HOUSTON/WILLISTON: ConocoPhillips and Occidental Petroleum Corp yesterday slashed exploration spending plans for this year, as the third- and fourth-largest US oil companies attempt to cope with a steep slide in crude prices.
The cuts follow similar steps by rival Hess Corp earlier this week while Royal Dutch Shell, Europe’s largest oil company, said yesterday it would reduce its spending the next three years by $15bn.
Rising supplies of oil, from sources including North American shale basins, and weakening demand have flooded global markets with crude, sending prices plummeting almost 60 percent since June. On Thursday, crude traded in New York at $43.80 per barrel, much lower than many oil and gas projects require to make money.
In response to the price collapse, oil and gas companies have made drastic cuts to budgets, idled drilling rigs and in some cases, cut jobs.
Conoco, which said in December it would cut 2015 spending by 20 percent to $13.5bn, now expects spending to be scaled back by a further 15 percent to $11.5bn. Occidental said it would slash its capital budget by 33 percent to $5.8bn this year. “There’s a lot of debate right now about the duration of the current low oil prices. But we’re assuming that they will stay low for 2015 and we’re taking decisive actions accordingly,” Ryan Lance, Conoco’s CEO, said on a conference call.
Conoco’s second trimming of its 2015 capex budget raised the spectre that others in the industry could further reduce their own spending, potentially reinforcing a dip in US production that the US Energy Information Administration forecasts to occur this summer. That would mark a sharp turnabout for the US oil industry, which has enjoyed five years of blistering output growth thanks to the shale oil boom.
Chevron Corp, the second-largest US oil producer, has yet to unveil 2015 spending and may do so today when it reports quarterly results.
Conoco said it would defer drilling some US onshore exploration programmes and delay spending on some major projects. Occidental said it will pull back spending in North Dakota’s Bakken Shale and in Bahrain.
Neither Conoco nor Occidental are running out of cash, despite the low prices, though. Indeed, Occidental last quarter spent $1.3bn on 100,000 acres in the Permian, a prolific shale formation in Texas. On a net basis, both companies reported a quarterly loss. Conoco had a fourth-quarter loss of $39m, or 3 cents per share, compared with a profit of $2.5bn, or $2 a per share.
Occidental reported a fourth-quarter net loss of $3.41bn, or $4.41 per share. It earned an income of $1.6bn, or $2.04 a share, a year earlier.
Meanwhile, Energy giant Royal Dutch Shell unveiled plans to slash spending by more than $15bn after posting lower annual profits on tumbling oil prices.
Shell revealed the fresh cutbacks alongside news of an eight-percent drop in net profits to $15.05bn in 2014, compared with 2013. The Anglo-Dutch company was hit hard by plunging earnings in the fourth quarter as the cost of crude collapsed. “Compared with the fourth quarter 2013, earnings... were impacted by the significant decline in (the price of) oil,” Shell said in a statement.
Fourth-quarter net profit dived 57 percent to $773m compared with the final three months of 2013.
Annual profit excluding exceptional items and changes to the value of its oil inventories rose 16 percent to $22.5bn.
“The agenda we set out in early 2014 to balance growth and returns has positioned us well for the current oil market downturn,” Shell CEO Ben van Beurden said.
Reuters/AFP
