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U.S. drillers poised to hike spending by a quarter next year, Evercore says

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Written by: Collin Eaton

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If oil prices hold onto recent gains, drillers could pump billions back into U.S. oil fields next year, setting the stage for an industry comeback after two years of deep cutbacks.

In North America, oil companies have signaled they may collectively hike oilfield spending 25 percent to $110 billion next year, the largest budget increase since at least 2000, according to investment bank Evercore ISI, which surveys the oil companies every year. That money would flow directly to the oil field service companies that make drilling equipment and employ thousands of workers in Houston.

“We’re coming out of the biggest recession for the oil field in a generation,” said James West, an analyst at Evercore ISI in New York. “North American companies are very intent on stemming production declines and returning to growth mode.”

A spending resurgence would signal a sharp reversal of fortune after domestic drillers halved spending in Texas and North Dakota oil fields over the past two years. Those budget cuts, which brought North American oil spending down to $88 billion this year, were larger than reductions made in the oil bust of the mid-1980s, according to investment bank Cowen & Co.

As of this week, nine North American oil companies, including Rice Energy and RSP Permian, have said they plan to lift spending from a combined $3.33 billion to more than $5.05 billion — a 52 percent increase.

Evercore’s assumption that drillers could boost North American spending by a quarter next year is based on current oil prices, which are floating around $50 a barrel. But if the oil market continues to realign the global supply of crude with demand, prices may rise and spending levels in the United States and Canada could climb 30 percent to 40 percent, West said.

“They’ll be able to tap into capital markets,” he added, pointed to the billions oil companies have raised in secondary stock offerings in recent months.

Still, even with such a large spending increase next year, drillers won’t be able to match the budgets they had when U.S. crude prices were above $100 a barrel and capital flowed easily from debt markets and banks. In 2014, they spent $195 billion in oil fields across the United States and Canada.

West acknowledged drillers still are struggling to find support in high-yield debt markets and have gotten “next to nothing” from banks, but said next year much of the financial woes that continue to force companies into bankruptcy court will have largely petered out.

“Most of the major bankruptcies will have been completed this year,” he said. “We’ll have some zombie companies walking around, too, but hopefully” the bankruptcy process has taken care of the U.S. oil industry’s financial problems.

Last week, energy research firm Wood Mackenzie said at current oil prices, drillers could increase spending levels by $10 billion in U.S. oil fields next year, and the figure could easily rise to two or three times that if crude prices continue to favor drillers.

Written by: Collin Eaton

Click HERE to Read Article From Publisher