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Ovintiv Trims Q2 Capex by $300M to Cope With Oil Price Plunge

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The recent softness in the commodity prices compelled energy players to reanalyze their strategies as well as reconsider capex cuts. Notably, after conforming to the capital discipline during the crude downturn (from mid-2014 to 2016), energy companies again reckoned elevating their capital expenditure since 2017. However, a shrinkage in the commodity price convinced explorers and producers to take a relatively cautious approach to capex programs again this year. Instead of augmenting their capital outlays, the energy players are now finding it wiser to focus on adding shareholder value.

West Texas Intermediate began the year with a little more than $60 per barrel of oil. However, this uptrend was pretty short-lived with the commodity price tanking to multi-year lows to settle at $31.13 on Mar 9.

Reacting to this sudden oil price plunge, Ovintiv Inc. OVV recently announced intentions to lower second-quarter 2020 capital investment projection by minimum $300 million. It further plans to trim current-year cash costs by $100 million. This will help the company maintain a solid financial position and secure free cash neutrality.

The measures adopted by Ovintiv for capex cuts will comprise abandoning of 10 operated drilling rigs instantly along with an aim to suspend an additional six operated rigs in May this year. Post these rig count cuts, Ovintiv will now be left with three functional rigs in the Permian, two in the Anadarko and two in the Montney.

Importantly, the company has no long-term commitments to accomplish and will steadily keep a vigil on the commodity price performance, adapting to the capital spending adjustment plans further in response to an unstable price scenario. 

Zacks Rank & Key Picks

Ovintiv has a Zacks Rank #4 (Sell).

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

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