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The Dallas Fed First Quarter Energy Survey released on March 25, 2020 asked what West Texas Intermediate (WTI) oil price does your firm need to cover operating expenses for existing wells? The coronavirus and Saudi price war has crashed oil prices.

Texas oil Map

Exploration and Production (E&P) Firms

In the top two areas in which your firm is active: What West Texas Intermediate (WTI) oil price does your firm need to cover operating expenses for existing wells?

Average prices necessary to cover operating expenses across regions range from $23 to $36 per barrel.

Thirty-five percent of responses were at or below the average WTI spot price for the week ending March 20 ($24 per barrel), signaling many firms can’t cover operating expenses at current prices.

Overall, operating expenses are lower than those observed in last year’s first-quarter survey, with the average across the entire sample approximately $30 per barrel, versus $33 last year.

Texas Breakeven WTI Price

Texas Oil Companies Have Been Slashing CapEx This Month

"With a combined 2,100 drilling permits filed with the Railroad Commission of Texas last year, EOG Resources, Occidental Petroleum, Pioneer Natural Resources, Concho Resources, Ovintiv, Apache Corporation and Marathon Oil accounted for nearly one-fifth of exploration and production activity in Texas." The Houston Chronicle

The most prolific shale drillers in Texas have cut at least $7.6 billion from their combined 2020 capital expenditures budgets while several more are expected to follow suit as crude oil prices fall to lowest levels since the bottom of the last oil bust, which was considered worst in a generation.

Exxon Mobil, the Texas-based oil major, Concho Resources of Midland and Pioneer Natural Resources of Irving this week became the latest oil and gas companies to promise cuts to their spending as the coronavirus outbreak brings the global economy to a halt and erodes energy demand. Oil fell to $19.84 on expiration of the April contrct  a barrel in New York Friday.  Well under the low of $26.21 a barrel reached in February 2016. Prices have been hit by the price war between Russia and Saudi Arabia 

Houston oil company EOG Resources reduced its budget to $4.7 billion from $6.8 billion, a 30 percent cut or $2.1 billion reduction. EOG is regarded as one of the most efficient shale drillers in the United States, the company maintains that it will remain profitable even with oil at $30 per barrel.

“Our business is more resilient today than it has ever been in the company’s history,” EOG Resources CEO Bill Thomas said in a statement.“By significantly improving the economics of our premium inventory, maintaining operational flexibility and strengthening our balance sheet, we are well positioned to weather the storms of low commodity prices.”

Company Drilling Budget Cut

  • EOG Resources $2.1 billion
  • Occidental Petroleum $1.7 billion
  • Pioneer Natural Resources $1.5 billion
  • Concho Resources $800 million
  • Ovintiv $300 million
  • Apache Corporation $700 million
  • Marathon Oil $500 million Total $7.6 billion

The figures exclude Exxon, which have not yet disclosed details of their spending reductions. Other major oil companies such as Chevron and ConocoPhillips are expect to follow with their own budget cuts.

Pioneer Natural Resources cut its $3.3 billion by 45 percent to $1.8 billion, a 45 percent cut. Active in the Permian Basin in West Texas and the Eagle Ford Shale of South Texas, Pioneer plans to cut the number of drilling rigs it uses in in half from 22 to 11 over the next two months.

“Our balance sheet is among the best in the energy sector and provides us ample financial flexibility to manage through a period of prolonged low oil prices,” Pioneer Natural Resources CEO Scott Sheffeld said.

Companies with strong ‘hedge books’ will survive oil war The budget cuts are expected to be felt by oil field service companies and their workers. The companies range from drilling rig operators and equipment manufacturers to hydraulic fracturing specialists. Overall, exploration and production companies are expected to spend 30 percent less on U.S. shale this year, said James West with the investment banking advisory firm Evercore. Oil companies are already putting pressure on service companies to discount prices, he said.

Source: Houston Chronicle Research, Dallas Fed

From The TradersCommunity NewsDesk

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