US Shale Producers Need 20% Rise in Oil to Turn Profit

Three major U.S. shale oil companies have slashed their 2016 capital spending plans more than expected in a bid to survive $30 a barrel oil prices, with one of them saying prices would need to rise more than 20 percent just to turn a profit.

The cuts on Monday from Hess Corp, Continental Resources and Noble Energy ranged from 40 percent to 66 percent. This marks the second straight year of pullbacks by a trio of companies normally seen as among the most resilient shale oil producers.

The cuts were steeper than expected. Analysts at Bernstein Energy had forecast an average 2016 spending cut for the sector of 38 percent.

The reductions show budgets may shrink more this year than they did last year, when spending fell between 20 percent and 50 percent. Output at some companies may fall for the first time ever.

“It’s very rare to have spending decline two years in a row,” said Mike Breard, oil company analyst with Hodges Capital Management in Dallas. “Any budget you see published now is going to be much lower than last year.”

But last year many operators managed to lift output as they devised new ways to coax more oil from rock, a feat that seems unlikely to be repeated.

via Reuters

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, he established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza