U.S. CUTS OIL INVESTMENTS
Three leading US shale oil producers have announced steep cuts in their planned capital spending, as they set their budgets to respond to the collapse in crude prices.
Two of them also forecast that their oil and gas production would fall, showing how the financial squeeze on US companies is having a growing impact on the country's output of crude.
Oklahoma-based Continental Resources, controlled by its founder Harold Hamm, said it would cut capital spending by 66 per cent this year to $920m, following a 46 per cent reduction last year.
New York-based Hess said it would cut spending by 40 per cent this year, following a 29 per cent cut in 2015. Noble Energy, based in Houston, said it planned a 50 per cent cut in spending for 2016, as it also reduced its quarterly dividend from 18 cents per share to 10 cents.
Mr Hamm said Continental's budget "confirms our intense focus on cash flow neutrality": ensuring capital spending is covered by cash the business generates so the company does not need to raise additional financing.
Greg Hill, chief operating officer of Hess, said it planned to "reduce activity at all of our producing assets" and would "pursue further cost reductions and efficiency gains".
John Hess, chief executive, said the company's focus would be on "preserving the strength of our balance sheet".
Kenneth Fisher, chief financial officer at Noble, said its capital spending and dividend cuts were "part of a comprehensive effort to spend within cash flow" and reduce the company's debts.
External financing from debt and equity markets for small and midsized US oil and gas producers slowed sharply in the second half of last year.
Continental, Hess and Noble are the first US oil companies to announce budgets following the slump in crude prices this year to about $31 per barrel on Tuesday.
The costs of drilling and completing wells in the US has fallen sharply — in some cases by 40 per cent in the past year — but not as fast as oil prices.
The slowdown in activity at both Continental and Hess means their production is set to decline.
Continental predicted average output of 200,000 barrels of oil equivalent per day this year, down 5 to 9 per cent from 2015.
Hess said production would be 330,000 to 350,000 b/d for 2016, a drop of 7 to 12 per cent from its rate in the first nine months of last year.
Noble did not predict a fall in production, but said it expected oil and gas sales to be "consistent" with last year's levels at abut 390,000 b/d.
The declines mark a sharp reversal from the rapid growth of the US oil industry in recent years.
Continental's production grew by an estimated 24 to 26 per cent last year, the company has said, while Hess's output for the first nine months of last year was 19 per cent higher than in the equivalent period of 2014.
US oil production is expected to drop by 1.2m b/d, or 12 per cent, between its peak in April 2015 and the end of 2016.
Continental's net debt was about $7.1bn at the end of September. Noble also had net debt of about $7bn, while Hess's was $2.95bn.
Mr Hess said his company was "well positioned to navigate the current low oil price environment with one of the strongest balance sheets and liquidity positions" among the US independent oil companies.
Continental and Hess are among the largest operators in the Bakken formation of North Dakota, one of the centres of the US oil boom of the past seven years, and also have other American shale assets.
Hess in addition has offshore oil and gasfields in the Gulf of Mexico, the North Sea, Malaysia and Guyana.
Continental said that, as well as cutting spending, it was building up a backlog of "drilled but uncompleted" wells that could be completed and brought into production as oil prices recovered.
It expects to have 195 of these "DUCs", as uncompleted wells are known, in the Bakken formation by the end of the year, up from 135 at the end of 2015.
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