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AP Photo/Mark Lennihan
Cheap oil prices beget cheap oil companies.
(PIPE)LINE ITEMS

Hess is slashing its capital spending and oil exploration budget by 40% from last year

US oil prices are suddenly on the rebound, rising more than 3% today (Jan. 26) on news that a Russia-OPEC deal to cut global production might be closer than previously thought. But that won’t be enough to undo some of the damage done to the oil industry because of low prices.

US oil concern Hess just slashed its 2016 budget for oil exploration and production to $2.4 billion. That’s a 40% drop from last year, a 20% drop from the budget it put out in October, and potentially the smallest amount of capital spending it has planned for any year since 2004.

Hess had already been seeing slowing revenue for a few years; the battle for market share between OPEC and US shale producers hasn’t done the company any favors. It joins a long list of other names that are cutting costs, including BP and Shell.

Anxieties around oil prices are pretty clearly reflected in its share price, which has fallen since 2014 by about the same amount as international benchmark Brent crude. (Hess has operations in the US, Denmark, Malaysia, and Equatorial Guinea, among other locales.)

Reaction to the spending plan was muted, with Hess shares up about 1.4% in the session, but analysts at Wolfe Research liked the move, since they share the consensus belief that the oil glut can’t last forever.

Noting that Hess has a long list of projects in the development and appraisal stage, it recommends that investors not fixate on the fact that Hess is spending more than most of its big rivals on assets not yet producing any revenue. ”We think this queue of assets positions HES strongly for the eventual tightening in oil supply/demand, which we continue to view as a [second half of the year] event in our base case,” they write.