New pressure from OPEC will cause a lot of pain for U.S. energy companies, but they probably won’t slash American oil output anytime soon, experts tell The Wall Street Journal.
The decision by the Organization of the Petroleum Exporting Countries to maintain crude output despite a global glut sent the benchmark price for American oil tumbling Friday to $66.15, its lowest level since September 2009. Companies loaded with too much debt or operating in fringe locations face big trouble if U.S. crude prices remain at $65 to $70 a barrel for long.
But many shale drillers are likely to cut spending while still pumping from cheap-to-produce areas like the Eagle Ford and Permian in Texas. And some companies have oil-price hedges that will buoy profits even if crude is trading at four-year lows.
Take for example, Goodrich Petroleum Corp., a small Houston company that drills most of its wells in the Tuscaloosa Marine Shale in Louisiana and Mississippi, which remains a less developed and still high-cost area. The company’s shares plunged 34% on Friday, to $6.05, and they are down almost 80% since oil prices started declining in June.
The company will probably cut spending, but it also expects to increase the amount of oil it pumps, its president, Robert Turnham, says in an email to The Wall Street Journal. A significant portion of the company’s anticipated 2015 oil production is hedged at $96 a barrel, he says, adding that the company plans to “live within our means until oil prices recover to a more reasonable level.” Read the full story (subscription may be required).
