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.
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.
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.
Source: Company filings