Offshore companies cut spending for stability during coronavirus

Matthew Farmer 24 March 2020 (Last Updated March 24th, 2020 12:09)

Several oil and gas industry leaders announced cuts to capital expenditure (capex) and costs on Monday.

Offshore companies cut spending for stability during coronavirus
Total will reduce its capital spending due to the coronavirus downturn. Credit: Total.

Several oil and gas industry leaders announced cuts to capital expenditure (capex) and costs on Monday. Continuing low oil prices and the likelihood of the Covid-19 coronavirus pandemic having a lasting effect have driven companies to make significant cutbacks and cost savings.

Royal Dutch Shell, Total, Equinor, Santos and Talos Energy all issued announcements about their capital expenditure for the rest of the year.

Shell announced the largest monetary cut, taking $5bn from its $25bn spending budget. It also said it will cut $3bn to $4bn from the previous year’s operating costs. Additionally, it has cancelled a planned share buyback.

The UK/Netherlands based company said its spending needed to be “well-positioned for the eventual economic recovery” following coronavirus. It also said in a statement: “Shell is still committed to its divestment programme of more than $10bn of assets in 2019-20 but timing depends on market conditions.”

Later, French company Total announced the measures it released to staff last Thursday. It revealed plans to cut one-fifth of spending, meaning capital expenditure will fall to less than $15bn. The company said the savings were mainly from short-cycle, flexible expenditure, which it could negotiate quickly.

Total will cut $800m from 2019 operating costs, $500m more than was previously planned for 2020. The company planned to buy back more than $2bn in shares over 2020. It has now suspended the buyback, having purchased $550m of shares.

Norwegian state-owned operator Equinor also announced a buyback suspension. The company was set to spend $675m between May and October 2020, but it said this round of buybacks will not go ahead.

It also said it would look to reduce capex and costs but will give no details until the end of the month.

Coronavirus hits spending for smaller companies

Australian extractor Santos announced a reduction of its 2020 spending and a delay to the Barossa project. The company is in advanced talks to take over the field, but it has not yet announced a new timeline for its $7bn final investment decision.

In a statement, Santos said it would cut its full-year capital spending by $550m, about 38% of its planned budget. It will also cut another $50m from its production costs.

The company is aiming for free cash flow breakeven at an oil price of $25 a barrel.

Finally, Talos Energy said it would cut a third from its remaining capital expenditure budget, a $170m drop. In a statement, the company said it would also seek further cost-cutting across the year.

However, the company has made changes to planned front-end engineering and development (FEED) work on the Zama field, offshore Mexico. The company plans to use previous commitments and existing infrastructure to make “high-margin, low-breakeven investments”.

Talos has also re-evaluated its estimates for the year. It expects to sell 3,100 barrels of oil equivalent per day less than previously predicted.


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