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Shale Monitor – March 2020 Already Under Pressure, US LTO Set to Slash Capex Further

  • 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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