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By Catherine Traywick, Kevin Crowley and Sheela Tobben in 2/5/2020
DENVER (Bloomberg) – American oil shale explorers are rapidly reducing production in the country’s most prolific oil fields, as the worst price in history threatens the survival of the industry.
Three of the largest oil explorers in the US The US, Exxon Mobil Corp., Chevron Corp. and ConocoPhillips, plan to cut up to 660,000 barrels per day of combined US production by the end of June. Across the county, crude oil production by all companies has already fallen by around 1 million barrels per day since mid-March, when OPEC and its allies closed a landmark deal to cut global supply.
It is too early to say how long the cuts will last, but if they are implemented for a full year, they would overshadow any previous decline in US production that dates back to at least 1984. Also, the pullback puts the United States on track to meet The Trump administration is committed to removing 2 million barrels of daily supplies through market wear.
With new declines announced just two weeks after oil prices first turned negative on record, reviving the market will come at a high cost to an industry facing bankruptcies, job cuts and consolidation. For some explorers, austerity means slowing growth plans, while for others it means directly subtracting oil volumes.
Nearly 40% of oil and natural gas producers face insolvency within the year if oil prices remain close to $ 30 a barrel, according to a survey by the Kansas City Federal Reserve Bank. Production closings are not just an American phenomenon: Wells from Scandinavia to Brazil are being closed as oil producers wither away under the collapse.
“You cut what’s easiest to cut. Right now that’s the Permian: you leave the rigs, walk away and you can always do it again,” said Mark Stoeckle, a Boston-based fund manager at Adams Funds with $ 2.1 billion in assets. “It is very different from other parts of the world” where you have to deal with shared production agreements, government partners, stricter labor laws.
Producers are shrinking faster than anyone anticipated as prices plunge below the equilibrium levels of the most efficient explorers. In North Dakota, companies have closed about a third of the state’s oil production, and more than 40% of that reduction comes from a single company: Continental Resources Inc.
In the past seven weeks, more than half of the U.S. rig fleet has gone silent, with the Permian Basin of West Texas and New Mexico accounting for 56% of the shutdown, according to data from Baker Hughes Co.
Newcomers to Exxon and Chevron, newcomers to the shale revolution, are better positioned than most producers to weather the storm, even when their own budgets are affected.
On the floor. While Exxon posted its first loss in at least three decades on Friday and Chevron cut $ 2 billion from its spending plan, the companies have the capital to cut shale production until prices return.
Exxon, which plans to brake about 100,000 barrels per day of Permian production during the current quarter, will focus first on shutting down younger, highly productive wells. In a sense, the company is using the rocks surrounding those untapped wells as de facto storage.
Chevron is cutting 125,000 barrels per day from its target exit rate for the Permian region this year and is idle on all but five drilling rigs, Chief Executive Mike Wirth told Bloomberg TV. The company is targeting half of its global cuts in the US fields. USA The rest will occur as part of OPEC + commitments from its host countries, according to CFO Pierre Breber.
“You can think of the United States as choices that we are making to balance cash flow and value over the long term,” Breber said. “Outside of the US. You can think of it as OPEC + deals.”
ConocoPhillips plans to cut even more deeply, reducing world production by 420,000 net barrels per day in June. That equates to about a third of Conoco’s first-quarter production. About 360,000 of those reductions will occur in the US fields. USA
Permian’s independent shale producer Concho Resources Inc. has already closed 4% to 5% of total production, and expects to keep its annual production year-round around last year’s level. So far, most of the wells that have been closed were higher-cost vertical wells, but Concho said future reductions will likely include some horizontal wells, the industry shorthand for shale.
While supply constraints appear to have put a dent in oil prices, with the United States benchmark on Friday posting its first weekly gain in a month, a sustained recovery will hinge on even deeper cuts. If prices remain at their current level, hovering around $ 20 a barrel, closes in the US. USA They could reach 2 million barrels per day in June, according to Elisabeth Murphy, an analyst at consultancy ESAI Energy.
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