Mendoza School of Business

Oil Firms Plot Divergent Spending Paths

Published: January 29, 2017 / Author: The Wall Street Journal

Big oil companies and smaller U.S. upstarts are plotting sharply divergent paths as they plan spending for 2017 after a modest recovery in crude prices.

While shale-oil drillers are boldly raising annual budgets to revive drilling in Texas, New Mexico and North Dakota, international oil giants such as Exxon Mobil Corp., Chevron Corp., Royal Dutch Shell PLC and BP PLC are planning to hold back spending, charting a cautious path to recovery.

Another threat: Even if OPEC does make good on its pledge, the smaller firms focusing on U.S. wells could respond by replacing the barrels the cartel takes off the market, keeping a ceiling on oil prices over the longer term.One reason for tighter purse strings at the bigger companies is a concern that the recent rebound in oil prices has run out of steam or could even reverse if members of the Organization of the Petroleum Exporting Countries fail to follow through on promised output cuts.


“Many of the biggest companies are recalibrating to live within their means,” said Gianna Bern, a former trader for BP who teaches finance at the University of Notre Dame. “The sector became a victim of its own success, bringing about the crash in crude oil prices, so the big players want to avoid doing that again.”

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