Oil & Gas Stock Roundup: Capex & Dividend Cuts Continue In The Hard-Hit Sector
Zacks Investment Research | Mar 16, 2020 11:15PM ET
It was a week where oil prices slid below $30 a barrel but natural gas settled higher.
On the news front, Occidental Petroleum (NYSE:OXY) , Marathon Oil (NYSE:MRO) , Cenovus Energy (TSX:CVE) , Devon Energy (NYSE:DVN) and Apache (NYSE:APA) , among others, lowered their 2020 capital expenditure target to contend with depleted oil prices.
Overall, it was a contrasting week for the sector. While West Texas Intermediate (WTI) crude futures tumbled 23% to close at $31.73 per barrel, natural gas prices gained 9.4% for the week to finish at 1.869 per million Btu (MMBtu).
The crude benchmark notched its biggest weekly loss since the financial crash of 2008, as tensions between Russia and Saudi Arabia combined with continued panic over the spreading coronavirus sent the commodity crashing. Oil fundamentals appear to be struggling under the twin strains of untamed supply from major producers in the face of crumbling demand caused by the world economic slowdown on the back of the virus outbreak
Meanwhile, the oil price plunge is acting as a blessing in disguise for natural gas. The fuel is gaining on expectations of a brake in the skyrocketing shale oil production growth that will also limit associated gas output, thereby cutting the massive supply glut.
Recap of the Week’s Most Important Stories
1. In the wake of falling oil prices, Houston-based oil and gas producer Occidental Petroleum announced that the board of directors has decided to slash quarterly dividend by 86% to 11 cents from the present level of 79 cents. To safeguard its liquidity, the company has decided to lower 2020 capital expenditure to the range of $3.5-$3.7 billion from earlier expectation of $5.2-$5.4 billion. It has plans to implement additional measures to cut operating and corporate costs.
The sudden fall in global oil prices and declining demand for crude oil globally due to the outbreak of coronavirus will definitely have an adverse impact on Occidental’s top line. Historically, it remains exposed to market prices of commodities. Although the company has hedged a portion of 2020 oil production, nearly 20% drop in crude oil in the recent past might impact its liquidity.
It's the first time in 30 years that Occidental has decided to cut dividend to ensure enough liquidity to service its debts. The move is essential as the unexpected drop in crude oil price will not generate the desired returns, even if the company hikes crude oil production from its high-quality resources. (Read more: Zacks Investment Research
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