New York, 21 July (Argus) — US shale oil firms are likely to bide their time before deciding whether activity cuts are warranted by renewed market volatility, given that crude prices have bounced back from recent lows.
For now, most operators may be content to let out a sigh of relief that oil prices have rebounded from a four-year low, struck in the aftermath of US president Donald Trump’s tariff wars and expectations of a looming global surplus. But the market is hardly out of the doldrums — with the US benchmark hovering around breakeven levels in the mid-$/bl — and the earlier dip will still weigh on companies’ second-quarter results, due out in the coming weeks.
“Our conversations with managements indicate few are making knee-jerk reactions to the commodity volatility, but they seem a bit uncertain on oil price direction, with several ready to cut if needed,” investment bank RBC Capital Markets analyst Scott Hanold says. Crude’s 10% slide in the second quarter compared with the first is expected to dent cash flows and offset strong output. As a result, negative sentiment could still hang over companies’ results and otherwise solid performances may go unrewarded, according to investment bank Roth Capital Partners. “We don’t expect a lot of 2025 guidance changes, as we think most companies are going to maintain current activity levels based on the recent strength in oil,” Roth senior research analyst Leo Mariani says. But next year could well be a different story if the price outlook deteriorates further.
While oil-focused firms may not be ready just yet to signal a shift in activity towards natural gas — where fundamentals are perceived as being more favorable — there could be some discussion about boosting buy-backs to take advantage of weaker share prices.
The oil majors may be preferred by investors, given recent market instability and the uncertain outlook for shale, where there is a growing chorus of warnings that growth is near or already at a tipping point. “All told, we’d expect interest in the majors to remain elevated, as we don’t expect commodity volatility to subside any time soon,” analysts at bank Raymond James say.
That said, the likes of ExxonMobil, Shell and BP have cautioned that they will take a hit from the lower oil and gas prices seen in the second quarter. ExxonMobil estimated its profit could be down by as much as $1.9bn compared with the first quarter. And US independent producers including APA and Occidental Petroleum have warned of lower realized oil prices in the period. But ExxonMobil’s results should hold up better than rival Chevron’s, given its larger refining footprint, according to analysts at bank HSBC.
HSBC expects ExxonMobil to announce share buy-backs of around $5bn in the quarter — in line with its $20bn annual range — but repurchases at Chevron are expected at around $2.75bn, the midpoint of its revised $2.5bn-3bn range.
And deal-making in the sector — which has been subdued this year because of a mismatch between buyers’ and sellers’ expectations — could get a boost, after Chevron prevailed in an arbitration dispute with ExxonMobil over a Guyanese oil discovery that paves the way for the company to complete its delayed $53bn takeover of US independent Hess.
While shale consolidation has likely run its course, there is still a robust pipeline of upstream opportunities in North America, analysts at consultancy Rystad Energy say. And just last week, the world’s leading oil field services giant, SLB, completed its $7.8bn acquisition of smaller rival ChampionX after addressing UK antitrust concerns.
By Stephen Cunningham
