ConocoPhillips said on Thursday it would slash spending and cut U.S. oil output by about 30% of this year's target, the largest cut so far by a major shale producer to deal with an unprecedented drop in oil demand.
U.S. oil and gas producers have cut expenses, dismissed tens of thousands of workers, and shut-in wells as coronavirus-related lockdowns have curtailed travel and closed businesses, knocking down crude prices by 60% this year.
ConocoPhillips will reduce planned North American output by 225,000 barrels per day (bpd), the company said. Overall, U.S. and Canadian producers have chopped 729,000 bpd from their goals, according to a Reuters tally of announced cuts.
The cuts are quickly outpacing even the most recent U.S. government forecasts. By December, the reductions could lop off 2.15 million bpd from pre-coronavirus targets, consultancy Rystad Energy said on Wednesday. That would put the United States slightly above the curbs sought by the Organization of the Petroleum Exporting Countries this month.
"We are just not going to sell our crude for these kinds of prices," ConocoPhillips Chief Executive Ryan Lance said on a call with analysts. "I would expect you're going to see a lot more of this."
OPEC and its allies, including Russia, this month pledged to cut their May production by roughly 9.7 million bpd to halt an oil glut. They have called on the United States, Norway, Brazil and others to take steps to curb production to support their own energy industries.
The U.S. government cannot mandate cuts by private firms, but producers have shut in wells as they face rapidly filling U.S. pipelines and storage tanks, and falling demand for oil by refiners.
Some U.S. producers including Chevron Corp, Occidental Petroleum Corp, and Diamondback Energy Inc have whacked spending. The top U.S. oil company, Exxon Mobil Corp, this month slashed spending by 30%. Overall, oil companies have pulled back 2020 spending plans by an average of 22%.
ConocoPhillips said in addition to cutting 125,000 bpd from its mainland U.S. operations, it will reduce production in Canada by about 100,000 bpd due to low prices.
The company last month halved its $3 billion-a-year share buyback program and on Wednesday suspended purchases altogether. It has emphasized buybacks as its primary means of rewarding shareholders, but will continue to pay a cash dividend.
ConocoPhillips is reducing its 2020 spending budget by 35% from its original $6.6 billion target. The new budget is $4.3 billion, it said.
Executive and employee pay increases granted earlier in 2020 will be canceled and everyone will be paid at 2019 levels, the company said.
U.S. and Canadian producers, generally burdened with higher costs than some of their global competitors, have slashed spending overall by more than $37 billion, or around 30%.
ConocoPhillips said it will not cut production in Alaska, but will focus cuts on other North American fields.
It does not plan to complete any more wells in its Texas and North Dakota this year and is halting all hydraulic fracturing, said Matt Fox, chief operating officer, the final step to completing new wells.
ConocoPhillips shares (COP), which fell 3.5% to $31.07 on Thursday, have lost more than half their value so far this year.
Meanwhile, oil prices were mixed on Thursday, as Brent crude rose modestly while U.S. futures ended unchanged at an 18-year-low after some European countries said they would relax coronavirus restrictions even though OPEC lowered its global oil demand forecast.
Brent futures gained 13 cents, or 0.5%, to settle at $27.82 a barrel, while U.S. West Texas Intermediate (WTI) crude ended the day unchanged at $19.87, marking the second straight day at its lowest close since February 2002.
The crude market has not been able to sustain a rally since the Organization of the Petroleum Exporting Countries and allies, a group known as OPEC+, came to a deal at the weekend to drastically cut world supply.
However, traders said that because some countries in Europe are considering easing lockdowns, that could augur for a rebound in fuel demand. Officials at the World Health Organization warned countries to move with extreme caution before relaxing restrictions.
"Some of Europe is starting to open up. That's supportive for Brent," said John Kilduff, partner at hedge fund Again Capital LLC in New York.
In its latest monthly report, OPEC forecast that global oil demand would contract by 6.9 million barrels per day (bpd), or 6.9%, in 2020.
That forecast, along with Wednesday's report that U.S. crude stockpiles rose by a record 19.2 million barrels last week tempered the optimism that grew out of the OPEC+ supply deal to reduce output by 9.7 million bpd for May and June..
Hoped-for cuts of another 10 million bpd from other countries, including the United States, could lower production by around 20 million bpd, although those cuts are expected to take months to come to fruition.
Following the end of trading, Saudi Arabia and Russia, in a joint statement, said they would continue to monitor oil markets and were ready to take joint measures with the rest of OPEC+ if needed.
"Oil prices must remain depressed to force shut-ins among non-cartelised producers," said Norbert Ruecker, head of economics at Swiss bank Julius Baer, referring to producers such as the United States, where a lot of production is unprofitable at current prices.
In Russia, energy firms have already significantly reduced oil export plans for May following the OPEC+ deal, three company sources and two traders told Reuters.
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