By Anna Driver
HOUSTON, July 30 (Reuters) - The stark reality of a
much-feared second dip in crude prices is prompting global oil
majors and nimble U.S. shale companies alike to axe spending
once again a year after the first price crash started.
Just days into the second-quarter earnings season, Chevron (NYSE:CVX)
Corp CVX.N and Royal Dutch Shell Plc RDSa.L said they would
slash a combined 8,000 thousand jobs around the world.
In North Dakota, Whiting Petroleum Corp WLL.N , the top
producer in the No. 2 U.S. oil patch, cut its capital
expenditure budget days after optimistically raising it 15
percent on bets the renewed downturn in prices would be a
temporary blip.
ConocoPhillips (NYSE:COP) COP.N , the largest U.S. independent,
trimmed its 2015 budget for the third time on Thursday, by $500
million to $11 billion.
More ominously, Linn Energy LLC LINE.O , a small
exploration and production company, suspended its quarterly
distribution to investors on Thursday to conserve precious cash
that has largely evaporated on the price drop. Its shares fell
26 percent.
Conoco CEO Ryan Lance said the company was preparing for
"lower, more volatile prices." ID:nL1N10A12L
Crude prices have been on a roller coaster since mid-2014,
when global oversupply started to chip away at levels higher
than $100 a barrel. After hitting a bottom of $42 in March, U.S.
crude rallied to around $60 in May, providing some breathing
room to shale companies that saw a dramatic reduction in cash
flow.
But since June 23, when the latest rout started, oil has
tumbled about 20 percent to around $49 a barrel. The second dip
has dashed hopes raised in May that prices would hold steady at
around $60 a barrel or inch towards $65, a level that many U.S.
shale oil producers have said would allow them to add drilling
rigs and emerge from their defensive crouch.
Indeed, Whiting now plans to spend $2.15 billion this year,
running eight drilling rigs instead of a previous plan for 11.
Anadarko Petroleum Corp (NYSE:APC) APC.N said chasing growth in this
environment would be make no sense.
"It just seems unlikely that we will have the kind of
margins that we have seen historically that would encourage us
to go back into a growth mode," Anadarko CEO Al Walker told
investors on Wednesday, while holding off on cutting its budget
again.
Weaker companies are in a tougher spot as they weigh cutting
spending, selling more high-yield bonds or issuing more shares
to cope with the loss of cash from low oil and gas prices.
"All (exploration and production) companies have to be
considering their capital programs," said Matthew Miller, oil
analyst with S&P Capital IQ.
EASY MONEY OVER
The easy money that the helped even highly leveraged
companies keep drilling in the first half of the year may also
become more scarce, another hurdle for the battered sector.
"This 'shale' capital was attracted by the promise of
improving returns," a scenario that has faded, said equity
analysts at Nomura.
In addition to tightening capital markets, oil and gas
companies, will likely see bankers cut funding for credit lines
during so-called borrowing base re-determinations in October.
Small natural gas shale company EXCO Resources Inc XCO.N
said on Monday its lenders cut its credit lines by 17 percent,
resulting in a hit to the Dallas company's available liquidity.
"We expect fall's re-determination period to be more
punitive than the spring's," analysts at Tudor Pickering said on
Tuesday.
That could signal more job cuts, which Conoco said were in
store. ID:nL1N10A2O5
Globally, more than 160,000 jobs in the industry have been
shed over the last year, said Tobias Read, CEO of Swift
Worldwide Resources, which provides contract engineers to oil
companies.