Even prior to the coronavirus and OPEC+’s failure to agree fresh cuts on March 6th, US LTO was in financial trouble
Collectively, 4Q19 was the best quarter of free cash flow since 2009, but this was entirely driven by drastic cuts in capex (c. 21% y-o-y)
Five operators in our universe of 43 have gone bankrupt in 2019, affecting $6.9 billion of debt. This excludes Whiting, which has appointed restructuring advisors
The two most shale-focussed majors, Exxon and Chevron, were already looking at scaling back production growth in 2020. Chevron was working from a $60/bbl WTI price deck: it is now close to $20/bbl
We revise our 2020 total US LTO annual average growth forecast to 241,000 b/d (-259,000 b/d on previous), based on current expectations of c. $30 billion (30%) fall in capex in response to the price collapse, though more cuts are likely
If capex is cut 40%, exit to exit production falls 833,000 b/d
As in 2015, December 2019's production was high compared to December 2018, so a decline on an annual average basis needs very large capex cuts of at least c. 40%
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