jennifer Hiller and Scott DiSavino

Stocks mentioned in the article
ChangeLast1st jan.
APACHE CORPORATION -3.31% 9.06 Delayed Quote.-64.60%
DIAMONDBACK ENERGY, INC. -4.27% 28.04 Delayed Quote.-69.80%
IHS MARKIT LTD. -0.33% 81.05 Delayed Quote.7.56%
LINE CORPORATION 0.00% 5370 End-of-day quote.0.37%
LONDON BRENT OIL -0.14% 42.34 Delayed Quote.-34.86%
OCCIDENTAL PETROLEUM CORPORATION -2.68% 9.82 Delayed Quote.-75.52%
PIONEER NATURAL RESOURCES COMPANY -3.56% 87.05 Delayed Quote.-40.37%
RISE, INC. 0.00% 27 End-of-day quote.-10.00%
THE GLOBAL LTD. 7.39% 218 End-of-day quote.-53.72%
THE GOLDMAN SACHS GROUP, INC. -0.25% 205.69 Delayed Quote.-10.54%
WTI -0.07% 40.816 Delayed Quote.-33.28%
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