US shale oil giant plans to cut production by 40%

US shale oil giant plans to cut production by 40%

The US major producer of shale oil, Continental Resources, has announced that it has cut its capital expenditure plan next year for the second time and plans to reduce the number of wells drilled next year by nearly 40%. This shows that the recent continuation of the slump in international oil prices is hitting the US shale oil production. One month ago, Continental Resources also stated that it plans to increase the output of its major oil wells.

This year, the international benchmark oil price Brent crude oil prices fell more than 46%. The oil minister of Saudi Arabia, the largest oil producer of the Organization of the Petroleum Exporting Countries (OPEC) yesterday, said that even if the international oil price drops to $20 a barrel, it will not cut production. On the same day, international oil prices fell again by 3%. At present, Brent crude oil is about 60 US dollars per barrel.

Earlier Wall Street news articles mentioned that Goldman Sachs estimated that 85 US dollars per barrel is the "life and death line" of shale oil; Morgan Stanley estimates that the average guaranteed price for extracting US shale oil is 76-77 US dollars per barrel. However, Barclays believes that even if the oil price drops to 70 US dollars per barrel, it will only lead to a reduction of about 100,000 barrels of new daily production in the United States next year.

On the same day, Continental Resources announced that various expenditures on oil wells and other areas will be US$2.7 billion next year, which is approximately 40% less than the previously announced US$4.6 billion planned expenditure for the next year, which is less than the initial US$5.2 billion plan expenditure for the Division. About 48%. Continental Resources expects that the average number of wells that will be operating next year will be reduced from the current 50 or so to 31, and the related cost of wells will be reduced by about 15%-20%.

Harod Hamm, CEO of Continental Resources, believes that the revised budget “precisely matches our capital expenditures with the decline in commodity prices, with the goal of making the cash flow risk neutral by the middle of next year.” Hamm told the Financial Times in the UK that the reduction in capital expenditures is to make the Division's expenditures very close to operating income, so that there is no need to increase borrowings. Even if you need to increase your borrowing in the future, it does not mean that there is a problem with the liquidity of the division. The Division has ample liquidity, and debts that have not matured recently need to be repaid.

The Morgan Stanley chart below shows that according to the statistics of Wood Mackenzie, a global energy research and consulting agency, if some important shale oil production areas in the United States are to break even, the oil price needs to be at least what level.

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