(Bloomberg) -- A year after the bear market in crude began, oil companies have cut workers, are using fewer rigs and have less money to spend.
But they’re still pumping more oil.
BP Plc, Royal Dutch Shell Corp. and Hess Corp. are among the companies producing more crude than a year ago. In the U.S., shale explorers have focused on the most productive parts of their land, drilled faster and better wells there and negotiated lower prices from oilfield service companies. It’s helped keep total U.S. output about 1.6 percent higher than at this time last year, even as drilling rigs have fallen by 63 percent.
“A well that broke even at $60 18 months ago is now at $40,” said Harold York, a senior analyst for Wood Mackenzie Ltd. in Houston. “If drilling a well generates a return greater than the cost of capital, companies are going to do it. That’s the rationale behind producing in a low-price environment.”
High production all year has pushed U.S. inventories to the highest October level since 1930, helping keep prices deflated. West Texas Intermediate futures settled at $46.06 a barrel Thursday, down from a 2014 closing high of $107.26.
The good news for oil bulls is that production gains may be ending soon. Hess and Whiting Petroleum Corp. are among companies that produced less in the third quarter than in the second. U.S. onshore production is expected to fall to 7.7 million barrels a day in the fourth quarter, according to Rystad Energy AS, about 100,000 less than the same period last year.
Some companies have maintained production because they used financial hedges, so are still getting paid pre-crash prices for their crude.
“We still have clients enjoying $80 oil,” said Richard Ennis, head of natural resources at ING Capital LLC. “Those days are going to end but they are still enjoying that kind of pricing.”
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