Drillers to slash output in U.S.
Loss of oil demand leads producers to make ‘drastic’ cuts
As more energy companies on Thursday announced grim firstquarter results, oil producers are making “drastic” production cuts to meet a crushing loss of demand for their products during the coronavirus pandemic.
U.S. oil production, which in December was 12.8 million barrels per day, according to the Energy Information Administration, will tumble by at least 616,000 barrels per day in May and 655,000 barrels per day in June, according to a new report, three times larger than the cuts made in April.
Rystad Energy, a Norwegian oil and gas research firm that tabulated production cuts of 19 U.S. producers, says oil companies are shutting down rigs and reducing output in the wake of the historic crash that saw the price of oil drop from about $60 in January to $23 Thursday, including a stint last month deep in negative territory.
“Shale producers are not relying on natural decline but are rather choosing more drastic methods to reduce their output substantially and fast,” Veronika Akulinitseva, Rystad’s vice president of North American shale and upstream, said in a statement.
Companies large and small,
from Irving-based Exxon Mobil to Austin-based Parsley Energy, are slashing output as excess global supply averaged 21.3 million barrels a day last month, according to Standard Chartered analysts.
Among majors cutting output, Chevron said it expects to cut up to 42 percent of its shale production by June, with 66,000 barrels per day in May and 80,000 barrels per day in June. Exxon will cut 74,000 barrels per day in May and June, mostly by shutting down rigs in the Permian Basin, Rystad said. And ConocoPhillips said it will cut production by as much 52 percent with 81,000 barrels per day in May and 130,000 barrels per day in June.
Smaller companies are cutting production by as much as 10 to 15 percent. Diamondback Energy is expected to slash production by up to 20,000 barrels per day in June, Rystad estimates, and Parsley Energy said it plans to cut 30,000 barrels per day in May.
The production cuts were announced on a day when energy companies, even those not directly tied to oil, reported financial results that took a beating in the first three months of 2020.
Apache Corp., a Houstonbased driller, cut its dividend by 90 percent and will further slash spending after losing $4.5 billion, compared with a loss of $47 million during the same period a year ago. Revenue declined 24 percent to $1.3 billion from about $1.7 billion a year ago.
The company’s loss was driven by a $4.47 billion write-down of the value of its businesses in the face of lower prices for crude oil.
Marathon Oil said it will temporarily suspend quarterly dividends after losing $46 million a
year after posting a $174 million quarterly profit. Revenue rose slightly to $1.23 billion from $1.2 billion a year earlier.
The company, which has some 2,000 employees, said it has reduced its U.S. workforce by 16 percent and its contract workforce by 70 percent.
Houston natural gas pipeline operator Targa Resources is cutting its budget by an additional $630 million after losing $1.8 billion in the quarter, the biggest loss in the company's 17-year history. While revenue declined just 11 percent to $2 billion, the company reduced the value of assets by $2.2 billion.
CenterPoint Energy, which delivers electricity to Houston-area customers, lost $1.2 billion, in large part because the oil crash forced the company to reduce the value of assets, including its stake in an Oklahoma oil and gas pipeline and storage company, by $1.6 billion.
NRG Energy, which generates and sells electricity, was the best performer of the day with a profit that shrank to $121 million during the three months, compared with a $482 million profit a year earlier, in part because the value of its oil inventory declined.
The company, with brands such as Reliant Energy, Green Mountain Energy and Cirro Energy, also suffered from a mild winter and higher costs at a Texas nuclear plant.