Since I believe shale requires operators to keep running to stay in place, decisions of this sort should have a cumulative effect. But with NG below $3 and oil below $48, we're still in a deep hole. And BHP holds that production will not be affected in 2015.(See bolded part)
FT
BHP Billiton is cutting its shale oil investments and reducing the number of rigs it operates onshore in the US by 40 per cent due to the drop in oil prices.
The world’s biggest miner by market capitalisation said on Wednesday that the revised drilling programme would boost efficiency but added that its shale spending programme remained under review.
“In petroleum, we have moved quickly in response to lower prices and will reduce the number of rigs we operate in the onshore US business by approximately 40 per cent by the end of the financial year,” said BHP.
This will reduce the number of rigs it operates to 16, down from 26. BHP’s drilling programme will be focused on its higher quality liquids-rich Black Hawk acreage in southern Texas.
Noting that many of BHP’s peers were also cutting rig numbers at their shale oil operations in the US, Glyn Lawcock, UBS analyst, said: “I would expect this to have an impact on production. In the case of BHP we expect impact to financial year 2016 production, but not necessarily financial year 2015 production, given rigs will come offline towards the end of 2015.”
Global crude prices have tumbled nearly 60 per cent since June to less than $49 a barrel, as a result of weaker growth in demand for oil, booming US shale production and the decision by the Opec oil cartel in November not to cut output. This is prompting oil producers to slash capital spending and employment to bring costs down.
BHP had highlighted shale resources in the US as a focus for investment. It spent heavily during the commodities boom to increase its presence in the US shale gas and liquids sector, and was set to invest about $4bn annually in its fields from a group capital spending budget of about $15bn.
The resources group said the reduction in drilling activity would not affect its 2015 financial year production guidance and remained confident that shale liquids volumes would rise by about 50 per cent in the period. BHP said it would cut oil exploration by 20 per cent to $600m in 2015, compared with its previous guidance.
The company will reveal the scale of cuts to its drilling budget next month when it releases its midyear earnings. It said it would make impairments of $200m-$250m to underlying profits after the sale of some assets in Louisiana and the Permian basin.
All BHP’s key commodities have come under pressure since the group said last year that it would spin off non-core assets into a separately listed company, to be known as South32.
