Shale oil drillers have seen the writing on the wall, and it says: "Slow down."
As the energy sector begins reporting earnings, independent oil companies are announcing plans to throttle back spending this year after a price rally stalled in the second quarter, leaving U.S. crude languishing below $50 a barrel for much of the period.
"What I've said in the past is $50 is kind of the line of demarcation," said Rob Thummel, portfolio manager at Tortoise Capital Advisors. "That's exactly what we're seeing. We're seeing a decline in capex."
The pullback started with Anadarko Petroleum, a global driller with shale oil assets in Colorado and Texas. The mini-major announced it would reduce its 2017 exploration and production budget by about $250 million. Going forward, the company will determine its spending depending on how much cash it generates and the returns on investments it realizes, Anadarko CEO Robert Walker said on Tuesday.
"We sincerely believe the volatility of the current operating environment requires financial discipline. And as I have said many times, pursuing growth without adequate returns is something we will avoid," he told analysts.