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Permian oil producers continue to slash budgets 25% or more on recession fears
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Concho and Callon slice capex by 25% or more in Permian
ExxonMobil signals willingness to 'significantly' cut spending
Author
Jordan Blum
Editor
Jennifer Pedrick
Houston — Concho Resources and other Permian Basin crude producers have continued to slash their capital budgets by 25% or more as fears of a pandemic-triggered global recession have taken hold.
With oil prices hovering near $30/b, Midland, Texas-based Concho said it will cut its 2020 capital budget by more than 25% from about $2.7 billion down to $2 billion, although the Permian pure-play producer did not provide any updates on its drilling rig count or production guidance.
"Concho is well positioned to weather the turmoil in the oil markets due to our high-quality asset base, low cost structure, strong balance sheet and large, uncomplicated hedge book," Concho CEO Tim Leach said in a statement Tuesday. "Additionally, we will monitor and be responsive to market conditions and have flexibility to lower our spending further."
Related coverage: Hess lowers 2020 capex more than 25%, defers most exploration, but Guyana is intact
The Permian's most active driller and the US' largest energy company, ExxonMobil, said Tuesday that it is preparing to "significantly" decrease its 2020 spending.
"Based on this unprecedented environment, we are evaluating all appropriate steps to significantly reduce capital and operating expenses in the near term," said ExxonMobil CEO Darren Woods in a statement. "We will outline plans when they are finalized."
S&P Global Ratings downgraded ExxonMobil this week from an "AA+" rating to "AA" because of its cash flow deficit and the weaker 2020 outlook, although Exxon still maintained an investment-grade rating. Rival and major Permian producer Chevron is also weighing sizable cuts.
With the Permian accounting for more than one-third of the United States' record-high oil production, that means many of the biggest spending cuts also are coming out of West Texas and southeastern New Mexico. Many companies have announced cutbacks of 30% or more since early March. The new coronavirus is spreading around the world and Saudi Arabia and Russia have engaged in an oil pricing war that is expected to send gluts of new volumes into the market starting in April.
Late Monday, for instance, major Permian producer Pioneer Natural Resources went even further, slashing its budget by 45% and cutting its drilling rig count in half.
S&P Global Chief Economist Paul Gruenwald said Tuesday that the economic impact of the coronavirus is worse than initially anticipated and that a global recession is coming in the second quarter, although the recovery could still begin before the end of the year.
CUTS KEEP COMING
Permian player Callon Petroleum said it will reduce its 2020 capital spending by 27%, dipping from $975 million to a $700 million-$725 million range.
Callon will pull four of its nine drilling rigs from service by the end of the second quarter and reduce its completions crews from five to two. In the second half of the year and going into 2021, Callon will only operate three or four drilling rigs, including two or three in the Permian and one in South Texas' Eagle Ford shale.
"Our rapid shift in capital allocation gives us the free cash flow profile to reduce absolute leverage and protect our financial position," Callon CEO Joe Gatto said in a statement Tuesday. "We will continue to adapt to any changes in the commodity price environment with the same vigor, discipline and priorities in the coming months."
Callon acquired Carrizo Oil & Gas at the end of 2019 in a merger that allowed Callon to expand in the Permian while also diversifying with the addition of Eagle Ford acreage.
Abraxas Petroleum, a Permian producer whose shares were trading at 11 cents/share early Tuesday afternoon on Nasdaq, said in a statement Tuesday that it will eliminate all drilling and completions for now and that it is also suspending giving guidance on an interim basis. Abraxas is cutting its general and administrative expenses by 40%.
In South Texas, Eagle Ford producer Penn Virginia Corporation will cut its capital spending about 30% from $295 million down to just more than $200 million.
"We will continue to monitor the environment, having significant flexibility to further adjust our capital as warranted," Penn Virginia CEO John Brooks said in a statement Tuesday.
Concho and Callon slice capex by 25% or more in Permian
ExxonMobil signals willingness to 'significantly' cut spending
Author
Jordan Blum
Editor
Jennifer Pedrick
Houston — Concho Resources and other Permian Basin crude producers have continued to slash their capital budgets by 25% or more as fears of a pandemic-triggered global recession have taken hold.
With oil prices hovering near $30/b, Midland, Texas-based Concho said it will cut its 2020 capital budget by more than 25% from about $2.7 billion down to $2 billion, although the Permian pure-play producer did not provide any updates on its drilling rig count or production guidance.
"Concho is well positioned to weather the turmoil in the oil markets due to our high-quality asset base, low cost structure, strong balance sheet and large, uncomplicated hedge book," Concho CEO Tim Leach said in a statement Tuesday. "Additionally, we will monitor and be responsive to market conditions and have flexibility to lower our spending further."
Related coverage: Hess lowers 2020 capex more than 25%, defers most exploration, but Guyana is intact
The Permian's most active driller and the US' largest energy company, ExxonMobil, said Tuesday that it is preparing to "significantly" decrease its 2020 spending.
"Based on this unprecedented environment, we are evaluating all appropriate steps to significantly reduce capital and operating expenses in the near term," said ExxonMobil CEO Darren Woods in a statement. "We will outline plans when they are finalized."
S&P Global Ratings downgraded ExxonMobil this week from an "AA+" rating to "AA" because of its cash flow deficit and the weaker 2020 outlook, although Exxon still maintained an investment-grade rating. Rival and major Permian producer Chevron is also weighing sizable cuts.
With the Permian accounting for more than one-third of the United States' record-high oil production, that means many of the biggest spending cuts also are coming out of West Texas and southeastern New Mexico. Many companies have announced cutbacks of 30% or more since early March. The new coronavirus is spreading around the world and Saudi Arabia and Russia have engaged in an oil pricing war that is expected to send gluts of new volumes into the market starting in April.
Late Monday, for instance, major Permian producer Pioneer Natural Resources went even further, slashing its budget by 45% and cutting its drilling rig count in half.
S&P Global Chief Economist Paul Gruenwald said Tuesday that the economic impact of the coronavirus is worse than initially anticipated and that a global recession is coming in the second quarter, although the recovery could still begin before the end of the year.
CUTS KEEP COMING
Permian player Callon Petroleum said it will reduce its 2020 capital spending by 27%, dipping from $975 million to a $700 million-$725 million range.
Callon will pull four of its nine drilling rigs from service by the end of the second quarter and reduce its completions crews from five to two. In the second half of the year and going into 2021, Callon will only operate three or four drilling rigs, including two or three in the Permian and one in South Texas' Eagle Ford shale.
"Our rapid shift in capital allocation gives us the free cash flow profile to reduce absolute leverage and protect our financial position," Callon CEO Joe Gatto said in a statement Tuesday. "We will continue to adapt to any changes in the commodity price environment with the same vigor, discipline and priorities in the coming months."
Callon acquired Carrizo Oil & Gas at the end of 2019 in a merger that allowed Callon to expand in the Permian while also diversifying with the addition of Eagle Ford acreage.
Abraxas Petroleum, a Permian producer whose shares were trading at 11 cents/share early Tuesday afternoon on Nasdaq, said in a statement Tuesday that it will eliminate all drilling and completions for now and that it is also suspending giving guidance on an interim basis. Abraxas is cutting its general and administrative expenses by 40%.
In South Texas, Eagle Ford producer Penn Virginia Corporation will cut its capital spending about 30% from $295 million down to just more than $200 million.
"We will continue to monitor the environment, having significant flexibility to further adjust our capital as warranted," Penn Virginia CEO John Brooks said in a statement Tuesday.
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