Page 11 - NorthAmOil Week 14

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Wave of capital spending cuts continues
US
MORE capital expenditure cuts are being announced by US oil and gas companies, includ- ing some producers that are scaling back spend- ing for a second time since oil prices collapsed in March.
Notable among those to announce a capex cut over the past week is super-major ExxonMobil, the world’s largest publicly traded oil company. Having warned in March that it was planning spending cuts, the super-major said this week that it was reducing its 2020 capital spending by 30% and operating expenses by 15%.
The company now anticipates spending around $23bn this year, down from $33bn pre- viously. The US’ Permian Basin will account for the majority of ExxonMobil’s capex cut, with the company noting that short-cycle investments can be easily adjusted in response to market con- ditions. ExxonMobil expects reduced activity to affect the pace of drilling and well completions in the Permian until market conditions improve.
Current activity at the company’s operations in Guyana are not affected, but it has pushed back a final investment decision (FID) on the proposed Rovuma LNG project in Mozambique, which had previously been anticipated this year.
Also this week, Marathon Oil announced a second capex cut in a month. The company now expects to spend around $1.3bn in 2020, which is $1.1bn lower than its original forecast for the year and $600mn below the revised figure it announced in March. Marathon’s capex for this year is now anticipated to be roughly 50% below its spending in 2019.
The company is intending to suspend further drilling activity in the Permian Basin’s Northern Delaware region, with only a limited number of wells producing in the area over the remainder of the year.
This comes after Marathon suspended all drilling and completion activity in Oklahoma, as well as further exploration and appraisal drilling, in March. The company is also plan- ning to take “frack holidays” in the Bakken and Eagle Ford plays during the second quarter of 2020.
Other companies to have unveiled a sec- ond spending cut in late March and early April include Ovintiv, formerly known as Encana. The company, which recently relocated its headquar- ters from Calgary to Denver, said on April 2 that it intended to further reduce its second-quarter capex by an additional $200mn. This brings its total spending reductions in the second quarter to $500mn.
Devon Energy and Occidental Petroleum have also recently reduced their planned spend- ing for a second time.
IHS Herold, a research division of consul- tancy IHS Markit, estimated on April 8 that North American producers are currently seek- ing to reduce spending in 2020 by 36% com- pared with 2019, or a combined $24.4bn. More spending cuts are likely, and thus the number is likely to grow. IHS Herold research also found that North American exploration and produc- tion companies account for the largest capex cuts so far in percentage terms globally.
This is predicted to translate into lower oil production. IHS Herold currently projects that US crude output will fall by 2.9mn barrels per day (bpd) by the end of 2020 compared with the first quarter of the year. Again, these numbers are likely to see a downward revision as more spend- ing cuts are made.
The research firm also anticipates that total investment in Canada’s oil sands in 2020 will be at its lowest level in 15 years.™
The cuts in capital spending will soon translate into lower oil production.
Notable among those to announce a capex cut over the past week is super- major ExxonMobil.
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