• 3 minutes Oil Price Could Fall To $30 If Global Deal Not Extended
  • 8 minutes Why Is America (Texas) Burning Millions of Dollars Per Day Of Natural Gas?
  • 11 minutes Is $60/Bbl WTI still considered a break even for Shale Oil
  • 15 minutes CNN:America's oil boom will break more records this year. OPEC is stuck in retreat
  • 7 mins The Pope: "Climate change ... doomsday predictions can no longer be met with irony or disdain."
  • 13 hours Hormuz and surrounding waters: Energy Threats to the World: Oil, LNG, shipping markets digest new risks after Strait of Hormuz attack
  • 17 hours As Iran Nuclear Deal Flounders, France Turns To Saudi For Oil
  • 13 hours The Magic and Wonders of US Shale Supply: Keeping energy price shock minimised: US oil supply keeping lid on prices despite global risks: IEA chief
  • 22 hours Middle East on brink: Oil tankers attacked off Oman
  • 16 hours Never Knew Gasoline Prices were this important!
  • 15 hours (Un)expectedly: UK Court Sets Assange U.S. Extradition Hearing For February 2020
  • 13 hours Russia removes special military forces from Venezuela . . . . Maduro gone by September ? . . . Oil starts to flow ? Think so . .
  • 1 day Magic of Shale: EXPORTS!! Crude Exporters Navigate Gulf Coast Terminal Constraints
  • 4 hours Plants are Dying
  • 10 hours We Are Better Than This
  • 1 day Emmissions up, renewables nowhere
  • 1 day Middle East Attack Jolts Oil-Import Dependent Asia
Alt Text

It’s Adapt Or Die For U.S. Refiners

The U.S. downstream sector is…

Alt Text

Oil Markets Shrug Off Gulf Of Oman Tanker Attacks

Tensions in the Middle East…

Alt Text

Is There Really An Oil Shortage?

Some analysts have argued we…

Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

More Info

Trending Discussions

Shale Drillers May Cut Capex As Oil Falls To $50

Just as the U.S. shale patch is drafting spending budgets for 2019, oil prices have tumbled 25 percent from four-year highs in early October to just above $50 a barrel WTI Crude at the end of November.

Oil at $50 is largely considered the break-even point for many shale developments and is the minimum price at which most U.S. drillers have been budgeting spending plans over the past year or so.

Most producers across the shale patch will be announcing 2019 spending plans alongside full-year 2018 earnings releases at end-January and early February, but signs have already started to emerge that the U.S. shale patch will be cutting budgets for 2019.

Collective spending plans for next year may be the first budgets cut across the industry since the oil price crash of 2015-2016, according to data compiled by Bloomberg Intelligence.

Just two months ago, $50 oil was not the base-case scenario at which U.S. companies planned, and few had expected such a steep price correction. Now exploration and production companies—who had just started to report rising cash flows and to finally reward shareholders with buybacks and increased dividends—find themselves in a position to choose from where to cut spending next year, considering that a prolonged period of $50 oil would eat into cash flows and undermine previous cash generation projections.  

Anadarko Petroleum is one of the few companies that have already announced its 2019 budget—and it’s lower than this year’s. Anadarko said in mid-November that its 2019 capital investment program is in the US$4.3 billion-US$4.7 billion range, plus a US$1 billion addition to its share buyback program. The company expects around US$1.6 billion adjusted free cash flow at $60 WTI in 2019. So lower WTI prices would undermine this free cash flow estimate.

Analysts who until recently expected an uptick in the U.S. shale patch budgets, now see declines. Energy consultancy Wood Mackenzie, for example, expected minor increases in 2019 budgets, but now sees budgets either flat or down next year compared to this year, Andy McConn, a Houston-based analyst at WoodMac, told Bloomberg. 

Related: How Much Does OPEC Need To Cut To Balance The Market?

The current sentiment and expectations about 2019 budgets are in stark contrast with the mood in the companies’ Q3 earnings releases and budget tweaks.

According to a Rystad Energy analysis of 34 onshore producers, their combined capex guidance increased by an additional US$1.4 billion in the third quarter of 2018, after a US$3.7-billion increase in Q2, with companies active in the Permian accounting for over 70 percent of the total budgets adjustment.

In the Dallas Fed Energy Survey for Q3—carried out in September when the oil market was still fearing a huge loss of Iranian oil supply—executives at 166 energy firms forecast on average that WTI prices would be  $68.81 per barrel by the end of this year, with responses ranging from $55 to $85 per barrel. Only around 6 percent of respondents expected WTI to be lower than $65 a barrel at end-2018.

Two and a half months after the survey, the mood on the market is starkly different and the WTI price is lower than the lowest year-end projections of the company executives. Drillers have started to plan reduction in budgets, according to executives and officials who spoke to Reuters last week.

Smaller producers in Texas have already begun to scale back some drilling activity, according to Texas Railroad Commissioner Ryan Sitton.

“Six weeks ago some of these were profitable and now they’re break-even,” Sitton told Reuters.

Related: The Biggest Losers Of The Current Oil Price Slump

“The (price) swing has been large enough that we have some companies that are no longer generating free cash flow.”

The next few days may show if WTI prices in the low $50s will persist, as the OPEC/non-OPEC meeting in Vienna will be discussing a production cut to prevent a new global glut and prop up prices.

If the cartel and allies fail to lift the market out of the bearish mood or if they decide to avoid angering U.S. President Donald Trump—who wants oil prices even lower— by not acting decisively on cuts, the U.S. shale patch may be in for some complicated math of how to balance production growth and shareholder returns at $50 WTI oil.

By Tsvetana Paraskova for Oilprice.com

More Top Reads From Oilprice.com:

Download The Free Oilprice App Today

Back to homepage

Trending Discussions

Leave a comment
  • EHLipton on December 02 2018 said:
    Well thank goodness that it is only $.9? something above the break even mark, they most likely have enough stashed away from all those other break even marker's of the past, the $60, the $70 $80 and the $100+ mark's we have been feeling at the pumps since 9/11!
    Nice strategy,, keeps us all guessing , broke and moving in the right direction,
    Towards EV's, cleaner renewables and closed GM auto manufacturing, Nice job capitalists, nice work!
  • EHLipton on December 02 2018 said:
    So when you're administrator gets finished,, reviewing my comment. Does it then go before a panel of pro or con votes as well. Guess the only times your concerned about the 2nd amendment is when it is your freedom of speech that is questionable, those who disagree with your views or narrative,, have to be reviewed?
  • EHLipton on December 02 2018 said:
    Correction; in a question about reviewing, I quoted the 2nd amendment, my brain,she ain't what she once was.
    It is the 1st amendment, my a apologies.
  • starrynight on December 02 2018 said:
    Trump pressured Saudi Arabia and OPEC to increase their production, which is close to peak already despite some murmurs to cut, but they have not, China announced it would continue buying oil from Iran and has taken over a large field from TOTAL, Libyan oil came online, so has Iraqi production.

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News