Barclays: Oil companies to cut North American spending up to 15 percent next year

Fuel Fix ^ | September 9, 2015 | Collin Eaton

[thackney]

Oil companies are planning to cut $12.6 billion to $18.9 billion in capital spending in North America next year on top of a $68.3 billion reduction this year amid falling oil prices, a Barclays survey found.

Cutting spending by another 10 to 15 percent next year would bring North American oil investments down to as low as $106.9 billion. The same corporate budgets totaled $194.1 billion in 2014 and $125.8 billion last year, the British bank found in its breakdown of spending plans by about 175 oil companies this week.

Even so, technological advances in drilling and bringing wells into production has “helped usher in a new era of efficiency in the oil field” and U.S. crude output will likely “remain surprisingly robust” even though oil prices have crumpled, Barclays analysts wrote in a note to clients.

They said U.S. oil production could stay roughly flat even if oil companies cut spending by 15 to 30 percent next year – and that’s one factor that could keep crude prices low.

“While we believe the global oil market could begin to gradually recover within the next 6-18 months, we think the combination of Iranian production ramp-up, OPEC’s defense of market share, and continued resilience of US shale producers will dampen any potential rebound,” Barclays analyst Paul Cheng wrote.

The British bank expects drillers to keep an average 860 rigs upright on U.S. soil next year, and only grow that number by 40 units by the end of 2016.

Globally, Barclays’ survey found oil companies shed about 20 percent of their capital budgets to a total $521 billion this year and will cut another 3 to 8 percent from their investments next year, marking the first time since the mid-1980s that oil companies will reduce spending two years in a row.

“It’s a new oil paradigm we’re facing,” the analysts said.

According to Barclays, U.S. integrated oil companies cut spending 22 percent in the United States; large-cap producers, 42.2 percent; small and mid-cap producers, 44.3 percent, and small or private firms cut spending 51.1 percent.

The larger producers have spent an average 113 percent of their cash flow over the past three years, and smaller firms spent 169 percent more than the cash they were generating. More than 60 percent of the smaller firms plan to outspend their cash flows this year.

Next year, though, two-thirds of the smaller drillers will only increase their spending if U.S. crude prices recover to more than $70 a barrel, Barclays said. The bank believes oil field service costs might still fall even after this year’s 20 to 30 percent decline. Nearly 80 percent of Barclays’ respondents said they thought pressure pumping costs could slide another 5 percent over the next six months.

[Paladin2]

So much for the drill ready jobs.