More North American Oil & Gas Producers Announce Reduced Capex for 2016

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Researched by Industrial Info Resources (Sugar Land, Texas)--For much of the Oil & Gas Production Industry, 2016 could well be known as the Year of the Cutbacks, as companies dial back on capital expenditures amid tough markets, refocus their spending and see the completion or push-back of major projects. In recent days, ConocoPhillips Company (NYSE:COP) (Houston, Texas), Chevron Corporation (NYSE:CVX) (San Ramon, California) and Encana (NYSE:ECA) (Calgary, Alberta) have each announced their capital expenditure plans for the upcoming year will be far less than this year.

Several oil & gas producers have already made capital spending cuts for the current year. For related information, see November 6, 2015, article - Marathon Focuses 2016 Capital Program on Core Four Assets; Targets Margin Growth and Quality Corporate Returns, November 2, 2015, article - Hard Times in Energyville: Exxon Mobil, Chevron Slash Capex as Upstream Earnings Dive, October 30, 2015, article - ConocoPhillips, Murphy Oil Cut Spending, Take Write-Downs as Low Prices Boost Marathon Petroleum, October 29, 2015, article - Hess Corporation Cuts Capex More than 25% for 2016 after Third-Quarter Results Pummeled by Weak Prices.

ConocoPhillips said it has earmarked $7.7 billion for its 2016 capital budget, 25% less than its capital spend for this year; and a 55% reduction from 2014. Next year's reductions are made possible by lower spending for major capital projects, better efficiency and improvements and capturing the value of cost deflation, the company said. Chief Executive Officer Ryan Lance said in a press statement the spending plan "recognizes the current environment, which remains challenging."

"Despite this very significant reduction in capital spending, we still expect to grow production 1% to 3%," Ryan said in an investor conference call. "We could spend more capex [capital expenditures] and drive higher growth, but I don't think that would make sense in this currently oversupplied market."

Industrial Info is tracking 87 ConocoPhillips projects worth $76.63 billion, including $7.42 billion for projects that are set for kickoff next year. The biggest high dollar item is a $15 billion liquefied natural gas production facility and export terminal on Alaska's Kenai Peninsula. The project, which also includes Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas), BP Plc (NYSE:BP) (London, England), the Alaska state government, Alaska Gasline Development Corporation (Anchorage, Alaska) and TransCanada Corporation (NYSE:TRP) (Calgary, Alberta), would kick off in late 2019, with completion in 2016.

About $2.6 billion, or 34%, will be earmarked next year for the lower 48 states, ConocoPhillips said, with a strong focus on unconventional oil and gas production in the Eagle Ford, Bakken and Permian regions.

Ryan said the company began to take action shortly after Brent crude oil prices started their downward slide in late 2014. "We quickly cut our capex by reducing future major project spending, high-grading our exploration activity and exercising flexibility in our conventional and unconventional drilling programs," he said. Also, he noted, the company has taken a "hard look" at its portfolio, taking steps to reduce capital in its non-core North American gas assets and deepwater exploration.

Chevron, meanwhile, last week announced a $26.6 billion capital and exploratory program for 2016, a 24% reduction from its investments for 2015.

Chief Executive Officer John Watson said: "Given the near-term price outlook, we are exercising discretion in pacing projects that have not reached final investment decision."

Chevron plans to spend $24 billion in capital and exploratory investments next year on its upstream segment, including $9 billion for existing base producing assets, $11 billion for major projects that are already under way, and $3 billion for projects yet to get final approval.

Industrial Info is tracking 179 active Chevron projects worth $126.47 billion, including $6.24 billion for projects that are scheduled to kick off next year. Phase I of the Wheatstone LNG production plant in Onslow, Western Australia has a total investment value of $10.8 billion. Construction of the facility began in 2012 is expected to reach completion in fourth-quarter 2016.

On Monday, Encana announced its 2016 capital program would be $600 million lower than in 2015. Roughly 95% of the $1.5 billion to $1.7 billion for next year will be invested in core assets, including developments in the Permian basin, the company said. Industrial Info is tracking six Encana-related projects worth $111.00 million, including $106 million for a mico-LNG plant expansion in Elmsworth, Alberta. For information related to the development of micro-LNGs, see December 14, 2015, article - As LNG Boom Creates Supply Glut, Many Turn to 'Micro LNG' for Small-Scale Solutions.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.