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Thu, 12th Mar 2020 17:50:00 |
The Great U.S. Shale Decline Has Already Begun |
U.S. shale companies are moving quickly to ax their budgets, hoping to staunch the bleeding as the oil market continues to melt down.
It has only been a few days after the OPEC+ debacle, but with oil trading at around $30 per barrel, and with good odds of falling even lower, the entire energy industry has little option but to make deep cuts to their operations.
"Most companies will go into maintenance mode," Pioneer Natural Resources CEO Scott Sheffield told Bloomberg. Companies will cut down to the bone, hoping to merely keep production from falling. Almost no shale well drilled today makes any money.
According to Morgan Stanley, the industry needs $51 per barrel just to fund their capex budgets this year, let alone pay off debt or send money to shareholders. Needless to say, WTI is a long way from $51.
That means spending will have to fall dramatically.
On Thursday, Apache said it would cut its budget by 37 percent, and notably, would eliminate all of its rigs in the Permian basin. The company also said it would cut its dividend payout by 90 percent. Apache cannot chalk up all of its problems to OPEC and the global pandemic. It was only recently that the company shelved drilling activity in its high-profile Alpine High asset in the Permian because of disappointing results.
But the market turmoil has already begun to ravage the shale sector. Devon Energy said it would cut spending by 30 percent, with reductions concentrated in Oklahoma and Wyoming. Devon says that it has 40 percent of its oil production hedged, somewhat reducing the pain of the downturn.
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