U.S. shale urges service firms offer ‘at least’ 25% price cuts – executives, letter

U.S. shale producers are seeking sharp service costs cuts to deal with plummeting prices and shrinking demand, according to executives and a letter sent to top providers, driving home the oil industry’s desperate efforts to cope with a market dive. Oil companies that recently delivered 2020 spending plans based on $55 to $65 a barrel oil were confronted on Monday with sub-$35 prices after OPEC launched a price war amid slack demand from the ravages of coronavirus on the global economy.

Prices have plummeted so rapidly and to such an extent that shale producers that have not pre-sold their output at higher prices will soon be unprofitable, said analysts. In a letter sent on Wednesday to oilfield equipment and service providers, Parsley Energy (PE.N) operating chief David Dell-Osso asked them “to reconsider your pricing” and help the company achieve an “at least 25%” reduction in its costs.

This week’s oil market crash, brought on by weakening demand from coronavirus and a price war triggered by Saudi Arabia and other big producers pumping full bore, are behind the urgent plea, Dell-Osso said.

But several oil producers have been asking for 25% price cuts and have won concessions, said James West, a senior managing director at investment bank Evercore ISI. West, who has urged consolidation to wring out costs, said oilfield firms would be better off rejecting contracts that are not profitable. Pricing is low, and a 25% cut may not deliver much relief, he added.

U.S. shale urges service firms offer ‘at least’ 25% price cuts – executives, letter, Reuters, Mar 13