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Equinor halts US shale activity, cuts spending in response to oil price slump

Highlights

2020 capex cut by 20% to $8.5 billion

US shale assets focused on Marcellus gas

Cutting exploration spending by 29%

London — Norway's Equinor is halting activity at its US shale assets as part of measures to slash spending in response to the oil price collapse, the company said Wednesday.

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All drilling and well completion activities at Equinor's gas-focused US shale assets are being suspended to cut spending and "produce the volumes at a later period", the company said.

The majority of Equinor's US shale production comes from the eastern Marcellus gas play which is targeted at consumers in New York State.

The move, which followed an announcement to suspend share buybacks, is part of a wider 20% cut in organic capex for 2020 to around $8.5 billion from $10 billion-$11 billion , Equinor said.

The company also said it will reduce planned exploration spending this year to $1 billion from around $1.4 billion and cut operating costs by around $700 million compared with original guidance.

"Reductions in organic capex are driven by a strict process of prioritization where flexibility of cost and schedule for sanctioned and non-sanctioned projects have been reviewed," the company said.

PRODUCTION TARGETS

Equinor's US onshore operations in the Bakken and Marcellus/Utica shale plays are its biggest producing upstream assets outside Norway.

Before the sale of its Eagle Ford shale assets last December, Equinor's equity production from its US shale business was over 320,000 boe/d, the majority of which came from the Marcellus/Utica play.

The gas-focused shale business had already been struggling due to weak prices. In the third quarter last year it took a $2.24 billion impairment related to its US shale assets after reducing its Henry Hub gas price assumptions significantly.

The state-controlled major gave no detail on how the shale freeze would affect production volumes this year. Equinor had been expecting to grow its oil and gas production by 7%, boosted by the ramp-up of the giant Johan Sverdrup field off Norway.

With the new measures, Equinor said it can be organic cash flow neutral before capital distribution in 2020 with an average oil price around $25/b for the rest of the year.

SHALE CUTBACKS

Crude prices have more than halved to below $30/b since the start of the year as a result of the coronavirus demand hit and the breakdown of the OPEC+ supply agreement.

Swathes of US shale producers have announced budget reductions over recent weeks with North American producers slashing their 2020 capital spending plans by an average of at least 30% just this month.

"Equinor is in a strong financial position to handle market volatility and uncertainty," CEO Eldar Saetre said. "Our strategy remains firm, and we are now taking actions to further strengthen our resilience in this situation with the spread of the coronavirus and low commodity prices."

Saetre said Equinor has implemented measures to reduce the risk of spreading the coronavirus and has been able "so far" to maintain production at all its fields.

Assuming Equinor's updated capex guidance and opex savings targets, the Royal Bank of Canada said it estimated Equinor's pre-dividend break-even was now $31/b in 2020, with break-even including dividends at $49/b.

EMEA oil, gas company spending reactions to price rout
Company
2020 action
Detail
BP
Flexibility' to cut 20% from 2019 capex of $15.3 billion
Cuts likely focussed on US shale
Shell
20% capex cut to $20 bil or below. Up to $4 bil of opex cuts over 12 months
N/A
Total
20% organic capex cut to less than $15 billion. $500 mil of extra opex cuts
Focussed on 'short-cycle, flexible' capex
Eni
Considering 'strong' reduction in capex, opex
To provide details at Q1 results on April 24
Equinor
Freeze to US shale activity, cut capex by 20%, cut exploration spend by 29%, trim opex costs by $700 million
US onshore activities halted to 'produce volumes at later period'
Saudi Aramco
Capex guidance cut 25-29% to $25-30 bil
Optimized' spending to boost oil, gas production
Sonatrach
To halve capex to $7 billion
N/A
Tullow
30% capex cut to $350 million. 45% reduction in exploration budget
Production target confirmed at 70,000 – 80,000 boe/d
DNO
30% capex cut or $300 million
Suspending discretionary drilling and projects outside Kurdistan
Wintershall
20% cut in planned capex to 2019 levels of $1.3 bil
Targeting 600,000-630,000 boe/d 2020 production excluding onshore Libyan volumes
Aker BP
20% capex cut compared to previous guidance of $1.5 bil
Near-term output unchanged, but new projects/exploration deferred
Premier Oil
Targeting $100 mil in cost savings

N/A

Source: Company filings