Cutting to the bone

If one were to sum up US independents’ mantra from the most recent round of earnings calls in five words, they would be: cuts, cuts and more cuts.

A year of weak crude prices and expectations that markets will stay lower for longer are leading producers to prepare for a further drop in output in 2016 as they continue to cut spending, pull back on drilling and increase asset sales to shore up their balance sheets. 

The largest US independent ConocoPhillips cut its 2015 capex further, to $10.2bn from $11bn previously. Capex had initially been set at $16bn/yr until 2017. It may fall further in 2016 as major projects get completed, giving it the flexibility to cut by as much as $2bn.

Hess will cut 2016 capex to $2.9bn-$3.1bn from the $4.1bn previously expected for this year, while Marathon Oil will cut by 29pc to $2.2bn. Anadarko, Apache, Continental and Chesapeake didn’t give numbers, but all flagged a drop in capex for 2016.

Those steep capex reductions, coming on the back of cuts made this year, will lower output, and likely already has for key Bakken producer Continental Resources, which expects output to fall to 210,000 boe/d by the end of the year.

There are a few outliers. EOG said it will keep growing by adding 26,000 net acres in the third quarter, through three acquisitions for a total of $368mn — even though the company does not plan to boost production into an already saturated market.

And Pioneer Natural Resources held its 2016-18 output growth outlook unchanged at 15pc as the independent ramps up activity.

“We are putting rigs back to work,” said chief executive Scott Sheffield.

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