US Shale Sector Budget Cuts Adding Up Quickly

Here’s an up to the minute listing of announced cuts in activity by many of the shale operators here in America. Sourced from The Journal of Petroleum Technology

Following the worst week in history for publicly traded oil and gas companies, many producers are not waiting until their next quarterly call to eliminate wide swaths of their exploration and production programs. Oil companies in the US are attempting to weather the storm of an ongoing price war between Russia and Saudi Arabia that has exacerbated a global demand shock caused by the COVID-19 pandemic.

The first response from the US shale sector came last week as producers announced they would be curtailing their drilling programs. This week, more companies have announced similar capital expenditures cuts of 25–30%. The few operators diversified with offshore holdings noted that those assets would receive preferential funding going forward.

Hopes that the current global crash in crude prices will be short lived are also fading as it becomes clearer that the markets may be facing a supply overhang of that may reach 10 million B/D in the coming weeks.

Houston-based Criterion Research reported that there has been a 38% year-over-year drop in spending plans from 27 different oil and gas companies since the onset of the sudden drop in crude prices. The market research firm said the figure equates to a $13.66-billion drop from prior guidance.

ConocoPhillips is cutting its capital budget 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 will also reduce the company’s share repurchases to $250 million per quarter from $750 million, for a $1.5-billion saving for 2020.

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.”

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.

Contract drillers will also take a hit. The revision calls for running from four to six rigs, instead of 12 as announced 9 March, 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.

Cimarex Energy said it expects to cut spending by as much as 50% from its original plans to a new target of $1.25 billion to $1.35 billion. The capital program assumes a $30 per bbl crude price for the rest of the year. Cimarex says this scenario will prevent the operator from taking on more debt and will generate free cash flow.

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: 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.”

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.

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.

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 billion to about $2 billion. The company said in a statement that the 25% reduction could be expanded as the year goes on.

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 is 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.” Callon completed an all-stock merger with Carrizo Oil & Gas in December 2019.

Apache said it would stop drilling 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.

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.

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. “Under current conditions, we believe this capital reduction program allows for financial flexibility and preservation of our longstanding dividend,” said Roger Jenkins, president and chief executive officer.

Devon Energy announced a 30% spending cut, reducing its capital plan by $500 million to $1.3 billion for the year. It said it will focus on development in the Delaware Basin of the Permian and the Eagle Ford, while cutting in the STACK in Oklahoma and the Powder River Basin in Wyoming. “We have substantial flexibility with our service contracts, allowing us to quickly recalibrate activity to balance capital investment with cash flow,” said Dave Hager, president and chief executive officer of Devon.

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.

Occidental Petroleum cut its dividend and capital spending. The dividend will drop from 79 cents to 11 cents per share, while spending will drop by $1.7 billion to $3.5 to $3.7 billion. “Due to the sharp decline in global commodity prices, we are taking actions that will strengthen our balance sheet and continue to reduce debt,” said Vicki Hollub, Occidental’s president and chief executive officer.

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.

Parsley Energy followed by reducing the number of frac spreads completing wells from five to three. It will reduce the number of drilling rigs working by three, to 12 “as soon as is practicable.” Matt Gallagher, president and CEO of Parsley, said they “remain committed to doing whatever is necessary to protect our balance sheet in the weeks and months ahead."

Diamondback Energy announced it would immediately cut the number of crews completing wells from nine to six. It will also reduce its drilling rigs working by two now and will drop a third one in April. “While this decision is expected to result in lower 2020 oil production than originally forecast, we will maintain positive cash flow and protect our balance sheet and dividend; these are the conditions that Diamondback is prepared for,” said Travis Stice, chief executive officer for Diamondback.

ExxonMobil , which operates the most rigs in the Permian, stopped short of sharing figures but said in a statement this week that it too is reducing spending due to COVID-19 repercussions and ensuing price decreases. “Based on this unprecedented environment, we are evaluating all appropriate steps to significantly reduce capital and operating expanses in the near term,” said chief executive officer Darren Woods.

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