Investors are bracing for weak US shale results amid low oil and gas prices

By Liz Hampton

(Reuters) – Investors are bracing for weaker performance from U.S. shale companies in the coming days as lower oil and natural gas prices and cost-cutting measures weighed on business in the third quarter.

Major shale producers ConocoPhillips and Concho Resources are reporting quarterly earnings this week for the group, which has been battered this year by volatile prices and investor demands for better profits. Oil and gas producers have cut drilling and jobs amid concerns about the price outlook.

U.S. oil prices are down 17% and natural gas prices are down about 31% from a year ago, undermining production gains. Analysts said ahead of the reports that the costs of job cuts and debt repayments would also put pressure on some companies’ profits.

“I think we’re moving from a growth phase to a value phase,” said Brad Holly, CEO of Whiting Petroleum Corp. at an oil conference in Denver earlier this month.

Whiting, Devon Energy and PDC Energy have cut jobs in recent months as prices have plummeted. The cuts spread across the sector, and Halliburton Schlumberger and Patterson-UTI Energy left the equipment idling.

Investors will be watching for updates on shale productivity. Last quarter, shares Concho Resources fell 22% in one day after downgrading its production outlook, blaming well projects that hurt production.

OUTPUT INCREASES ‘SLOWING DOWN’

Concho is expected to report earnings of 69 cents per share for the quarter, down from $1.42 a year ago. Leading U.S. independent Conoco is expected to post earnings per share of 75 cents, up from $1.36 a year ago, according to IBES data from Refinitiv.

U.S. oil companies have flooded the market with oil this year, keeping prices in the mid-$50s. Oil production averaged 11.8 million barrels per day (bpd) in July, the latest monthly data, up 915,000 bpd from the same period last year, according to U.S. government data.

“We’ll continue to see growth, but it will be slower, and it will be slower than we’ve seen over the last three years,” Bobby Tudor, president of Tudor, Pickering, Holt & Co, said in an interview this month on the sidelines of a conference. He based his forecast on U.S. oil prices of about $50 a barrel.

U.S. crude oil production is expected to increase by 900,000 barrels a day next year to 13.2 million barrels a day, compared with an increase of 1.3 million barrels a day this year, according to a forecast by the U.S. Energy Information Administration.

With prices hovering in the mid-50s, leading shale services provider Halliburton warned last week that U.S. customer activity would continue to decline this year and outlined plans for a new round of cost cuts.

CONTAINMENT CAME “TOO LATE”

Consulting firm Primary Vision wrote last week that Halliburton and other hydraulic fracturing service providers have taken 100 U.S. fracking fleets out of business for oil and gas drilling, “some of which will never return.”

“We expect 2020 spending plans to center around maintenance capital,” or spending that supports ongoing production, said Bernadette Johnson, vice president of market intelligence at consulting firm Enverus.

EOG Resources is expected to be one of the main shale producers will report earnings per share of $1.13, compared with $1.75 a year earlier. Pioneer Natural Resources Co could report earnings of $1.98 per share, down 9 cents.

Continental Resources is expected to will earn 47 cents per share, up from 90 cents a year earlier. The company’s shares fell to about $29.16 from about $54.15 a year ago.

“People are ignoring the shale names right now and are almost disgusted by them,” said Rohan Murphy, an analyst at Allianz Global Investors in London, adding that their push for capital discipline came “almost a little too late.”

Graphic: Shares of US oil producers fall despite continued production growth, https://fingfx.thomsonreuters.com/gfx/editorcharts/OIL-RESULTS/0H001QXF1933/index.html

(Reporting by Liz Hampton in Denver; Additional reporting by Jennifer Hiller in Houston; Editing by Nick Zieminski)