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Hess, Continental Resources make huge spending cuts

HOUSTON -- Two of the largest oil companies in North Dakota's Bakken Oil Patch, said they're slashing spending to scale back as the downturn in crude prices continues.

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Storage tanks stand on a Continental Resources oil production site near Williston, North Dakota January 23, 2015. (Andrew Cullen/Reuters)

HOUSTON -- Two of the largest oil companies in North Dakota’s Bakken Oil Patch, said they’re slashing spending to scale back as the downturn in crude prices continues.

Continental Resources, North Dakota's second-largest oil producer, said on Tuesday it would cut its 2016 capital budget by 66 percent as it tries to preserve cash amid tumbling crude prices.

Led by billionaire wildcatter Harold Hamm, Continental plans to spend $920 million this year, down from $2.7 billion in 2015.

The cut comes just after rival Hess Corp. and Noble Energy slashed their respective 2016 budgets, adding to a chorus of company executives chanting that the plunge in oil prices has made it all but impossible to turn a profit.

Hess said on Tuesday that it planned to cut capital spending by 40 percent this year in response to the sharp downturn in crude prices. The New York-based company to spend $2.4 billion in 2016, down from $4 billion last year.

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U.S. oil prices closed Tuesday at $31.45 per barrel.

Oklahoma City-based Continental said it would not become profitable until oil prices return to $37 per barrel.

Hamm famously canceled Continental's oil hedges in the fall of 2014, a bold bet that now appears misguided as the price of crude has only tumbled since then, dragging down Continental's profitability. Yet he showed little sign of remorse on Tuesday, betting that oil prices will jump before 2017.

"We are dedicated to preserving the value of our premier assets and building operational efficiencies in preparation for crude oil prices to stabilize and start recovering later this year," Hamm said in a statement.

The company does plan to cut its oil output this year by 10 percent from 2015 levels to roughly 200,000 barrels of oil equivalent per day, a recognition that it can no longer afford to extract and sell oil from the more-than 1 million acres it controls at depressed prices.

The largest plurality of Continental's 2016 budget spending will be in North Dakota's Bakken shale, which the company helped make a global oil play.

Overall, Continental plans to complete 71 wells this year, a sharp drop from 2015. The company said it will delay bringing online most of its North Dakota wells this year, increasing its count of drilled-but-uncompleted wells from 135 in December to 195 at the end of 2016.

Hess and Continental’s moves come on the heels of industry-wide cuts last year that ranged from about 20 percent to 50 percent. Despite those steps, many operators managed to lift output as they devised new ways to coax more oil from rock.

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Hess and many peers have been known to use derivatives to hedge prices on a chunk of their output, but the budget cut comes as the energy industry grapples with how best to respond to crude prices that are lingering around $30 per barrel, a level where many oil and gas producers cannot profitably operate, according to numerous analysts.

At that level, U.S. oil companies are expected to slash 2016 budgets by an average of 38 percent, according to a report from Bernstein Energy analysts

Halcon Resources, which operates in North Dakota and Texas, last week slashed its 2016 budget by 55 percent, saying it will operate only one drilling rig this year and ramp down production in response to low prices.

On the other end of the spectrum, Pioneer Natural Resources, which is known for its aggressive hedging program, said earlier this month it would spend between $2.4 billion and $2.6 billion this year.

Though Pioneer will fund its 2016 budget in part from a $500 million asset sale, the modest increase from $2.2 billion in 2015 makes the company a relative outlier at a time when most companies are trimming capex by amounts similar to last year's drastic cutbacks.

Despite its own cut, Hess will continue to invest in growth projects, Chief Operating Officer Greg Hill said.

"We have significantly decreased our 2016 capital and exploratory expenditures, and we plan to reduce activity at all of our producing assets," he said.

The company forecast average 2016 production at between 330,000 and 350,000 barrels of oil equivalent per day, unchanged from the outlook it provided in October.

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