Coronavirus, the WHO- (World Health Organization) declared pandemic currently wreaking havoc across the world, has hit the oil industry big time by compromising on China's fuel demand due to large-scale travel restrictions imposed. To make things worse, oil prices tumbled as Saudi Arabia initiated a price war and boosted its oil production significantly in retaliation to Russia’s refusal to lower its crude production at the OPEC meeting.
Notably, West Texas Intermediate started the year with a little above $60 per barrel of oil. However, this rally was pretty short-lived with the commodity price plunging to multi-year lows to settle at $26.95 on Mar 17.
These headwinds compelled the energy players to rethink their strategies as well as reconsider capital spending budgets.
Recently Concho Resources Inc. (CXO - Free Report) chopped its 2020 capital investment to $2 billion from the earlier provided capex outlook of $2.6-$2.8 billion, indicating a 25% reduction.
Notably, investors should know that Concho Resources was successful in sustaining a solid financial foundation in 2019 with $2.1 billion liquidity, $4 billion of long-term debt and no near-term debt maturities until January 2025.
Importantly, the company will continue to closely watch the commodity price movement, aligning itself with the capital spending adjustment plans further in response to a volatile price scenario.
This Zacks Rank #5 (Strong Sell) company is slashing its capex and is planning to use the cash for strengthening its balance sheet, a strategic move that investors were demanding for a long time now. This is because solidifying the companies’ financial standing at a time when oil prices are yielding no profits for most shale producers is touted to be a prudent move.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Companies Taking a Step Back
Reacting to the current market situation, Cenovus Energy Inc. (CVE - Free Report) decided to cut its 2020 capital spending and production guidance by 32% and 5%, respectively. Taking a similar action, Matador Resources Company MTDR decided to trim its drilling program. While these companies were the first to respond to the oil price crash, more upstream players are following suit.
Apache Corporation (APA - Free Report) intends to curb 2020 capital budget to $1-$1.2 billion from the previous guidance of $1.6-$1.9 billion. Moreover, to limit exposure to short-cycle oil activities, the company plans to reduce its Permian rig count to zero. Also, this Houston, TX-based company will lower its dividend payments to 2.5 cents from 25 cents.
Occidental Petroleum Corporation (OXY - Free Report) is another exploration and production company that plans to decrease quarterly dividend to 11 cents per share from 79 cents, effective July onward. It will also contain capital expense to the tune of $3.5-$3.7 billion from the initial expectation of $5.2-$5.4 billion.
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