US oil slump sparks second wave of budget cuts for 2016
Reuters reported that less than two months into the year, the top US shale oil companies have already cut their budget for 2016 a second time as the relentless drop in oil prices continues to erode their cash flow.
With oil prices firmly wedged in the low USD 30-per-barrel range, oil producers are deferring spending on new wells and projects.
Topeka Capital Markets analyst Gabriele Sorbara, said that "Companies' language has shifted towards preserving balance sheets and cash, and keeping expenditure within cash-flows, which means that budgets are going to fall further."
According to analysis, eighteen of the top 30 US oil companies by output have so far outlined their spending plans for 2016. They have reduced their budget by 40 per cent on average, steeper than most analysts' expectations. These 30 companies had, on average, lowered their spending plans for 2016 by more than 70 per cent last year.
Some such as Hess Corp and ConocoPhillips, who had already planned to spend less this year than in 2015, have now further cut their capital expenditure targets. Others are expected to follow suit.
While reduced prices for oilfield services and increased efficiencies have helped companies scale back spending, many industry experts say there may not be room for further cuts.
Mr Rob Thummel, a portfolio manager at Tortoise Capital Advisors LLC, said that "It's almost like a 80/20 rule – 80 per cent of the cost reduction has already occurred, another 20 per cent remains."
Although, the reduced spending has not yet impacted shale output, production is expected to start falling by the end of the year.
Source : Reuters