US shale firms slide deep into the red on low oil prices
North America’s leading independent oil and gas producers reported large losses in the second quarter despite cutting costs and increasing output.
Ten of the largest independent oil and gas producers in the United States reported total losses of almost $15 billion between April and June, compared with profits of almost $3.5 billion a year earlier.
Three more independents remained profitable, but reported net income of only $66 million, down from more than $1 billion in the second quarter of 2014 .
Of the 13 companies in the sample, 11 had increased production compared with the prior year, in some cases by 30 percent or more. Most firms reported they had been able to reduce the average cost of drilling and completing each well by about 20 percent compared with the end of 2014.
Average output per well has been boosted by pulling rigs back to the most consistently productive areas of the major shale plays. And the time needed to drill each well, stimulate it by pressure pumping and fix the wellhead equipment has been cut sharply by getting crews to focus on drilling the same formations over and over again. In the Spraberry Trend, part of the Permian Basin in west Texas, Pioneer Resources has cut the time between spudding a new well and putting it into production to 25 days, the company told analysts on Aug. 5.
Other shale producers report similar cost reductions and improvements in efficiency by standardising drilling and completion operations as much as possible. And the number of risky extension and wildcat wells has been reduced in favour of closely spaced development wells in the heart of existing shale plays to maximise production.
But despite the improved efficiency, producers struggled to keep pace with the 44 percent drop in U.S. oil prices, from $103 to $58 a barrel, and the 40 percent fall in natural gas prices, from $4.58 per million British thermal units to $2.73, between the second quarter of 2014 and the second quarter of 2015.
Continental Resources, one of the biggest producers in North Dakota, told analysts it was cash-flow positive in June with an average WTI price of $59.83, and would be cash-flow neutral in the second half of 2015 if WTI stayed at $60.
The problem is that WTI has now sunk to an average of less than $49.50 so far in the third quarter and is currently at $43. Most producers are confident they can squeeze costs and improve efficiency further, but it is getting harder to outrun the fall in prices, and the entire sector is on course to report more losses for the third quarter.