US Shale Circling The Wagons -- Financial Times -- November 12, 2014

The Financial Times is reporting:

If there is “price war” in the oil market, as Adel Abdul Mahdi, Iraq’s oil minister, has suggested, the US shale industry is refusing to take flight at the first sound of gunfire.

Some operators that have not yet decided their 2015 capital spending budgets have said that they are reassessing their drilling programmes. A few that had already set out spending plans have in the past couple of weeks announced cuts. So far, though, they look like tactical withdrawals to concentrate their efforts where they will be most effective, rather than admissions of defeat.

Activity is already starting to slow. There were 1,568 rigs drilling for oil onshore in the US last week, 41 fewer than in mid-October, according to Baker Hughes, the oil services group.

That figure is likely to fall further over the coming months. Halcon Resources, which operates in the Eagle Ford shale of south Texas and the Bakken of North Dakota, said on Monday it planned to run just six rigs next year, compared with the eight it is running now and the 11 it had previously planned for 2015. -- previously reported.

Other leading shale oil companies have announced reductions in their capital spending plans: Continental Resources cut its 2015 budget from $5.2bn to $4.6bn; Rosetta Resources said it would spend about $950m next year, down from $1.2bn in 2014; and ConocoPhillips said it planned to spend less next year than the $16bn it is spending this year.

Other companies have suggested they are likely to follow suit. EOG Resources, one of the most successful shale oil producers, said at the time of its third-quarter results last week that it planned to ensure that its capital spending plus its dividend payments were in line with the cash flow it has coming in, and that would probably mean reduced activity in some areas.

The pressure on shale producers is not so much profitability as liquidity. William Thomas, chief executive of EOG, said last week that even if oil fell to $40 the company could still earn a 10 per cent return in some areas, including the Bakken and the Eagle Ford shales.

Much more at the link. In line with previous posts.

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On a completely different note, it is interesting to listen to the ads on conservative talk radio in Texas. There are many, many ads trying to get folks to buy gold, telling them that gold is poised to go over $2,000 per ounce (one would think the government would act on these ads). In fact, the pundits suggest gold, currently around $1,000 an ounce, could plummet to $700/ounce. For some "investors," oil and gold tend to follow each other.