O&G firms cutting breakeven prices for oil

Majors and North American companies lead the way, but independents struggling

Firms are cutting the price at which they make profit on a barrel of oil.
Firms are cutting the price at which they make profit on a barrel of oil.

Oil and gas companies have reacted to the falling oil price by cutting their breakeven prices for a barrel of oil.

In a research note, Wood Mackenzie, found that since oil prices hit US$60 a barrel ($/bbl), firms have implemented cost cutting measures which have contributed to a drop in cash flow breakevens of over US$20/bbl.

“Investment optionality and the ability to dial back spend has been a key competitive advantage for the North American unconventional sector, while the Majors have targeted their buyback programmes which has contributed to them achieving a 25% reduction in cash flow breakevens,” it said.

By contrast, international Independents, with committed development spend profiles, have struggled to materially reduce their price requirements and still average over US$100/bbl – way below the current market rates.

“Overall, we estimate that the 60 companies in our corporate analysis need an average Brent price of US$72/bbl for cash flows to break even in 2015,” the research found.

“It's clear that companies will need to dig deeper if low oil prices are here to stay. More cuts to dividends and buybacks are likely if low prices persist and a buyer's market in M&A may emerge as companies are forced to sell assets to conserve cash.”

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