Oil explorers prepare for another year of depressed prices

CHICAGO (Bloomberg) -- The biggest oil explorers to post earnings so far are bracing for another year of deep spending cuts as the slump in energy markets shows no signs of abating.

Occidental Petroleum Corp., Anadarko Petroleum Corp. and Hess Corp. reported third-quarter losses as sliding crude and natural gas prices choked cash flow, halted drilling projects and exacted billions of dollars in writedowns as once-prized oil fields dwindled in value. Norway’s Statoil ASA and UK-based BP Plc also are trimming spending.

For the $1.9 trillion-a-year oil industry, the bad news is just beginning. ConocoPhillips, the third-largest U.S. crude producer, is expected to post its first third-quarter loss in more than a decade on Thursday. The Houston-based company’s bigger rivals, Exxon Mobil Corp. and Chevron Corp., follow with their earnings the next day.

Oil executives are halting expensive projects that won’t bring returns for years and shunning peripheral opportunities seen as too much of a gamble after crude’s fall to $45/bbl. “We don’t think it makes sense to accelerate production in this environment,” Hess CEO John Hess said during a conference call with investors and analysts on Wednesday.

Occidental Loss

Occidental reported a third-quarter loss of $2.61 billion, or $3.42 a share, on sliding crude prices, writedowns of oilfield values and a slump in production tied to the spinoff of the company’s California business. The result compared with net income of $1.21 billion, or $1.55, a year earlier, Houston-based Occidental said in a statement Wednesday.

Excluding some one-time items, the per-share gain was 3 cents above expectations. Estimates had ranged from a 15-cent loss to a 14-cent gain among the 27 analysts surveyed by Bloomberg.

Occidental’s crude and natural gas output fell after the company spun off its West Coast holdings into a separate company in late 2014. A glut of North American supply has deflated the benchmark U.S. oil price by 52% to an average of $46.50/bbl during the quarter from $97.25 a year earlier. As the crash dried up cash for exploration, Occidental reduced its drilling budget by 20% in the quarter to $1.2 billion, according to the statement.

Capital Cuts

“They’re grinding down capex,” Tim Rezvan, an analyst at Sterne Agee & Leach Inc., said in a telephone interview on Wednesday. Curtailing expenditures on new wells and other projects will help conserve cash to pay dividends, he said.

Occidental is quitting the Williston Basin, an area in the northern Great Plains that includes the Bakken Shale formation, and scaling back operations in the Middle East and North Africa, CEO Stephen Chazen said in the statement.

Anadarko recorded a $2.24 billion loss as lower energy prices wiped out $1 billion in value from its oil and gas fields. The company is focused on cutting costs and selling assets to augment its cash position. Anadarko said it has achieved cost reductions of as much as 15% in some areas and raised $2 billion from selling properties.

The company, based in the Houston suburb of The Woodlands, plans to restrict capital spending to match cash inflows in 2016, CEO Al Walker said during a conference call with investors and analysts on Wednesday.

Hess Spending

Hess plans to cut spending by about 27% next year after its oil and natural gas business lost more than $2 million a day during the third quarter.

The company already has shut down its drilling rig in Equatorial Guinea and plans to indefinitely delay work in the deep-water Gulf of Mexico and the North Sea next year, Hess said during the conference call.

“We’re actually bringing the whole portfolio down to keep our balance sheet strong,” Greg Hill, Hess’s chief operating officer and exploration boss, said during the call.

Hess estimated its 2016 capital budget will fall to between $2.9 billion and $3.1 billion from $4.1 billion this year, according to a statement from the New York-based company on Wednesday. Daily oil and gas output will decline to the equivalent of 330,000 bbl to 350,000 bbl next year, an 8.7% drop from the full-year 2015 target, based on the mid-range of those numbers.

Statoil cut planned 2015 investments by $1 billion to $16.5 billion and delayed the start of production at Aasta Hansteen and Mariner fields to the second half of 2018 from 2017, the Stavanger-based company said Wednesday.

BP lowered its full-year capital-spending forecast to about $19 billion from about $23 billion in 2014. The company said it expects capital expenditure of $17 billion to $19 billion a year through 2017. BP has sold $7.8 billion of assets since the beginning of 2014 and plans to increase that to $10 billion by year-end.