Suncor Energy Limits 2020 Capex By 26%, Lowers Output Guidance

Suncor Energy Inc. (NYSE:SU) trimmed its 2020 capital spending guidance by nearly 26% from the prior expectation and now anticipates it in the range of C$3.9-C$4.5 billion after reckoning the ongoing decline in commodity prices.

The unexpected drop in oil prices and a decline in global demand due to the novel coronavirus outbreak are taking a toll on oil and energy companies. The companies have been forced to delay expansion plans and lower capital expenditures to preserve liquidity. Year to date, the price of crude oil has dropped 61.7%, which is adversely impacting the performance of the oil and energy sector.

Notably, West Texas Intermediate commenced the year with a little above $60 per barrel of oil. However, this uptick was transitory with the WTI price plunging to $20.37 last week, marking its lowest settlement since February 2002.

Further adding to the woes is the status of Canadian oil market, which is in complete disarray. Heavy Canadian crude, which usually trades at a discount to U.S. West Texas Intermediate oil, seems sinking after the country’s oil-sands producers were required to suspend maintenance activity, thereby clogging the market with potential surplus supply. The price of Heavy Canadian crude tumbled to a record low of $9.19 a barrel, more than $15 below the U.S. benchmark in between the trading, last week.

While the revised budget will help Suncor Energy ride out the tough market conditions and sustain its operations, it will also disrupt its current production scale. This Alberta-based company anticipates 2020 production in the band of 740,000- 780,000 barrels of oil equivalent per day (boe/d), indicative of a decline from the previous guided range of 800,000-840,000 boe/d.

Even though Suncor Energy hopes to benefit from embracing these important endeavors, it looks to keenly monitor the commodity price movement, adapting to the capex adjustment plans further in response to a variable price scenario.

Other Companies Regulating Costs

Reacting to the current downbeat market territory, Cenovus Energy Inc., (TSX:CVE) , which is also Canada-based, decided to cut its 2020 capex and production guidance by 32% and 5%, respectively. Making a similar attempt, Matador Resources Company MTDR decided to ramp down its drilling program. While these companies were the first to respond to the oil price crash, more upstream players are following suit.

Apache Corporation (NYSE:APA) intends to curb its 2020 capital budget to $1-$1.2 billion from the earlier view of $1.6-$1.9 billion. Moreover, to restrict exposure to short-cycle oil activities, the company plans to reduce its Permian rig count to zero. Also, this Houston, TX-based company will slash its dividend payments to 2.5 cents from 25 cents.

Occidental Petroleum Corporation (NYSE:OXY) is another exploration and production entity that plans to decrease quarterly dividend to 11 cents per share from 79 cents, effective July onward. It will also control capital expense to the tune of $3.5-$3.7 billion from the initial expectation of $5.2-$5.4 billion.

Price Performance

This Zacks Rank #5 (Strong Sell) stock has lost 63.6% over the past month compared with 66.7% decline of the Zacks Investment Research

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Written By: Zacks Investment Research