Shale Drillers Continue to Cut Spending but It's Not Entirely Due to Oil's Sting
Shale drillers are noticeably tapping the brakes on their activities in light of weaker-than-expected oil prices this year. This past week, several more U.S. oil and gas producers unveiled spending cuts and activity reductions when they announced second-quarter results. But worth noting about these latest plan modifications is that, thanks to drilling efficiency gains and improving well productivity, these cutbacks won't have much, if any, impact on production in the near term.
Diversified shale driller Marathon Oil (NYSE: MRO) announced one of the larger budget cuts this week after saying that it only plans to spend $2.1 billion to $2.2 billion this year, which is down from its initial budget of $2.4 billion, or about 10% lower at the midpoint. One of the factors driving the decision to cut spending is that Marathon based its budget on oil averaging $55 per barrel this year, which hasn't been the case. However, another factor behind the budget reduction is that Marathon doesn't need to spend that capital to meet its full-year production growth target because its wells have outperformed expectations. In fact, Marathon now expects to exit the year producing 23% to 27% more on a barrel of oil equivalent basis from its U.S. resource plays than it was at the end of last year, which is above its prior estimate of 20% to 25% output growth.
Image source: Getty Images.
Source: Fool.com
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