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Oil, gas companies slash 2020 capex by more than $37B

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Essential Energy Insights - January 2021


Oil, gas companies slash 2020 capex by more than $37B

Oil and gas companies have cut more than $37 billion from their 2020 spending plans as they grapple with the fallout of an international price war and falling demand due to the coronavirus.

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As of 9 a.m. ET on March 25, 55 companies have announced concrete cuts to their 2020 capital spending programs, and at least 15 have announced they will provide revisions to their 2020 spending plans in the near future.

In total, the announced cuts represent an almost 25% decline in aggregate capital spending across the industry and are heavily weighted to oil production activity. But the economic fallout from COVID-19 has led to cuts further downstream the value chain.

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The announced cuts by six large integrated oil and gas companies — Equinor ASA; Royal Dutch Shell PLC; Chevron Corp.; Total SA; Suncor Energy Inc.; and Occidental Petroleum Corp., which announced a second round of cuts on March 25 — amount to more than $17.5 billion and dwarf the $16.77 billion in cuts announced so far by 40 independent oil and gas producers. Exxon Mobil Corp., which had outlined $33 billion in capital spending for 2020, said it is exploring a "significant" cut to near-term capital and operating expenses. BP PLC, which spent $15.2 billion in 2019, said it could cut its spending by as much as 20% year over year due to the ongoing crisis.

Companies that operate midstream assets, including pipelines, processing plants, storage facilities and shipping terminals, have cut more than $2 billion from their 2020 spending plans. Oil and gas refining and marketing companies have announced $770 million in capital expenditure cuts, with many of those cuts geared toward capital spending on midstream projects.

Two of the largest midstream companies, Williams Cos. Inc. and Magellan Midstream Partners LP, have not yet announced detailed plans. On a call with investors late March 25, Williams CEO Alan Armstrong did not give any specific details on revisions to its 2020 guidance and noted that financial updates will be provided during Williams' first-quarter earnings call. However, Armstrong did mention that the company's adjusted EBITDA for the year will come in "toward the lower end of the range."

On March 24, oil refining and petrochemical company Phillips 66 cut its 2020 capital spending by $700 million, announced it would postpone its Red Oak crude oil pipeline and Sweeny Frac 4 fractionator unit projects and deferred investment decisions on other projects. Later that morning, company executives said if the market turmoil continues, Phillips 66 could cut 2021 capital spending by more than $1.1 billion year over year.