More U.S. producers cut budgets as crude falls below $30 a barrel

(Reuters) – EOG Resources Inc (EOG.N), Whiting Petroleum Corp (WLL.N) and EQT Corp (EQT.N) cut drilling activity and budgets on Monday, becoming the latest North American shale producers to be hit by lower oil prices, which fell below $30. Oil producers are trying to shore up cash as demand dwindles because of the global coronavirus outbreak and the double-whammy of a price war that threatens shale companies, which had budgeted for oil prices at $55 per barrel to $65 per barrel in 2020.

Just 16 U.S. shale companies operate in fields where the average new well costs are below $35 per barrel, according to consultancy Rystad Energy.

They cannot afford oil prices to go below low $40s in order to make a profit. U.S. crude CLc1 was trading at $29.09.

EOG expects to reduce its budget by about 31% to between $4.3 billion and $4.7 billion, if oil remains in mid-$30s, while Whiting expects to cut spending by about the same to between $400 million and $435 million.

EQT, the largest U.S. natural gas producer, also lowered its budget by $75 million to between $1.08 billion and $1.18 billion and reduced activity at its Ohio Utica operations.

North America producers have slashed their spending by about 30% on average after crude prices crashed last week, according to data compiled by Reuters.

Morgan Stanley analysts, who expect oil prices to average $35 per barrel this year, said companies including Occidental Petroleum Corp (OXY.N), Continental Resources Inc (CLR.N), Apache (APA.N) and Murphy Oil (MUR.N) may struggle to sustain ongoing capital expenditure or secure refinancing in the near term.

Occidental, Apache and Murphy have already announced spending cuts, while Continental has said it can “adjust” within its planned 2020 capital spending in the current price environment.

Morgan Stanley also expects Chesapeake Energy Corp (CHK.N) and Whiting Petroleum Corp (WLL.N) to potentially breach debt covenants this year, and Oasis Petroleum Inc (OAS.O) and Callon Petroleum Co (CPE.N) next year.

To cope with the rout, producers have asked suppliers to cut prices for equipment and services. Parsley Energy (PE.N) sent a letter to its service providers last week “to reconsider your pricing” and help it achieve an “at least 25%” reduction in its costs.

Brokerage Evercore ISI on Monday warned that the 30% capital spending cut in North America initially estimated “may be too conservative” and spending and rig counts could fall further.

Crescent Point Energy Corp (CPG.TO) also joined other Canadian producers in cutting spending and said it would drill fewer rigs with minimal activity in second quarter.

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