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US producers Apache, Devon, Murphy Oil slash budgets by 30% or more

Highlights

Apache cuts spending 37%, slashes dividend by 90%

Apache also will eliminate all Permian drilling

Devon, Murphy cut capex by about 30%, 35% respectively

Houston — Oil and gas producers Apache Corp., Devon Energy and Murphy Oil all announced dramatic capital budget cuts of 30% or more amid the latest collapse in oil prices.

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The independent firms on Thursday joined a slew of other producers slashing large chunks of their 2020 capital budgets with oil prices now hovering near four-year lows of $30/b.

The novel coronavirus, now a global pandemic, is hurting global oil demand while Saudi Arabia and Russia are gearing up for a price war to fight for market share and dump extra cheap oil on a world facing a global glut.

Houston-based Apache Corp. said it would cut its budget by more than 37% from a $1.6 billion-$1.9 billion range down to a tighter range of $1 billion-$1.2 billion range, taking the extraordinary step of eliminating all drilling in the Permian Basin within a few weeks.

Apache also is slicing 90% off its dividend payments to investors, from 25 cents/share each quarter down to 2.5 cents/share. Apache had maintained its dividend at 25 cents since early 2014, keeping it steady throughout the previous oil bust until now.

Apache already is undergoing a corporate reorganization, including layoffs and some office closures, and the company recently decided to withdraw activity from its Alpine High play in the Permian Basin that was once considered its next big find.

CEO John Christmann said Apache is also working to cut its operating and overhead costs more deeply.

"We are significantly reducing our planned rig count and well completions for the remainder of the year, and our capital spending plan will remain flexible based on market conditions," Christmann said. "These decisive actions will benefit Apache as we navigate these challenging market conditions."

Apache's stock plunged more than 15% Thursday morning to its lowest point in more than 20 years. Its stock is down almost 75% since the beginning of this year.

It's essential that other oil and gas producers keep taking similar measures so they stop bleeding cash, said Jennifer Rowland, an energy analyst with Edward Jones.

"You have to survive and protect the balance sheet," Rowland said. "This is just the tip of the iceberg. These announcements are going to keep coming pretty fast and furiously."

MORE CUTBACKS

Oklahoma City-based Devon Energy said it will axe its capital spending by nearly 30% from more than $1.8 billion down to about $1.3 billion, with the largest pullbacks coming from Oklahoma's STACK shale play and Wyoming's Powder River Basin. This will allow Devon to focus more intensely on its operations in the Permian Basin's western lobe, the Delaware Basin, and South Texas' Eagle Ford shale.

"With the challenging industry conditions, we are committed to taking decisive actions to protect our balance sheet and preserve liquidity," said Devon CEO Dave Hager.

Unlike Apache, though, Devon actually has increased its dividend for shareholders, hiking it more than 20% in February from 9 cents/share to 11 cents.

Thanks to previous hedges, Hager noted more than 40% of Devon's estimated 2020 oil production is protected at a floor price of $53/b WTI.

Also Thursday, Arkansas' Murphy Oil said it would slash spending by about 35% from up to $1.5 billion down to about $950 million.

"Under current conditions, we believe this capital reduction program allows for financial flexibility and preservation of our longstanding dividend," said Murphy CEO Roger Jenkins.

Jenkins said Murphy will delay some projects in the US Gulf of Mexico, reduce its drilling rigs and frac crews in the Eagle Ford, and defer well completions in Canada's Montney shale.

Devon's stock is down about 70% in 2020, while Murphy has lost about 75% of its market value.

E&Ps cut spending following oil price drop
Company Original 2020 capex ($ billions) Revised capex ($ billions) Change (%)
Riviera Resources 0.05 0.03 40.38%
Apache Corp. 1.75 1.1 37.14%
Murphy Oil 1.45 0.95 34.48%
Occidental Petroleum 5.3 3.6 32.08%
Cenovus Energy 1.01 0.69 31.68%
Devon Energy 1.8 1.3 27.78%
Talos Energy 0.53 0.41 23.47%
PDC Energy 1.05 0.81 22.50%
Marathon Oil 2.4 1.9 20.83%
MEG Energy 0.18 0.14 20.00%
Seven Generations Energy 0.8 0.65 18.75%