UPDATE: Oil Industry Budget Cuts Adding Up Across the Globe
The ripples of the oil price crash that first hit US shale plays are now impacting oil and gas companies around the globe as they cut costs to survive. The ongoing price war between Russia and Saudi Arabia and demand destruction caused by the COVID-19 pandemic has drawn a historically swift market reaction.
High-costs producers–essentially everyone outside of Saudi Arabia and maybe Russia–are cutting investments, expenses, and sometimes even executive pay to try to keep their cash flow in balance. Capital plans from these producers around the world are shifting downward by an average of 30–35%, according to company reports.
An updated list of oil and gas companies that are lowering their spending immediately:
BP is among the few large oil producers to have not yet come forward with a major announcement on how much it will be reducing spending this year. In a statement, the company said only that it is planning reductions.
Chevron is making a total spending cut of $8 billion, $2 billion of which will come from its unconventional operations. This is expected to disproportionately impact the company’s Permian Basin operations where it is now aiming for 125,000 BOE/D, down 20% from its original goal. Chevron is also halting share buybacks, selling certain assets, and will reduce operating costs by $1 billion this year.
ConocoPhillips is cutting its investments by $700 million by slowing US onshore development in Alaska and the lower 48 states. This 10% reduction is expected to reduce production by 20,000 BOE/D, and the company will also reduce its share repurchases to $250 million per quarter from $750 million, for a $1.5-billion saving for 2020.
Eni is reducing its budget this year by more than $2.2 billion, or 25% of its initial projections. The firm has taken an added step and announced a 30–35% reduction in its 2021 investment down to $2.7 to $3.3 billion. It has stopped buybacks and will only reconsider them again when Brent crude prices reach $60/bbl.
ExxonMobil, which operates the most rigs in the Permian, has said it will reduce spending but has so far not shared specific figures. The company has notified certain vendors and contractors that cuts are coming across various pieces of its value chain, according to various reports. “Based on this unprecedented environment, we are evaluating all appropriate steps to significantly reduce capital and operating expenses in the near term,” said Chief Executive Officer Darren Woods.
Ryan Lance, chief executive officer for ConocoPhillips, also highlighted the company has “significant advantage compared to most of the industry through our strong balance sheet, diverse and low-decline portfolio, and low-capital intensity.”
Shell has said it will slash its capital spending $3 to $4 billion over the next 12 months and is discontinuing its share buyback program. The company said the effort will hopefully generate $8 to $9 billion in free cash flow on a pre-tax basis. Shell will proceed with its long-term divestment program that calls for more than $10 billion in assets to be sold off, though it acknowledged that market conditions may hamper the initiative.
Total has announced a $3-billion spending reduction plan that is 20% short of the original forecast. The company hopes to make at least $800 million in near-term savings by finding ways to shed operational costs. Total will also halt a plan to purchase up to $2 billion of its own stock in 2020.
National Oil Companies
Kuwait Petroleum Corporation is reported to be reviewing all spending and priorities, but not in a way that will affect current operations. The company is considering canceling or postponing programs and projects to cut costs but has not publicly shared figures.
Abu Dhabi National Oil Company has sent letters to vendors and suppliers notifying them that it is reviewing all existing deals as part of its cost-cutting initiative, according to Reuters.
Saudi Aramco, the world’s largest oil company, announced a capital plan that would range between $25 to $30 billion, down from its $32.8-billion spending program in 2019.
Equinor has launched a $3-billion plan to lower spending while maintaining neutral cash flow. The capex reduction is about 20% of prior plans and will call for the halting of drilling and completions in all of the company’s US shale plays. Equinor is an operator in Texas, North Dakota, and Ohio. A share buyback program has also been canceled.
Petrobras announced a flurry of moves to cut expenses and postpone payments for everything from dividends to executive paychecks, as it works to bring its spending in line with its reduced revenues. The biggest cut was a $3.5-billion reduction in capital expenditures. The national oil company is cutting exploration and development of oil and gas fields, as well as its spending on gas production and refining assets.
It is also cutting $2 billion from operations. Those moves included shutting down higher-cost shallow-water fields producing 23,000 B/D as part of a program to cut production by 100,000 B/D by the end of March. In addition, it is postponing a list of expenses ranging from 30% of the monthly payments to top executives and money owed from the 2019 performance bonus program.
Repsol has reduced its cash investments this year by 26%, which amounts to more than $1 billion. The Spanish energy company will further seek to reduce operating costs by more than $385 million. It will proceed with a dividend payout in July but is likely to cancel a share buyback round.
Tullow Oil is reducing its planned annual spend by about a third to $350 million. The company will curtail exploration projects by at least $75 million. The company said low oil prices may impact its previous plan to sell $1 billion in assets.
