Just as the U.S. shale patch is drafting spending budgets for 2019, oil prices have tumbled 25 percent from four-year highs in early October to just above $50 a barrel WTI Crude at the end of November.
Oil at $50 is largely considered the break-even point for many shale developments and is the minimum price at which most U.S. drillers have been budgeting spending plans over the past year or so.
Most producers across the shale patch will be announcing 2019 spending plans alongside full-year 2018 earnings releases at end-January and early February, but signs have already started to emerge that the U.S. shale patch will be cutting budgets for 2019.
Collective spending plans for next year may be the first budgets cut across the industry since the oil price crash of 2015-2016, according to data compiled by Bloomberg Intelligence.
Just two months ago, $50 oil was not the base-case scenario at which U.S. companies planned, and few had expected such a steep price correction. Now exploration and production companies—who had just started to report rising cash flows and to finally reward shareholders with buybacks and increased dividends—find themselves in a position to choose from where to cut spending next year, considering that a prolonged period of $50 oil would eat into cash flows and undermine previous cash generation projections.