Equinor ASA (EQNR - Free Report) recently announced its downward revision of 2020 capital budget in the wake of a weak crude pricing scenario. So the company aims to prune capital spending as well as exploration and operating expenses by a total of $3 billion to solidify its financial footing in a market space.
The company’s reaffirmed capital budget for this year is indicative of a roughly 20% cut from its prior guidance of $10-$11 billion to $8.5 billion. This includes a reduction of $400 million in exploration expenses to $1 billion and a curtailment of $700 million in operating costs compared with past projection.
The oil price is persistently trending in the bear territory since the coronavirus pandemic’s adverse impact on global energy demand. As a result, the outlook for all the industries in the energy sector business seems gloomy. Thus, energy players are restricting their operational activities by trimming capital budgets.
Apart from the cost cuts, earlier this week, Equinor paused its $5-billion four-year share buyback program to tide over the current oil price disruption.
Further, the company plans to adjourn all U.S. onshore activities, drilling and completion operations wherein it parked billions of dollars in recent years. Management at Equinor also informed that these new measures will allow its operations to be cash-flow neutral in 2020 at an average oil price of around $25 per barrel.
Importantly, Equinor will not only be aided by its major concerted efforts but will also steadily screen the commodity price movement, further aligning itself with the capex adjustment plans in response to an ambiguous price scenario.
With the capex-containment move, Equinor joins other European energy mammoths including Royal DutchShell (RDS.A - Free Report) , TOTAL S.A. (TOT - Free Report) and Eni SpA E. These companies intend to wade through this rough patch while maintaining a solid financial standing and strong operational efficiency. Significantly, the strategic action boosting the companies’ balance-sheet status at a time when oil prices are unattractive for most producers is touted to be judicious.
This Zacks Rank #3 (Hold) stock has lost 26.2% over the past month compared with 31.1% decline of the industry it belongs to.
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