Wintershall DEA is making a 20% reduction in cash expenditures that will amount to around $1.3 to $1.7 billion. The company is also halting all share buybacks.
Ecopetrol is reducing its cash expenditures in Colombia by $1.2 billion to a range of $3.3 to $4.3 billion. However, the company has not altered its production aim of 745,000 to 760,000 BOE/D.
Kosmos Energy is reducing spending this year by 30% to below $250 million. This is down from its initial estimates of $325 to $375 million in spending this year and will impact its operations in the US Gulf of Mexico, Ghana, and Equatorial Guinea. The Dallas-based operator will also suspend its dividend following the next scheduled payout.
Talos Energy joined companies announcing a second round of expense cuts, adding $170 million on top of its original $170-million reduction. The Houston-based offshore producer expects to generate positive cash flow by lowering costs and investing in infrastructure that adds oil production relatively quickly. It has not reduced spending on early engineering and design work on its Zama project offshore Mexico.
OMV will be cutting its investments by EUR 550 million to about EUR 2.2 billion. The Austrian company in exploration and production plus chemical making, said it would be cutting EUR 220 million from oil and gas operations and exploration spending. It also postponed EUR 1.6 billion in investments and acquisition, including a deal to purchase an interest in the Achimov 4/5 oil development in Russia.
US and Canada Onshore Independents
Apache said it would stop all drilling and completions in the Permian but stick with its high-potential deepwater exploration program off Suriname. The company reduced its 2020 capital investment plan to $600 to $700 million, from $1.6 to $1.9 billion. “We are significantly reducing our planned rig count and well completions for the remainder of the year, and our capital spending plan will remain flexible based on market conditions,” said John Christmann, Apache’s chief executive officer and president.
Callon Petroleum said its capital plans will move from $975 million to a potential low-end estimate of $700 million for the remainder of 2020. The company’s rig count will drop from nine to five by next quarter. Callon will also reduce its contracted fracturing fleet from five to two. The company expects it can maintain “relatively flat year-over-year production growth.” It completed an all-stock merger with Carrizo Oil & Gas in December 2019.
Centennial Resource Development is reducing its drilling program from five rigs to just one, effective immediately. The company will lower its capital outlay by about 50% below its previous guidance of $640 million issued in February.
Cimarex Energy said it expects to cut spending by as much as 50% from its original plans to a new target of $1.25 to $1.35 billion. The capital program assumes a $30/bbl crude price for the rest of the year. Cimarex said this scenario will prevent the operator from taking on more debt and will generate free cash flow.
Concho Resources, one of the most active operators in the Permian Basin, is reducing its 2020 budget from a high-range estimate of $2.8 to about $2 billion. The company said in a statement that the 25% reduction could be expanded as the year goes on.
Continental Resources said it will be cutting its capital budget to $1.2 billion, down 55% from the original budget of $2.65 billion, with rig reductions in Oklahoma and North Dakota. In Oklahoma, it will reduce its rigs running from 10.5 to 4 and will reduce its total in the Bakken from 9 to 3.
Devon Energy has reduced its capital spending budget by $300 million to $1 billion, down 45% from the original plan. The company said spending will be cut by deferring activity in the Eagle Ford, and “improved capital efficiencies” in the Delaware Basin of the Permian. Devon said it is also benefiting from reduced prices from service providers.
Diamondback Energy made a series of cuts over the month of March. In its latest revision, the company lowered its capital program downwards to 1.5 to 1.9 billion. Diamondback will keep at least eight rigs running this year with plans to drop down to seven by the start of 2021. The company still plans to wait up to 3 months before it begins completing new wells. Once it does, it will run between three and five pressure pumping crews to complete up to 180 wells this year.
EOG is also cutting capex spending for 2020 by 31% to a new range of $4.3 to $4.7 billion. It said that the planned spending would mean no production growth, but the company would generate “strong returns at $30 oil price.” The activity will be focused in the Permian’s Delaware Basin and the Eagle Ford.
Hess Corporation announced this week that it is slashing $800 million off its $3-billion 2020 budget and that it secured a $1-billion loan. The capital reduction will hit the company’s unconventional operations in North Dakota’s Bakken Shale the hardest where its fleet of six rigs will drop to just one by the end of May. Despite the blow to the drilling program, Hess reduced its Bakken production target only slightly to 175,000 B/D compared with its previous goal of 180,000 B/D.
“With 80% of our oil production hedged in 2020, our significantly reduced capital and exploratory budget, and our new 3-year loan agreement, our company is well positioned for this low-price environment,” said Chief Executive Officer John Hess. “Our focus is on preserving cash and protecting our world-class investment opportunity in Guyana.”
