U.S Drillers’ Operating Losses Could Surge In 2016…” investors should be prepared to see production fall in 2016.”

Wednesday, November 25, 2015
By Paul Martin

by Michael McDonald via OilPrice.com,
ZeroHedge.com
11/25/2015

What do you do when all of the low hanging fruit is gone? That question is one that oil producers are increasingly facing as they confront an oil price slump that is now more than a year old and shows no serious signs of abating. With oil prices having fallen by nearly half over the last sixteen months, it is little wonder that oil companies found their balance sheets under pressure. From Exxon to Continental all oil companies have faced problems in maintaining their capital spending and more importantly, their profitability. In light of that, it is little wonder that oil companies pulled every lever they could to survive.

The vast majority of oil companies have seen their profits fall markedly in the last year, and most companies have turned to the same three tools in order to cope with falling prices.

First of all, companies have been relying on production growth. Shale producers especially have done all they can to keep production as high as possible. The idea has been to offset the falling price per barrel with more barrels of output. Some firms, like Devon Energy, have been exceptionally successful with this strategy. The problem is that production growth is not sustainable for shale firms in the absence of large amounts of capital spending, which these firms cannot sustain at this point. The declining production curves are simply too great for oil companies to keep the oil flowing without significant new investment. Thus investors should be prepared to see production fall in 2016.

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