Shale may finally have given in to oil price slump

Bloomberg

Oil’s bear market may finally be
taking its toll on the shale boom. Hours after Halliburton Co. warned that explorers are “tapping the brakes” on drilling, Anadarko
Petroleum Corp. said it’s trimming spending in the first earnings
report this quarter from a major shale producer.
That could make this week a turning point for the troubled global oil market — the moment when shale companies showed signs of bowing to the low prices they helped inflict. The surge in US production this year has stymied efforts by OPEC and other major oil exporters to unwind a supply glut that’s weighed on the crude market for three years. Whether drillers have finally reached their limit may depend on how investors respond, said Mike Kelly, a Seaport Global
Securities LLC analyst in Houston.
“If Wall Street rewards them for being more reserved with their activity levels and capital expenditures, then maybe it catches on,” Kelly said in a telephone interview. If Anadarko shares suffer, on the other hand, “I think other people will be reticent about coming out and saying, ‘we’re cutting as well.’”
The initial returns weren’t great for Anadarko, one of the biggest oil and natural-gas explorers in the US Shares of The Woodlands, Texas-based company slumped in after-hours trading, slipping 3.6 percent to $42.60 at 7:30 p.m. in New York. The company also reported a second-quarter loss that was wider than analysts expected.
Shale explorers started the year in a frenzy of renewed drilling, taking advantage of prices that climbed above $55 a barrel on OPEC’s promises to cut production. Anadarko, for one, said it would boost its capital budget by 70
percent. But crude’s momentum petered out, and prices have been stuck below $50 for two months, with West Texas Intermediate
trading at $46.84 at 5:48 a.m. in New York.
Now, Anadarko plans to pare $300 million from its 2017 capital budget, lowering it to a range of $4.2 billion to $4.4 billion, according to a company statement. It also lowered its oil and gas production forecast for the year.

MARKET CONDITIONS
“The current market conditions require lower capital intensity” given the “volatility” facing the market, Chief Executive Officer Al Walker said in the statement. “As such, we are reducing our level of investments.”
Anadarko’s pullback followed an assessment earlier in the day from Halliburton, the top fracking-services provider, that drilling was slowing down. This US surge is “showing signs of plateauing and customers are tapping on the brakes,” Halliburton Executive Chairman Dave Lesar told analysts on a conference call. The comment came just days after data from Baker Hughes, the oilfield service company, showed explorers cutting the number of US rigs for the second time in four weeks.
Anadarko faced some unique
circumstances, said Kelly, the Seaport Global analyst. Production volumes have dropped in Colorado
after a fatal house explosion in April that was linked to a natural gas
well owned by Anadarko.