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US Shale Producers Anxious, Cutting Costs

US Shale Producers Anxious, Cutting Costs US Shale Producers Anxious, Cutting Costs

US shale producers are slamming the brakes on next year’s drilling with crude prices off 40% and mounting fears of oversupply, paring budgets that in some cases were set only weeks earlier. 
The reversal is alarming because blistering growth in shale fields has propelled US crude output 16% to about 10.9 million barrels per day for 2018, above Saudi Arabia and Russia, Reuters reported. 
Production has been expected to rise 11% more in 2019 as large oil firms and independents added wells this year. 
Shale producer Centennial Resource Development on Friday joined rivals Diamondback Energy, and Parsley Energy in canceling drilling rig additions next year. Centennial, led by shale pioneer Mark Papa, withdrew its 2020 production target and canceled plans to add 2.5 drilling rigs, citing market weakness. 
“You are really seeing folks pull back on extra spending, pull back on extra drilling and focus on being resilient,” said Matt Gallagher, president of Parsley Energy, who will become CEO in January. The company plans to cut its 2019 capital budget by about 15% compared to 2018 while increasing production. 
Right now, shale prices are close to breakeven levels. US crude futures for 2019, based on an average of the year’s monthly contracts, this week dropped below $50 a barrel, near the $46-$50-per-barrel level that shale producers in the Permian Basin, the largest oil field in the United States, need to cover their costs. 
The price drop is “a shock,” said John Roby, chief executive of Dallas, Texas-based oil producer Teal Natural Resources. “A lot of people are cutting back development programs and cutting rigs,” he said. 
On Friday, US crude slipped below $46 a barrel. 

 

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