IHS: Draconian Cuts in Oil Company Budgets Needed

There’s nothing debilitatingly deflationary like 10s of billions being slashed from the collective operating budgets of our blessed oil companies.

A group of 44 North American exploration and production companies are planning to spend $78 billion on capital projects this year, down from $101 billion last year. Those companies need to cut another $24 billion this year to get their spending in line with a historical 130 percent ratio of spending to cash flow, according to IHS.

“These spending cuts will be particularly troublesome for the highly leveraged companies,” said Paul O’Donnell, principal analyst at IHS Energy. “These E&Ps are torn between slashing spending further to avoid additional weakening of their balance sheets, and the need to maintain sufficient production and cash flow to meet financial obligations.”

Oh, one little item I forgot to mention about this analysis: it’s worst case scenario was $40 crude and $2.50 natty. Now that we’re $30 WTI and heading lower, potentionally, I’m sure a few billion more will need to be cleaved.

What’s a few billion between friends? We’re all very good friends here, aren’t we?