March 19, 2020 / 12:32 PM / 16 days ago

UPDATE 2-More N.American producers slash budgets to cushion oil price crash

(Adds details from Goldman Sachs note, background)

By Shanti S Nair

March 19 (Reuters) - Continental Resources Inc and Diamondback Energy on Thursday unveiled drastic cuts to their annual budgets as oil and gas producers struggle to cope with the recent plunge in oil prices.

North American shale producers have cut planned expenditures between 25% and 55% on average, as crude prices have plummeted to two-decade lows following a slump in demand due to the coronavirus outbreak and an expected surge in supplies after top producers Russia and Saudi Arabia pledged to pump full bore.

The twin blows could cause U.S. production to fall by as much as 1.3 million barrels per day (bpd) over five quarters after the second quarter of 2020, Goldman Sachs said in a note Wednesday.

Shale drilling drove U.S. production to an all-time record of nearly 13 million bpd, making the nation the world’s largest producer, but shale producers have often struggled to deliver investor returns.

Continental slashed its budget by about 55% to $1.2 billion and expects the cut to knock off less than 5% from its full-year production.

It expects to be cash flow neutral under $30 per barrel of U.S. crude. West Texas intermediate was trading up at $21.90 per barrel, rebounding from a nearly 25% drop on Wednesday.

Diamondback said the cut to budget would be about $1.2 billion at the midpoint, to a range of $1.5 billion to $1.9 billion. The shale producer was among the first to signal it would cut spending and scale back activity, but had not disclosed details then.

The company said on Thursday it had further reduced activity, including a minimum one-month break for all completion crews.

“We are in an unprecedented and uncertain market driven by fear and panic. In this environment where we do not get paid adequately for the product we produce, we will reduce activity and focus on maintaining our financial strength,” Diamondback Chief Executive Officer Travis Stice said.

Oil major Exxon Mobil Corp said on Monday it would make “significant” cuts to spending, while closest rival Chevron Corp has said it was looking at ways to trim expenditure.

Oil producers are also cutting executive pay and asking suppliers for price discounts on equipment and services.

Shale producer Parsley Energy Inc said executives would take a 50% pay cut, and has also asked its suppliers to consider a 25% reduction in service pricing.

Canadian Natural Resources Ltd also slashed its full-year capital expenditure budget by about 27% to about C$2.96 billion ($2.03 billion) on Wednesday. ($1 = 1.4588 Canadian dollars)

Reporting by Shanti S Nair in Bengaluru; Editing by Shounak Dasgupta and Sriraj Kalluvila

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