WSJ: Oil Companies’ Spending Cuts - Will Cuts Be Enough?

Low oil prices are having a big effect on the major players.  How much  pain will there be if companies consolidate?  And will gas prices drop to $2 or below?  PB
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From the Wall Street Journal online:

The world’s biggest oil companies have vowed to bring down the costs of big projects in the face of slumping oil prices, but the unrelenting price weakness—with crude below $50 a barrel—suggests they could have to dig deeper still...

Focusing on lower-cost projects with higher returns will help to some extent, but companies are also relying on cost deflation for everything from drill rigs to pipelines, improved efficiency and increased standardization to help manage the lower price environment.

“They are bringing down their costs both operationally and also in terms of capex, but it’s probably not going to be enough,” said Roberto Cominotto, investment manager at Swiss investor GAM, highlighting the need for a structural shift in the way big oil companies operate after years of diminishing returns as production costs crept higher...

...the current weak prices illustrates the risk that the market could remain under pressure for longer than anticipated, driving prolonged pain and the need for more stringent action among Shell and BP in Europe and American giants such as Chevron and Exxon Mobil Corp.

Their focus remains on driving down capital expenditure and continuing to reduce costs, the benefits of which oil companies say could begin to show through by the end of this year.

In the U.S., energy producers have proven more resilient than expected, finding ways to lower drilling costs even as they have reworked hedge programs and issued equity to bolster their balance sheets.

But pressure is mounting...

What the industry really needs is a shakeout, said David Tameron, an analyst at Wells Fargo Securities. Too many energy companies, particularly in the bottom tier, have been able to hang on through the downturn with the help of financial backers.

“You need that wash out,” Mr. Tameron said. “You need some producers to go away.”

The prospect of tougher cuts down the line is a sign that the severity of the situation is dawning on the industry...

“Although they’re still not willing to abandon their rosy forecasts, at least they are addressing the near term situation that we have to do something now and not wait for oil prices to recover,” Oppenheimer & Co. analyst Fadel Gheit said of the major oil companies.

He said it won’t be easy.

“It’s a monumental challenge to offset the impact of a 50% drop in oil price,” said Mr. Gheit.

“The priorities have shifted completely. The priority now is to discontinue budget spending. The priority is to live within your means. Forget about growth. They are now in survival mode.”
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Link: http://www.wsj.com/articles/oil-companies-spending-cuts-unlikely-to-be-enough-1438720142