Highpoint Resources said it would continue drilling in progress and would defer future planned projects in the DJ Basin of Colorado. It expects to generate positive cash flow in 2020 and said it will adjust its capital plan further based on the oil market.
Husky Energy has moved to reduce annual spending by about $1 billion, bringing its expected outflows to around $2.4 billion compared to a midpoint forecast of $3.4 billion. The cuts will affect the company’s unconventional and heavy-oil plays in western Canada. Husky has also halted repairs at one of its Canadian refineries due to concerns over the spread of COVID-19.
Laredo Petroleum is reducing its budget by 36%, which equates to a 55% reduction for the rest of the year, to a total spend of around $290 million. The reductions will mean a production drop of 5% to about 81,000 BOE/D and a reduction in its rig count from four to one. Additionally, the company is halting future well completions.
Marathon Oil said it would reduce its capital budget for “resource play development” by $200 million.” It plans to suspend drilling and completions in Oklahoma and reduce activity in the Delaware Basin, while it optimizes development in the Eagle Ford and Bakken.
Matador Resources said it is cutting its drilling program in half to three rigs from six by 30 June in response to sharply lower oil prices. Unique among companies cutting costs was Matador Resources, which announced pay cuts for executives, with a 25% reduction in the base pay of its chief executive officer, Joseph Foran, 10 to 20% cuts for other top executives.
Murphy Oil said it would release its rigs in the Eagle Ford while delaying some offshore projects, which will reduce its annual budget by $500 million to $950 million. Roger Jenkins, president and chief executive officer, at Murphy has also taken medical leave due to a presumptive positive test for COVID-19, becoming the first oil and gas executive to announce being directly affected by the pandemic.
Noble Energy is cutting back about $500 million from its original budget. It will spend between $1.1 to $1.3 billion this year. The majority of its capital reductions will be focused on operations in the Delaware Basin.
Occidental Petroleum cut its dividend from 79 cents to 11 cents per share and spending will drop to $2.7 to $2.9 billion. The operator said the cut is close to half of its original 2020 spending plan. Vicki Hollub, Occidental’s president and chief executive officer, has agreed to an 81% salary cut, with other executives agreeing to cuts averaging around 68%. Most other employees will see their salaries cut by 30%, according to various reports.
Ovintiv said it would cut capital spending for the second quarter by $300 million, and full-year cash costs by $100 million. The company formerly known as Encana is dropping 10 drilling rigs now and will drop an additional six more in May, leaving it with three rigs in the Permian Basin, two in the Anadarko, and two in the Montney.
Parsley Energy, which was one of the first to chop its capital expenditure budget, has announced a second round of reductions, and added executive pay cuts. “Considering the challenging environment, all of Parsley's executive officers have elected to reduce their respective annual cash compensation by at least 50% when compared to 2019,” the announcement said. The revision also calls for running from four to six rigs, instead of 12 as was initially announced, and from two to three frac spreads, rather than three. Its spending target is $1 billion, a 40% reduction, or about $700-million less than the original budget.
PDC Energy is cutting its annual $1.0- to $1.1-billion-plus capital investment budget by 20–25%. This is expected to result in production of about 200,000 BOE/D, which is similar to the 2019 total.
Pioneer Natural Resources has cut its 2020 outlay by 45%, which will bring its Permian spending plan into a range of $1.7 to $1.9 billion. The company will also shed $100 million from its water infrastructure project. The cuts will send its rig count from 22 to 11 by May. Completions crews will also be reduced from six to just two. Pioneer is expecting to be able to maintain flat year-over-year production at around 211,000 B/D.
QEP Resources is suspending all Permian drilling and completions operations from May through at least the start of the fourth quarter. The company has slashed about $300 million from its expected 2020 and 2021 budgets. Additionally, the company will stop its refracturing program in the Williston Basin through the year.
Range Resources, a shale gas produced based in Ft. Worth, Texas, is reducing its budget from $520 million to $430 million. The company expects to maintain production at around 2.3 Bcf per day for 2020, citing “sustainably low maintenance capital.” The cuts amount to 40% of Range’s 2019 spend.
Whiting Petroleum announced a similar percentage reduction, with a roughly $185-million reduction in its budget, spending from $400 to $435 million for the year. This is expected to have a “moderate” impact on its production, with details promised later in its first-quarter report.
UPDATE: Oil Industry Budget Cuts Adding Up Across the Globe
Trent Jacobs, Digital Editor, Stephen Rassenfoss, Emerging Technology Editor
26 March 2020
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27 March 2020