Oil Companies Trim Drilling Budgets in Sign of Caution

Caution lights are flashing for the oil industry.

Facing lower-than-expected commodity prices, drillers from ConocoPhillips to Hess Corp. to Statoil ASA have slashed their capital spending plans in recent days, as companies lay out their plans to cope with oil prices stuck below $50 a barrel.

The budget cuts will not necessarily mean less oil or natural gas on the market, with some of the companies saying they can now do more with less and expect to produce just as much oil and gas in 2017. But they speak to an investor community that has grown anxious, as a global rally in crude prices has stalled out this year, Bloomberg reported.

 “The expectation was that oil would be at least above $50 by this time," said Brian Youngberg, an energy analyst with Edward Jones & Co. in St. Louis. “Right now, the market wants you to spend within your cash flow, no exceptions allowed. It’s just a response to that."

The “modest tweaks" in this week’s second-quarter earnings reports will probably continue in the coming days, Youngberg said, as drillers focused on US shale plays take center-stage.

 “Companies are going to be cautious," he said. “No one wants to be the outlier."

In earnings reports on Thursday, Norwegian producer Statoil reduced its 2017 forecast for exploration spending by 13%, to $1.3 billion. Houston-based Conoco dropped its capital expenditure budget for the year by 4% to $4.8 billion, after announcing more than $16 billion in sales of what it considers lower-performing assets.

Hess announced a 4% cut the previous day, although it said it would still be able to boost annual oil production. The company said it was less certain of a plan to add two more drilling rigs to the four it has operating in the Bakken shale play in North Dakota.

Whiting Petroleum Corp., another Bakken driller, and Sanchez Energy Corp., which focuses on the Eagle Ford shale in Texas, also announced cuts.

Earlier in the week, Anadarko Petroleum Corp. said its drilling budget would be $300 million less than originally thought, about a 6% reduction.