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Apache Cuts Payout by 90%, Trims Capex View on Oil Price Slump

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The recent weakness in the commodity prices prompted energy players to rethink their strategies as well as reconsider capex cuts. Notably, after abiding by the capital discipline during the crude downturn (from mid-2014 to 2016), energy companies again resorted to escalate their capital expenditure since 2017. However, a pullback in the commodity price convinced explorers and producers to take a relatively conservative approach to capex programs again this year. Instead of raising their capital outlays, the energy companies are now finding it more judicious to focus on optimizing shareholder value.

West Texas Intermediate started the year with a little above $60 per barrel of oil. However, this rally was pretty temporary with the commodity price plunging to multi-year lows to settle at $31.13 on Mar 9.

Reacting to this sudden oil price slump, Apache Corporation (APA - Free Report) recently cut its quarterly dividend and adjusted its capital guidance. Following this strategic move, the company’s shares declined 19.1% in the pre-market trading.

This Houston, TX-based explorer and producer slashed its quarterly dividend payout by 90% from 25 cents per share to 2.5 cents (effective Mar 12, 2020). Management stated that this calculated action was necessary considering its aim to boost the existing cash position. The move intended to strengthen the company’s financials, will likely lower Apache’s annual dividend distribution by roughly $340 million.

In addition to the trimmed dividend, this independent energy player has taken various other measures in response to the oil price drop. Apache chopped its 2020 capital investment and now expects it in the $1-$1.2 billion range compared with its earlier provided capex outlook of $1.6-$1.9 billion.

Further, Apache plans to limit its rig count in the Permian basin to zero and “meaningfully reduce” its drilling and completion activity in Egypt and the North Sea. The company also focuses on reining in its overhead costs alongside implementing its corporate redesign program.

Importantly, Apache will not only be aided by these key measures but will continue to keep tabs on the commodity price movement, aligning itself with the capex adjustment plans further in response to a volatile price scenario with lowest possible long-term commitments to services and materials. 

Zacks Rank & Other Key Picks

Apache has a Zacks Rank #2 (Buy). Other top-ranked players in the energy space include Oasis Petroleum Inc. (OAS - Free Report) , Earthstone Energy, Inc. (ESTE - Free Report) and FTS International, Inc. (FTSI - Free Report) , each carrying a Zacks Rank of 2.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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