Financially strapped oil producers are spending billions to boost production before it's clear that recent crude price gains brought on by OPEC output cuts can be sustained.
HOUSTON, March 8 (Reuters) - Financially strapped oil producers are spending billions to boost production before it's clear that recent crude price gains brought on by OPEC output cuts can be sustained.
Five of the largest publicly traded oil companies - BP, Chevron, Exxon Mobil, Royal Dutch Shell, and Total - are trying to work down debts that totaled $297 billion at the end of December. That nearly doubled the companies' 2012 debt levels.
But even with oil prices about 70 percent higher than a year ago, most companies have yet to reach the point where their cash flow covers annual shareholder payouts and expansion projects vital to the industry's long-term survival.
Add other expenses, such as the interest on debt, and the break-even point is pushed out until at least 2020, industry analysts from Citigroup estimated.
"For the entire oil and gas industry, balance sheets have never been worse," said Fadel Gheit, an Oppenheimer & Co oil industry analyst. Producers, he said, "were in critical condition and have been upgraded to guarded."
For a graphic on oil majors' debt, cash flow and capital spending, see: http://tmsnrt.rs/2mzgTVc
For now, U.S. producers are taking advantage of the price increase spurred by OPEC's production cuts to boost their output. Some of the oil they are pumping would not have been profitable at $40 a barrel, but is with prices holding steady above $50.
The industry is betting that prices will maintain a delicate balance - high enough to repair balance sheets and finance new projects, but not so high that it creates a new glut.
If crude maintains a price in the mid-$50s per barrel, the biggest oil producers could see their cash flows increase by 71 percent on average over 2016, according to Citigroup.
The danger is that too many wells could come back online too soon, undercutting OPEC's effort to reduce global inventories. That could send prices back to the 12-year lows of early 2016.
U.S. shale producers in March are forecast to pump 79,000 barrels a day (bpd) more than in February, when shale contributed about 4.75 million bpd to U.S. output, according to the U.S. Energy Information Agency, reversing production declines last year.
Shale output could rise more than 500,000 bpd by the end of the year, said Daniel Yergin, vice chairman of analysis firm IHS Markit and an oil historian.
"U.S. shale has demonstrated that it's still a player," Yergin said in an interview. "It's going to continue to be a major factor in the global market."
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