Oil companies cut spending due to coronavirus

Continuing low oil prices and the likelihood of the coronavirus pandemic having a lasting effect have driven companies to make significant cutbacks and cost savings.

In the wake of this, oil and gas industry leaders have announced cuts to capital expenditure (capex) and costs on Monday.

The companies include Royal Dutch Shell, Total, Equinor, Santos, Talos Energy and others that have issued announcements about their capital expenditure for the rest of the year.

On the part of Shell, the oil giant 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 canceled 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.”

For French Company Total, there are 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.

Also, Norwegian state-owned operator Equinor has 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.

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.

EquinorRoyal Dutch ShellSantosTalos EnergyTotal
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