EOG signals plans to reduce shale production growth

BRADLEY OLSON

HOUSTON (Bloomberg) -- The biggest, fastest-growing oil producer in the U.S. said it plans to halt output growth this year, delivering a signal that shale companies are beginning to do what it takes to reduce oversupplies.

EOG Resources, which has boosted its oil production by almost 50% annually for the past five years, is slashing spending 40% and will drill half the wells it did in 2014. The Houston-based company fell more than 6% in after-hours trading as it reported fourth-quarter profit on Wednesday that missed expectations.

The company joins Apache Corp. in its plan to pump about the same volume of oil as last year. The cutbacks are a sign that shale producers can slow down a lot more quickly than forecasters are expecting, said Michael Scialla, a Denver-based analyst at Stifel Nicolaus & Co.

“EOG is viewed as the premier company in shale development, and if they’re not going to grow, it is a very important signal to the market,” Scialla said. “The argument that this slowdown is going to take a while to have an impact on supply is completely wrong.”

The reductions come as agencies such as the U.S. Energy Information Administration forecast that overall domestic production will grow 7.8% to 9.3 MMbpd of crude this year, adding to the glut that’s pushed down prices.

‘Not Interested’

“The company is not interested in accelerating crude oil production in a low-price environment,” EOG said in a statement.

The collapse of oil prices by more than half since June has forced major producers and drillers to cut more than $40 billion in spending and fire 50,000 workers. The number of oil drilling rigs working onshore has declined by a third since October.

Crude prices have rallied in recent weeks to more than $50/bbl as the pace of cuts has surprised market analysts. The average price for Brent crude, the benchmark used by most of the world, fell 30% from a year earlier in the quarter, to $77.07/bbl.

The producer’s net income fell to $444.6 million, or 81 cents a share, from $580 million, or $1.06, a year earlier. Profit excluding one-time items was 79 cents a share, less than the $1 average of 36 analysts’ estimates compiled by Bloomberg.

The earnings report was posted on Wednesday after the close of regular trading on U.S. markets.