Back to top

Image: Bigstock

Noble (NBL) Cuts Dividend & Expenses Amid Coronavirus Woes

Read MoreHide Full Article

Noble Energy has decided to take additional steps to preserve liquidity amid the unprecedented economic distress, and significant decline in oil and natural gas demand and prices resulting from the outbreak of novel coronavirus. Last month, the company announced certain initiatives to safeguard its interest in this declining commodity price environment.  

The steps already undertaken by Noble were not sufficient to overcome the challenges posed by outbreak of novel coronavirus. Hence, the company announced that it will take additional steps, as the virus continues to spread across the globe, in turn having economic and financial impact on millions of people. Per John Hopkins University, 2,064,668 people have been infected by the virus on a global basis, out of which 516,930 have recovered.

Measures Taken
 
Noble’s board of directors decided to lower annualized dividend payout to 8 cents per share, indicating approximately 83% reduction from the previous annual dividend payout of 48 cents, thereby increasing cash retention for other uses by $195 million on an annual basis.

The company has further decided to lower 2020 capital expenditure guidance by $350 million to $800-$900 million, which indicates nearly 50% drop from the previous expectation of $1.6-$1.8 billion. Last month, the capital expenditure guidance was lowered to $1.1-$1.3 billion.

The company is set to lower costs by another $125 million via reducing lease operating expenses, production taxes, and gathering and transportation, and general and administrative expenses. In addition, management has decided to lower the salary of top executives and directors to preserve cash.

The company has hedged a portion of its production to safeguard its interest amid falling commodity prices. Noble has decided to draw $1 billion from the revolving credit facility during the first quarter to ensure ample liquidity.

Since the impact of coronavirus is yet to be fully ascertained, the company has decided to withdraw its guidance provided during fourth-quarter 2019 earnings release.

COVID-19 Impact on Oil

Year to date, prices of crude oil have dropped 66.8% to $20.26 per barrel. One of the primary reasons behind this significant drop in crude oil price and demand is the global outbreak of novel coronavirus. Per the IEA Oil Market Report, global demand for crude oil is expected to fall 29 million barrels per day (bpd) in April from the year-ago level.

One of the best possible ways to fight COVID-19 is social distancing and staying at homes. With the vast majority of the world’s population staying at homes, the exponential curve of the pandemic has flattened. Owing to the virus outbreak, the demand for crude oil has declined globally and prices have dropped as a consequence, in turn hurting companies in the oil and gas sector. In addition, the difference of opinion between Saudi Arabia and Russia shattered crude oil prices and both the nations pumped higher volumes of crude in the already over supplied market.

Amid the grim situation, oil and gas companies like Devon Energy Corporation (DVN - Free Report) , Occidental Petroleum Corporation (OXY - Free Report) and Murphy Oil Corporation (MUR - Free Report) were forced to reduce capital expenditure twice for 2020 in recent times to cope with this unprecedented drop in oil prices.

Some Relief for Oil and Gas

We can see some light at the end of a long, dark crude oil price tunnel, as OPEC and its oil producing allies have decided to lower production by 9.7 million bpd, starting from May 1. The group will then cut 7.7 million bpd of production from July through the end of 2020. The production cut will be 5.8 million bpd from January 2021 through April 2022.

The scheduled production cuts will help in addressing the crude oil supply glut, which is creating a downward pressure on oil prices. In addition, governments across the globe are deciding to lift the lockdown in some areas, which is definitely going to increase the demand for crude oil in the coming months.

Price Performance

Noble’s shares have underperformed the industry in the past 12 months.



Zacks Rank

Currently, Noble carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Devon Energy Corporation (DVN) - free report >>

Occidental Petroleum Corporation (OXY) - free report >>

Murphy Oil Corporation (MUR) - free report >>

Published in