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Murphy Oil Cuts Capital Budget Amid Strained Pricing Scenario

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Murphy Oil Corporation (MUR - Free Report) revised annual spending for 2020 thanks to volatile commodity prices. Previously, the company was willing to spend $1.4-$1.5 billion. Post a reduction of nearly $500 million, the new expenditure guidance represents a decline of 35% from the mid-point of the prior guidance.

Projects to Suffer

To maintain financial flexibility and consistently pay out dividends, the company reduced its capital expenditure. This decision was supported by deferring of some of Murphy Oil’s capital projects. The company is delaying certain U.S. Gulf of Mexico projects and development of wells. Moreover, it is postponing spud timing of two operated exploration wells. There will be no operated activity planned for Eagle Ford Shale for the second half of 2020. Well completions in the Tupper Montney are also being deferred.

Reasons for the Budget Cut

The current commodity price market is facing a massive tumble, which is affecting the stable demand supply chain. The global economy, which was recovering from the United States-China trade war, is bearing the brunt of the coronavirus outbreak that weakened investments and impacted growth. In addition, the decision of Russia and Saudi Arabia — the major producers of crude apart from the United States — to produce more crude volumes could further lower the price of the commodity from the current level due to supply glut.

Considering the volatility of price market, other companies are also slashing their 2020 Capex budget. Recently, Devon Energy (DVN - Free Report) has announced a decline in capital spending of $500 million for 2020. Occidental Petroleum Corporation (OXY - Free Report) decided to lower 2020 capital expenditure to the range of $3.5-$3.7 billion from the earlier expectation of $5.2-$5.4 billion. Noble Energy Inc. (NBL - Free Report) intends to reduce 2020 capital expenditures by approximately $500 million or nearly 30%.

What’s Ahead?

Murphy Oil possesses one of the best upstream portfolios among the domestic oil and natural gas integrated companies. Its stable financial position, cost-saving initiatives and low-cost asset development are expected to boost future performance. The company will likely benefit if commodity prices improve from current levels.

Currently, we expect more oil and gas companies to trim capital expenditures for 2020 until the coronavirus pandemic is contained. Also, major oil producing countries are striving to cut production to prevent further decline in prices.

Zacks Rank & Price Performance

The company currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The stock has plunged 78.7% in the past year compared with 73.2% decline of the industry it belongs to.

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