EOG Resources (NYSE:EOG), like virtually all other shale oil producers, has aggressively cut production and its capital budget in response to the weakness in oil prices. The Houston, Texas,-based company has a high-quality asset base than can generate decent returns at low oil prices. The company might continue living within its cash flows as it gets support from its robust crude oil hedges for the second quarter and improvement in oil prices to around $35 per barrel. EOG Resources, however, has got no hedge coverage for the second half of the year. But the risk of lack of hedges gets mitigated by a rock-solid balance sheet, with ample liquidity and low levels of debt that can help fund any potential cash flow deficit.
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The oil price environment has changed dramatically in the last couple of months as the spread of the coronavirus knocked out a large chunk of demand. We've seen unprecedented volatility in the oil market, with the US benchmark WTI falling into negative territory to as low as negative $37.63 per barrel for the first time ever in April and then recovering at an incredible pace in May to $35 at the time of this writing. Although the commodity has posted one of the best recoveries on record in May, the US oil price is still well below $60 at the start of the year. Shale oil producers will still struggle to post a profit with WTI in the mid-$30s. With WTI expected to average just $30.10 per barrel in 2020, down from $57.02 in 2019 and $65.06 in 2018, as per the US Energy Information Administration's estimates, this may turn out to be the toughest periods ever for the independent oil producers.
In this backdrop, US oil producers are hunkering down and waiting for
