Amid crashing oil prices, oil firms are rushing to cut budgets and exposure to the most prolific shale basin in the United States, the Permian, yet industry bodies expect the shale patch to survive the oil price war and the oil price collapse despite the short-term pain.
Apache Corporation said two weeks ago it was slashing its 2020 capital investment plan to $1.0 billion-$1.2 billion from a previous range of $1.6 billion-$1.9 billion. Apache will also stop pumping oil in the Permian in the coming weeks to limit "exposure to short-cycle oil projects."
"We are significantly reducing our planned rig count and well completions for the remainder of the year, and our capital spending plan will remain flexible based on market conditions," John J. Christmann IV, Apache's chief executive officer and president, said in a statement.
A few days later, Pioneer Natural Resources also announced it was "taking decisive action in response to lower oil prices and global macroeconomic uncertainty."
Pioneer is cutting its 2020 drilling, completion, and facilities capital budget by some 45 percent, expecting it to range between $1.6 billion to $1.8 billion. Faced with low oil prices, the company will reduce its operated rig count from 22 currently to 11 operated rigs within the next two months. Related: Rig Count Plummets As Oil Price War Rages On
"With the significant reduction in energy investment over the past five years, exacerbated by the expected decline in shale production, I expect oil prices to recover once the global economy stabilizes and Pioneer to emerge in a stronger, more enviable position through the actions we are taking today," Pioneer's President and CEO Scott Sheffield said.
Industry bodies in New Mexico, home to part of the Permian basin, are not all doom and gloom.
"It's going to be a challenging business environment, but New Mexico is well-positioned for when we come out of it," Robert McEntyre, spokesperson for the New Mexico Oil and Gas Association, told Carlsbad Current-Argus.
U.S. oil producers will feel the short-term pain from the huge global oversupply and crashing demand in the Covid-19 pandemic, but they are in a position to prevail in the longer term, Kathleen Sgamma, president of the Western Energy Alliance, told Carlsbad Current-Argus.
By Tsvetana Paraskova for Oilprice.com
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Comments
If the $7-trillion industry survives in the next few years it is because the Trump administration will eventually write off the hundreds of billions of dollars of outstanding debts it owes not only because of its importance for the US economy but also because it enables the United States to have a say in the global oil market along Russia and Saudi Arabia.
Still, nobody can save a bankrupt industry for ever. It will be no more in 4-9 years from now.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London