Occidental Petroleum Corp on Tuesday became the latest to join a growing list of hard-pressed North American oil producers slashing spending and drilling after crude prices slumped to their lowest levels in more than three years.
Chevron Corp became the first global oil major to say it was also looking to cut spending that could lead to lower near-term oil production.
Global oil benchmarks plunged by nearly 25% on Monday, their biggest rout since the 1991 Gulf War, amid the eruption of a price war between Saudi Arabia and Russia, sending another shockwave through an industry already nervous over the spread of coronavirus that has hit worldwide demand.
Major U.S. companies have boosted production to a record near-13 million barrels per day (bpd), undermining efforts by OPEC nations to cut supply. Shale companies need prices at least in the low $40s to cover costs, and while U.S. crude rebounded somewhat on Tuesday, it was still below $34 a barrel.
Occidental, with a $40 billion debt pile after it bought Anadarko last year, became the first oil producer to slash dividend, dropping it by 86% to 11 cents, and cut spending by about 32%.
Other major shale companies have announced sudden spending cuts in the last two days, along with Canada’s Cenovus Energy Inc , all of whom are revisiting their spending and production plans in light of OPEC’s decision to pump full bore beginning next month.
“(Companies) will turn every stone and cancel every single non-revenue-generating activity,” said Audun Martinsen at research firm Rystad Energy.
A source close to Chevron said that while it would not be easy to cut capital spending in an already tight budget, bosses would probably look to cut drilling rigs in the Permian basin in Texas, North America’s largest oilfield.
Rystad predicted total industry spending on oil exploration and production would be cut by $100 billion this year and another $150 billion in 2021 if oil prices remained around $30 a barrel.
To cut costs, the U.S. shale industry would likely more than halve the number of wells it had originally planned to drill this year.
At the heart of the collapse in oil prices is the failure by the Organization of the Petroleum Exporting Countries and allies including Russia to continue their production curbs in place after this month. That has triggered a new price war with both Saudi Arabia and Russia betting they can supply the market at lower cost than U.S. shale rivals.
Shale production has soared over the past eight years, pushing U.S. output and exports 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.
Occidental, Marathon Oil Corp and oil-sands company Cenovus Energy joined shale firms Diamondback Energy Inc and Parsley Energy Inc to unveil spending cuts. EOG said it was evaluating its drilling activity and that it is in the process of finalizing specific plans.
Marathon and Cenovus also promised to cut spending by about 30% from a year earlier.
Analysts from Canadian bank RBC said they expected drilling activity cuts by Devon Energy Corp, Concho Resources and Matador Resources .
Concho declined to comment, while Devon and Matador did not immediately respond to requests for comment.
The cost cutting will put more pressure on service companies like Halliburton , Schlumberger and smaller players like Packers Plus Energy Services 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, chief executive of Packers Plus Energy.
“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.”