March 10, 2020 / 3:14 PM / in 19 days

WRAPUP 1-How to cope with $30 oil: producers ready more cuts

March 10 (Reuters) - Already hard-pressed oil producers, including global major Chevron, are contemplating a new round of spending and drilling cuts on Tuesday as they try to quell concerns about profitability with crude prices now almost half of what they were in January.

A price war between Saudi Arabia and Russia pushed oil prices down about a third lower on Monday, sending another shockwave through an industry that has been scaling back aggressively for years.

Chevron Corp, the second largest U.S. producer, was the biggest high-profile company from a slew of corporate statements on Tuesday, reiterating that it was looking at ways to cut spending.

A source close to the company said that while it would not be easy to cut capital spending in an already tight budget, bosses would probably look to cut rigs in the Permian basin in Texas, home to most of North America’s oil and gas production.

Research firm Rystad Energy predicted total spending on oil exploration and production would be cut by $100 billion in 2020 and another $150 billion in 2021 if oil prices remained around $30.

“(Companies) will turn every stone and cancel every single non-revenue-generating activity,” Audun Martinsen at Rystad Energy said, adding that the U.S. shale industry would more than halve the number of wells it had originally planned to drill.

SHALE HIT

At the heart of the collapse in oil prices are Russia and Saudi Arabia’s lower cost base, which allows them to produce high volumes at cheap prices with which the huge U.S. shale drilling industry cannot compete.

Shale production has soared over the past eight years, pushing U.S. output to record highs, but that has come courtesy of strict limits on output which the Saudis rolled back after the collapse of OPEC talks on cuts last week.

That leaves U.S. producers scrambling to keep pace.

Smaller U.S. producer Marathon Oil Corp, as well as pure play shale players Diamondback Energy Inc and Parsley Energy Inc, all said this week they were curtailing drilling.

Marathon promised to cut spending by at least 30% from a year ago.

Analysts from Canadian bank RBC said they expected drilling activity cuts by EOG Resources, Devon Energy Corp, Concho Resources and Matador Resources.

That may all add up to a worrying outlook for the service companies like Halliburton that provide equipment as well as drilling and completion services to oil companies.

“If these oil prices persist, the only real discussion is whether or not to continue operations in North American land,” said Ian Bryant, who runs small services firm Packers Plus Energy Services.

“We had already given price concessions to protect market share, so we’re running close to breakeven in North America before the oil price crash.” (Writing by Arathy S Nair in Bengaluru; Editing by Patrick Graham, Bernard Orr)

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