Shale groups rise to oil price challenge

EOG Resources, the largest shale oil producer in the US, on Tuesday raised the prospect of its crude production returning to growth before the end of the year.

US shale oil companies have been detailing in their first-quarter results how they are cutting costs and increasing productivity as they grapple with sharply lower crude prices since last summer.

Companies including EOG, Anadarko Petroleum, Concho Resources and Noble Energy reported steep cuts in both capital and operating costs, while their production is either growing or roughly flat.

EOG said that if benchmark US West Texas Intermediate crude rose to $65 per barrel or higher - compared with its price of about $60 on Tuesday - then the company could resume "double-digit" production growth, while covering its capital spending from its operating cash flows.

EOG reported a loss of $170m for the first quarter, and an $843m cash outflow, and reiterated its guidance that it expected its average production for 2015 to be roughly unchanged compared with last year.

However, William Thomas, EOG's chief executive, said on a call with analysts on Tuesday morning that the company had been building up a backlog of wells that had been drilled but not yet completed, and planned to start bringing some of these on stream in the third quarter.

"We expect our oil production to return to growth in the fourth quarter, building momentum as we head into 2016," he added.

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EOG's statement came after David Einhorn, the hedge fund manager who made his name betting against Lehman Brothers before the bank collapsed, on Monday argued that shale oil producers were overvalued, labelling them "frack addicts" that failed to create value from their investments even when crude was over $100 per barrel.

"A business that burns cash and doesn't grow isn't worth anything," he said.

However, US shale oil companies, while reporting losses or very small profits for the first three months of this year, are arguing that cost cuts put them on a course for renewed financial health once crude prices recover.

Noble reported a $22m loss for the first quarter, but said it had greatly improved the efficiency of its drilling.

Concho, which operates in the Permian Basin of west Texas, reported a profit of just $7.5m for the first quarter and said it had cut the number of rigs it was using from 36 at the start of the year to 18 today.

However, it raised the midpoint of the range of its guidance for 2015 production growth from 18 per cent to 20 per cent.

Timothy Leach, Concho's chief executive, said: "We expect to deliver higher production growth on a lower capital spend and with fewer rigs."

Anadarko, which has offshore operations in Africa and in the Gulf of Mexico, as well as its US shale business, said it expected average production for 2015 to be slightly lower than in 2014, as it reported a $3.3bn loss for the first quarter, including a writedown of $2.9bn.

The company said it had cut the average cost of drilling a well in the Eagle Ford shale of south Texas by 14 per cent since the last three months of 2014.

Al Walker, Anadarko's chief executive, struck a cautionary note on the company's call with analysts, saying it would be careful about stepping up spending and production growth in response to a recovery in oil prices.

"As we achieve higher prices, we could see activity increase and prices, unfortunately, could suffer as a result of higher production than people are anticipating," he said.

"So we're going to be a little careful in terms of adding to that production number."

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