With US crude oil recently dipping below $60 per barrel for the first time in four years, shale producers now face the possibility of an extended period of low prices. Concerns that US President Donald Trump’s trade tariffs could usher in a global recession have pushed prices down toward US E&P companies’ breakeven levels, and below them in some cases. This is prompting producers to take another look at their plans for this year, which had mostly been based on price assumptions of around $70/bbl for West Texas Intermediate (WTI) crude. If prices stay lower for longer, companies will likely trim capital spending and drop drilling rigs and frack crews, which would eventually lead to lower production. They will strive to keep up base dividend payments but skip share buybacks if they really start to feel the pinch. The oil and gas industry cheered Trump’s return to the White House with a zealously pro-fossil-fuel agenda in January, and it has been reluctant so far to sound any dissonant notes in public. But an anonymous survey of oil and gas executives conducted in March by the Dallas Federal Reserve Bank revealed plenty of frustration. Diamondback Energy, one of the top Permian Basin tight oil producers, became one of the first companies to stand up and address the industry’s challenges publicly this week, saying it is reviewing plans for the rest of the year and can dial down its drilling activity to boost cash flow if low prices “persist or worsen.” Diamondback President Kaes Van’t Hof even went a step further at a Houston conference by saying the industry’s current situation “feels a bit self-inflicted.”
