(Reuters) - U.S. energy producers plan to slash spending for a second straight year in 2020 as companies struggle to extract profits from the U.S. shale boom.
While U.S. crude output hit a record 13 million barrels per day (bpd) this month, U.S. oil companies have struggled to deliver consistent profits. That is in part due to their success - higher output has kept oil prices tethered.
Investor dissatisfaction has spurred companies to rein in their spending for a second year, with capital expenditures among companies that have released budgets set to fall more than 10% in 2020.
Despite lower spending, output continues to grow, swelling global supply, and taking market share from the Organization of the Petroleum Exporting Countries, which has had to cut output sharply to accommodate U.S. shale.
OPEC Secretary General Mohammad Barkindo said this week that U.S. shale supply could underperform in 2020. However, the International Energy Agency said on Friday that OPEC and its allies face challenges from production growth out of non-OPEC countries led by the United States.
Producers expect to spend about $4 billion less in 2019 than in 2018, according to U.S. financial services firm Cowen & Co. So far, 21 exploration and production companies tracked by Cowen have released 2020 capex guidance with 15 projecting declines, five with increases and one unchanged, for a 13% year-over-year spending decline.
“All of these companies need to start posting a profit and free cash flow. Investors are demanding it,” said Alex Beeker, analyst with Wood Mackenzie. “You have to cut capex to make that happen.”
The spending cuts coincide with expectations for a sharp slowing in U.S. production growth. U.S. oil output is expected to average 12.3 million bpd for 2019, up by 1.3 million bpd from 2018, according to U.S. Energy Department data. The Department of Energy expects 2020 growth at 1 million bpd, but numerous analysts expect slower growth.
Goldman Sachs this week lowered its 2020 U.S. oil growth forecast to 600,000 bpd year-over-year, and the bank’s current 2020 capex forecast implies an 8% reduction relative to 2019 levels, which was 3% below 2018 spending.
JBC Energy researchers expect crude output to rise by 780,000 bpd. But they said a falloff in well completions and other factors could slash that to 350,000 bpd or less.
IHS Markit said U.S. crude output growth will slow to just 440,000 bpd in 2020 before flattening out in 2021.
“Going from nearly 2 million bpd annual growth in 2018, an all-time global record, to essentially no growth by 2021 makes it pretty clear that this is a new era of moderation for shale producers,” said Raoul LeBlanc, vice president for North American unconventionals at IHS Markit, in a release.
For a graphic on slowing U.S. crude production, see:
Occidental Petroleum Corp said it plans to slash capital spending by 40% next year to about $5.4 billion to generate cash and help pay down debt taken on to buy rival Anadarko Petroleum Corp.
Apache Corp expects to cut its upstream capital by 10% to 20% from this year’s $2.4 billion budget and plans to lay off 10% to 15% of its workforce by the end of March.
The Permian Basin, the top U.S. shale field, pumping 4.6 million bpd of oil, will likely “slow down significantly over the next several years,” Pioneer Natural Resources Co Chief Executive Scott Sheffield said during the company’s latest earnings call.
Reporting by Jennifer Hiller in Houston and Scott DiSavino in New York; Editing by Steve Orlofsky
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