NewOil firms fear deeper crisis looming than seen in 1980s

After slashing spending by US$180 billion to deal with one of the worst industry downturns in decades, oil companies are still bleeding cash and slipping further into debt to maintain dividends to shareholders.

Depressed crude prices - at below US$50 a barrel Brent crude is half what it was a year ago - mean even more cuts are needed at new projects and existing operations. Companies trying to dispose of oilfields to raise cash could be forced to sell quickly and for less than they hoped.

There is little sign that the oil price will come to the rescue as the Organisation of Petroleum Exporting Countries continue to add to an oversupplied crude market in response to explosive growth in US shale oil.

Brent is expected to average US$60.60 this year and US$69 in 2017, according to a poll of analysts. The International Energy Agency said in February it saw it recovering to US$73 in 2020 as the supply glut slowly eases.

Analysts at investment bank Jefferies say international oil companies lowered their break-even points by US$10 a barrel after the latest round of spending cuts, but will still need a price of US$82 a barrel next year to cover spending and dividends, which have been the main investment attraction for the sector for decades.

"In order to cover the shortfall, the sector will increase its borrowing. While leverage remains manageable within the sector, this is not a practice that can continue in perpetuity," Jefferies said in a note last week.

Oil majors such as Royal Dutch Shell, Chevron and Total are helped by profitable refining operations. Most are increasing oil and gas output, squeezing as much revenue as they can from past investments but exacerbating the oversupply.

Spending next year is expected to decline by a further 5 to 15 per cent depending on the oil price, according to Oslo-based consultancy Rystad Energy. The world's top oil firms used second-quarter results to show they were ready for deeper, more painful measures.