Permian, Canadian crude firms make big budget reductions, modest production cuts

Houston — Permian Basin and Canadian oil producers continued their budget-slashing sprees on Thursday, cutting anywhere from 25%-50% of their capital dollars, although their projected production volumes are only falling by up to 10% or so.

Midland-based Diamondback Energy said Thursday it would slice its capital spending by more than 40% and pull more than half of its drilling rigs, while Canadian Natural Resources said it would cut its spending by 27% and delay a lot of new activity.

Other smaller Canadian producers Paramount Resources and Tamarack Valley Energy announced capital budget cuts of more than 40% each.

The rush to dramatically cut spending comes as crude oil prices have cratered with NYMEX WTI hovering at about $25/b on Thursday and the Western Canadian Select benchmark just above $10/b. The double whammy of a supply-and-demand hit comes as the new coronavirus pandemic is hitting global oil demand and as Saudi Arabia and Russia have initiated a pricing war to flood the market with new oil volumes starting in April.

"We are in an unprecedented and uncertain market driven by fear and panic," said Diamondback CEO Travis Stice. "In this environment where we do not get paid adequately for the product we produce, we will reduce activity and focus on maintaining our financial strength."

Diamondback will cut its capital budget from $2.9 billion down to $1.7 billion and, after suspending well completions for a month, pulling more than half of its 21 drilling rigs and operating just six-10 rigs in the back half of the year. Completions crews would decline from nine down to a range of three-to-five crews.

"We have reduced activity dramatically and swiftly, and are prepared to reduce it further for an extended period of time to maintain our strength and be prepared to thrive again like we have in the past," Stice added.

Diamondback will focus more than 70% of its activity in the more mature Midland Basin where there's a lower cost structure and the firm holds more mineral rights.

While Diamondback said it will provide additional info in the coming weeks, it projects its annual oil production in 2020 will fall below 195,000 b/d. That's at least a 10% dip from its original 2020 guidance of 210,000 b/d. Diamondback produced an average of 187,700 b/d last year, so its production won't fall much - if at all - from last year.

That follows a trend of 2020 production guidance cuts that are still estimating their volumes to be equal to or even above their 2019 volumes, even despite major capital budget reductions.

CANADA CUTS

Canadian Natural Resources said it would cut its capital budget by about 27% down to just more than $2 billion.

While the major Canadian producer will delay a lot of new activity, the Calgary-based firm said it won't reduce its 2020 production guidance at all. Most of its newest projects already are paid for and are ramping up, including its Kirby North, Primrose and Jackfish oil plays, the company said.

Calgary's Paramount Resources said it would reduce its capital budget by about 45% down to roughly $150 million. Paramount's production guidance fell from 77,500 boe/d down to 72,500 boe/d.

Likewise, Tamarack Valley Energy said it would slice its budget about 43% down to nearly $70 million. The firm's production guidance dipped form 24,000 boe/d to 22,000 boe/d.