MUST TO CUT $24 BLN
North American oil and natural gas drillers will need to cut an additional 30 percent from their capital budgets to balance their spending with the cash coming in their doors even if crude rises to $40 a barrel, according to an analysis by IHS Inc.A group of 44 North American exploration and production companies are planning to spend $78 billion on capital projects this year, down from $101 billion last year. Those companies need to cut another $24 billion this year to get their spending in line with a historical 130 percent ratio of spending to cash flow.
"These spending cuts will be particularly troublesome for the highly leveraged companies," said Paul O'Donnell, principal analyst at IHS Energy. "These E&Ps are torn between slashing spending further to avoid additional weakening of their balance sheets, and the need to maintain sufficient production and cash flow to meet financial obligations."
The analysis is based on IHS's low-case price scenario of $40-a-barrel oil and $2.50-per-million-cubic-feet natural gas prices. IHS cited Concho Resources Inc., Whiting Petroleum Corp., WPX Energy Inc., andPDC Energy Inc. as examples of companies displaying the best spending discipline.
West Texas Intermediate for March delivery dropped 91 cents, or 3 percent, to $29.98 a barrel at 1:29 p.m. on the New York Mercantile Exchange. Crude prices are expected to average $41.13 this year.
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