Oil prices slid sharply in Monday trading, dropping by more than 4% to close at a five-year low of $63.02. Brent prices fell in similar fashion, ending the day below the $66.00 mark.
Spot prices for WTI have dropped by 18.6% in the last month alone.
The continuous price drop occurred the same day as three separate oil companies announced significant expenditure cuts in their respective 2015 guidance programs. The headliner is ConocoPhillips (ticker: COP), an E&P with a market capitalization in excess of $80 billion. Other supermajors, such as Shell (ticker: RDS.B) and ExxonMobil (ticker: XOM), have announced “modest” cuts of approximately 6% for future yearly expenditures, but COP’s 2015 capital plan is 20% lower than its plan for 2014.
In the announcement, ConocoPhillips said the reduction “reflects lower spending on major projects, several of which are nearing completion, as well as the deferral of spending on North American unconventional plays.” The company’s maintenance and exploration programs are expected to be similar to 2014 levels. Development drilling and major projects are expected to receive the majority of the cuts.
The company elaborated on future focus in its Q3’14 conference call and said the Bakken and Eagle Ford will receive the majority of U.S. capital due to its high margin short-cash cycle. The capital cut was made largely due to meeting its dividend, which management said it its “top priority.” Ryan Lance, Chairman and Chief Executive Officer of ConocoPhillips, said: “This is an important part of our investment thesis. The dividend provides discipline in our capital allocation process and we believe that it’s important in a mature business.”
COP Pushing for End to Export Ban
COP’s expenditure plan may rise if the government decides to lift the oil export ban, in place since the 1970s.
The company issued a press release on November 17, 2014, criticizing the ban and calling it “outdated.” Lance referred to findings from the Brookings Institute that was published in September, which includes United States production growth of 15% at its midpoint if the ban is struck down. Lance said the United States could even limit its exports to light oil and condensate – grades which are not well suited for most refineries in the United States.
“Without a lifting of the export ban, we’ll face an impact from the resulting domestic crude price discount,” he said. “The discount would ultimately threaten the producing industry’s ability to make investments in new crude supplies. In short, it could shut down the energy boom.”
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