Taking into account the sharp decline in commodity prices, Noble Energy (NBL - Free Report) has decided to lower its 2020 capital expenditure guidance by nearly 30% to $1.1-$1.3 billion from the prior expectation of $1.6-$1.8 billion. In addition, the company — through proper cost management — will lower operating and other costs by nearly $50 million in 2020.
How Will This Decision Aid Noble?
Noble has a strong presence in the onshore resource-rich Eagle Ford Shale and Permian Basin. Improving production from these regions and international assets in offshore Israel have been driving the company’s performance.
However, the sharp decline in commodity prices was due to reduction in global demand as novel coronavirus has impacted global economic growth. Governments across the globe are issuing directives related to travel, temporary closure of schools, factories, offices, and asking people to avoid mass gatherings, which are adversely impacting demand for crude.
In the wake of falling prices and demand, it is essential for Noble to preserve liquidity and ride away the difficult times. Even though the company does not have any significant debt maturities before late 2024, the cutting down of planned expenditures will help Noble to service existing debts and carry on shareholder-friendly initiatives.
Oil Deal Collapse Could Further Impact Prices
Saudi Arabia, the world’s top oil exporter, has plans to increase crude oil production above 10 million barrels per day in April, after the collapse of its OPEC supply cut agreement with Russia. Over the past three years, OPEC and its allies have been cutting down crude oil production to have a control over crude price, which in a way allowed the U.S. shale-based producer to increase crude production.
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. We have already seen companies belonging to the oil and gas sector like Occidental Petroleum Corporation (OXY - Free Report) , Devon Energy (DVN - Free Report) and Murphy Oil Corporation (MUR - Free Report) cutting down on capital expenditures to preserve liquidity and slow down expansion plans amid the falling oil prices.
We expect more oil and gas companies to lower capital expenditures for 2020, until the time the novel coronavirus pandemic is contained and major oil producing countries put in efforts to cut production to prevent further decline in prices.
Currently, Noble carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Noble’s shares have underperformed the industry in the past 12 months.
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