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June 17, 2020updated 29 Nov 2021 7:24am

Assessing the impact of the Covid-19-related crisis and weakened oil prices on US midsize independents

By GlobalData Energy

The GlobalData Upstream Impact Scorecard considers a number of factors that determine a company’s upstream business impact from Covid-19 and weakened oil prices, in comparison to industry peers. The oil and gas peer group consists of Concho Resources Inc, Ovintiv Inc, Noble Energy Inc, Apache Corporation, Cimarex Energy Co, Gulfport Energy Corp, CNX Resources Corp, WPX Energy Inc, PDC Energy Inc, and Diamondback Energy Inc and some companies are found to be better positioned to withstand the current market volatility.

As crude oil prices and natural gas demand get pressured negatively by the current economic slowdown, many producers have forgone their 2020 guidance and readjusted capex, more significantly by oil producers than natural gas producers. This is because natural gas prices had a less drastic fallout than crude oil prices, and it proved beneficial for producers such as CNX Resources Corp and Gulfport Energy Corp who have major exposure in the Appalachia Basin. Their portfolios are also strengthened by their well hedged positions to help navigate through the current volatility.

The most impacted US Midsize producers have low percentage of their production hedged in 2020, have committed to high capital expenditure (capex) reductions, and have primarily liquid-rich operations in their portfolios. Diamondback Energy Inc and WPX Energy Inc are oil-focusing operators with high percentage of capex cuts in 2020 and significant impact of low oil price scenario on their cashflows. Apache Corporation is in a relatively bad position, scrutinised by investors due to its poor debt to equity ratio, reserve life and hedge position. The company will struggle through 2020 but is expected to strengthen its hedge position and liquidity profile to sustain through the current climate.

Similarly, the associated impact of a Low Case oil price (WTI=US$26 per barrel) scenario on upstream cashflow is significant for selected US Midsize Independents. Concho Resources Inc has the highest reduction of 2020 post-tax cashflow in the Low Case oil price scenario of more than $12 per barrel of oil equivalent (boe). The company is a Permian pure play, producing more than 200,000 barrels of crude oil per day (bd). Both Gulfport Energy Corp and CNX Resources Corp have less than $6 per boe reduction of 2020 post-tax cashflow in the Low Case oil price scenario and are anticipated to be less impacted by lower oil prices as they produce mostly gas from Marcellus and Utica formations in the US.

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