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Highlights

QEP halts Permian well completions from May-October

Noble cuts $500 million from 2020 capex, sees more cost cuts

Bonanza Creek lowers capex 60% to $90 million at midpoint

Houston — Four more E&P producers have joined the lineup of oil companies that are slashing 2020 capital budgets and cutting back activity, as oil prices hover at low levels not seen for years.

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Noble Energy, Ovintiv (formerly Encana), and small-cap E&Ps QEP Resources and Bonanza Creek all have sharply cut capex from 11% to as much as 60%, and QEP is even predicting cuts into 2021.

Managements have been much more responsive to oil price signal and supply surge/demand shock than to OPEC's supply surge declaration in November 2014, when the cartel decided not to cut production amid falling oil prices in an effort to force shale supply reductions, Goldman Sachs said Friday.

"We believe US capex could fall on average for 2020 by about 30% before services cost deflation with potential for an additional 5%-10% from lower services costs," the investment bank said in a note to subscribers.

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The challenge for E&P companies is how much to cut and how aggressively, Evercore ISI analyst Stephen Richardson said late Thursday.

"Let's not fool ourselves: it's all uneconomic," Richardson said, referring to drilling at current crude prices in the low $30s/b. "There are no good answers for the industry in a $30/b environment and we think valuation and fundamental analysis sub-$40/b is not useful from a going-concern perspective."

Richardson said the market likely will view any financial outlays as value destructive in this environment, while contractual commitments to services and midstream counterparties will need to be maintained and scaled down over time.

EXPECT MORE CUTBACK MOVES FROM E&Ps

"It's a moving target, and expect more to come from E&Ps," he said.

In one of the most dramatic announcements, QEP said Friday it plans to suspend well completion operations in the Permian Basin from early May through at least the start of fourth quarter 2020.

QEP's capital budget for 2020 and 2021 will be reduced by more than $300 million combined, or nearly 30%. Previous 2020 capex had been $225 million.

The company will release its drilling rig this month that operates in the Permian when its current operation is completed. QEP also plans to suspend its refracturing program in the Williston Basin for the rest of the year, after finishing current projects.

QEP also plans to suspend its 2 cents/share quarterly dividend following a March 20 payment for fourth quarter 2019.

Late Thursday, big shale producer Noble Energy cut more than half a billion dollars from its 2020 capex, leaving $1.1-$1.3 billion at midpoint, down nearly 30%.

Roughly 80% of the capex cuts will occur in the company's US onshore business where it has "significant" flexibility in drilling and well completions since most contractual deals are on a well-to-well basis, Noble said.

Noble – which also has operations in the Eagle Ford Shale of South Texas and the DJ-Basin of Colorado – also said it had identified more than $50 million in reductions in operating and other cash costs. More than half those reductions will occur in the Delaware Basin – the western part of the greater Permian.

Outside the US, Noble has targeted $100 million in capital reductions from major project execution, deferring non-critical spending into the future and its exploration program.

The company's Alen gas monetization program in Equatorial Guinea continues to move ahead, with first production slated in early 2021. The company will also complete pipeline expansion work in Israel.

BONANZA CREEK TO RELEASE SOLE RIG THIS WEEK

In addition, Bonanza Creek, which operates in Colorado's Wattenberg Field, said late Thursday its sole operated drilling rig will be released after finishing its final well on the current pad this week.

Completions on two other final wells of an eight-well pad will be finished within two weeks, and the pad brought online later in 2020. Further completions are suspended, the company said.

Bonanza Creek expects to exit the year with no debt and Q4 2020 production that is about flat with that of Q4 2019's 24,300 boe/d. Full-year production for 2020 is anticipated at 24,000 boe/d to 25,000 boe/d.

Total 2020 annual capital expenditures are expected at $80 million-$100 million, down from an earlier-projected $225 million, excluding completion of the two late-2020 pads.

"A flat 2020 production profile, together with reduced capex and 2020 hedge revenue, [should] generate significant free cash in 2020," the company said.

Bonanza Creek filed for Chapter 11 bankruptcy protection in late 2016, and emerged in April 2017. The company has about 90% of its 2020 oil production hedged at an average floor price around $50/b.

Ovintiv, which earlier this week signaled it would cut capex, gave specific figures late Thursday: it will shave $300 million off its earlier projected $2.7 billion capital program for 2020.

"We are dropping roughly two-thirds of our operated rigs and reducing our cash costs by $100 million," company CEO Doug Suttles said.

The company will "immediately" drop 10 operated rigs and plans to shed an additional six operated rigs in May. Following these reductions, Ovintiv will have three operated Permian Basin rigs, two in the Anadarko Basin of Oklahoma and two in the Montney Shale in western Canada.

The goal of those on the other side of this market share conflict in global oil markets – i.e., OPEC and Russia – is to reduce the productivity capacity of the domestic industry, Evercore's Richardson noted.

"And at these prices we see little alternative," he said.

E&Ps cut spending following oil price drop
Company
Original 2020 capex ($ billions)
Revised capex ($ billions)
Change (%)
Bonanza Creek Energy
0.23
0.09
60.00%
Riviera Resources
0.05
0.03
40.38%
Apache Corp.
1.75
1.10
37.14%
Murphy Oil
1.45
0.95
34.48%
Occidental Petroleum
5.30
3.60
32.08%
Cenovus Energy
1.01
0.69
31.68%
Noble Energy
1.70
1.20
29.41%
Husky Energy
2.37
1.72
27.43%
Devon Energy
1.80
1.30
27.78%
Talos Energy
0.53
0.41
23.47%
QEP Resources
0.57
0.44
22.81%
PDC Energy
1.05
0.81
22.50%
Marathon Oil
2.40
1.90
20.83%
MEG Energy
0.18
0.14
20.00%
Seven Generations Energy
0.80
0.65
18.75%
Ovintiv
2.70
2.40
11.11%