Page 6 - NorthAmOil Week 46

NorthAmOil COMMENTARY NorthAmOil
Warnings abound of shale slowdown
Some US shale drillers have already set out plans to reduce capital spending in 2020, as shale activity slows down on persistently low crude prices and a challenging operating environment
US
WHAT:
Some shale drillers have said they will cut their capex budgets for 2020, with others likely to follow.
WHY:
Crude prices are not expected to recover anytime soon, while shareholders are putting pressure on shale drillers to focus on returns.
WHAT NEXT:
ExxonMobil and Chevron will continue to ramp up Permian production, but independents will scale back.
US oil production is still rising to new highs – and is forecast to continue doing so – but overall momentum is anticipated to slow. Recent find- ings back up expectations of a slowdown in the pace of crude output growth.
The US Energy Information Administration (EIA) forecasts that the country’s oil output will rise by 1.3mn barrels per day in 2019 compared with 2018, reaching 12.29mn bpd. This would already be a slowdown after US crude produc- tion grew by roughly 1.6mn bpd in 2018. For 2020 the agency anticipates even more mod- erate production growth, rising by 1mn bpd to 13.29mn bpd. This includes a projected slight decline in output in the third quarter of 2020 before growth resumes again.
Others are even less bullish, however. For example, Goldman Sachs lowered its US oil growth forecast for 2020 to 600,000 bpd year on year last week. And consultancy IHS Markit forecasts even slower growth of 440,000 bpd in 2020, with production volumes staying essen- tially flat in 2021.
As in recent years, growth is being primarily driven by shale drilling, particularly in the Per- mian Basin. But shale drillers, under pressure
from shareholders over their performance and still struggling with low oil prices, are planning to rein back spending both this year and in 2020, according to recent disclosures.
Last week, Reuters reported that capital expenditure among companies that have already released their budgets for 2020 is set to fall by over 10% compared with this year.
This is on top of an predicted drop of about $4bn in capex in 2019 compared with 2018, according to financial services firm Cowen & Co. The firm has said that so far, 21 exploration and production companies that it tracks have released their capex guidance for 2020. Of these, 15 are projecting declines in spending, while five are intending to increase it and one is keeping it flat. This gives an overall 13% y/y decline in capex, according to Cowen’s findings.
Goldman Sachs, for its part, forecasts an 8% reduction in 2020 capex compared with 2019 levels, which are projected to be 3% below 2018 spending.
Cutting back
The producers that are cutting back spending are hoping that this will help them boost their
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w w w . N E W S B A S E . c o m Week 46 20•November•2019