US producers face tough choices on growth, capital returns as oil falls below $60

By Arunima Kumar

(Reuters) - A plunge successful lipid prices beneath $60 per tube owed to an escalating commercialized warfare whitethorn trigger anxiousness crossed the U.S. lipid patch, apt forcing companies to treble down connected measures including cuts to stock buybacks and superior expenditures, analysts person said.

Brent crude and West Texas Intermediate (WTI) futures slid to their lowest since February 2021, arsenic sweeping tariffs imposed by U.S. President Donald Trump sparked concerns of a recession amid signs of higher proviso from apical producers.

Raymond James expert Pavel Molchanov said immoderate producers mightiness trim 2025 capex if the downturn persists, though broader cuts volition beryllium connected the extent and duration of the slump.

"Share buyback is typically the 'flex variable' that tin easy determination up and down depending connected however overmuch escaped currency travel is being generated."

During the COVID-19 clang successful 2020, erstwhile lipid request collapsed and prices concisely turned negative, Exxon Mobil slashed superior spending by 30%, portion Chevron chopped its fund by $4 cardinal and paused its buyback program.

ConocoPhillips had besides trimmed spending and halted repurchases.

Although lipid companies are present leaner and much disciplined, higher work costs and vigor modulation spending person narrowed fiscal buffers.

EXPECTING BREAKEVEN

While galore operators payment from debased breakeven costs successful the Permian Basin - which is expected to lend astir each of the U.S. Lower 48's accumulation maturation this twelvemonth - paying precocious dividends tin enactment fiscal unit connected companies moving successful costlier, little profitable lipid fields.

Rystad Energy estimates galore U.S. lipid producers present look all-in breakeven prices supra $62 a barrel, including dividends, indebtedness service, and instrumentality targets.

"Some operation of near-term enactment levels, capitalist payouts oregon inventory preservation volition request to beryllium sacrificed successful bid to support margins," said Matthew Bernstein, vice president astatine Rystad.

The crude slump has formed caller scrutiny connected however U.S. lipid and state firms program to support shareholder returns amid tighter margins.

RBC Capital Markets estimates Exxon's breakeven to screen some dividends and buybacks is $88 per tube for 2025. Chevron's is adjacent higher, astatine $95 per barrel.

"The firm world for nationalist players means that already humble maturation could beryllium astatine hazard if prices stay adjacent $60 per barrel," Bernstein said.

Earnings reports aboriginal this period volition connection penetration into whether producers volition enactment the people oregon pivot toward currency preservation.

"We'll spot wherever we are astatine the extremity of April and aboriginal May arsenic to whether companies would chopped capex oregon buybacks ... I'm definite we'll get cautionary connection astir the outlook if weakness were to persist," said Arjun Murti, a spouse astatine vigor consultancy Veriten.

(Reporting by Arunima Kumar successful Bengaluru; Editing by Arpan Varghese and Anil D'Silva)