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Viper Energy Cuts Production Guidance Amid Weak Oil Scenario

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Viper Energy Partners LP (VNOM - Free Report) recently announced plans to reduce its production guidance for 2020. It also intends to hedge majority of its production.

The partnership stated that 2020 production is now expected to average 22,500-27,000 barrels of oil equivalent per day (Boe/d). This marks a decline from its previous guidance of 27,000-30,000 Boe/d, whose mid-point signaled a year-over-year improvement of 28%. For full-year 2020, it now expects oil production in the range of 14,000-17,000 barrels per day (BPD), lower than previous guidance of 17,000-19,000 BPD.

Notably, the partnership provided its original guidance for first-half 2020 net production in the band of 26,000-28,500 Boe/d. It previously expected first-half 2020 net oil production in the range of 16,500-18,000 BPD.

To limit further decline in Viper Energy’s cash flows, the partnership intends to hedge a huge chunk of estimated oil production for 2020 and 2021, given the current volatile oil price environment. With oil price currently in the bearish territory since the coronavirus pandemic is hurting global energy demand, the outlook for exploration and production business seems gloomy. Thus, upstream energy players are restricting operational activities.

Notably, Viper Energy’s parent organization, Diamondback Energy, Inc. (FANG - Free Report) is planning to trim its 2020 capex guidance by $1.2 billion (or in excess of 40%) to the tune of $1.5-$1.9 billion from the prior expectation of $2.58-$3 billion. It expects average 2020 production volumes to be lower than the level of 195,000 barrels per day in fourth-quarter 2019.

Several other companies with significant exploration and production activities are making similar moves to navigate through this tough phase, while sustaining a solid financial footing and strong operational efficiency. Energy players like Pioneer Natural Resources Company (PXD - Free Report) and Apache Corporation (APA - Free Report) are curtailing expenditures for 2020 and fortifying their capital position at a time when oil prices are unprofitable for most producers. Notably, there are only 16 companies in the U.S. shale plays that operate in fields wherein average new well costs are lower than $35 per barrel, per Rystad Energy.

Price Performance

Shares of this Zacks Rank #3 (Hold) firm have lost 76.8% year to date compared with 65.8% decline of the industry it belongs to. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.



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