ConocoPhillips reveals plans for more cost cuts amid market downturn

Oil major ConocoPhillips is taking further actions to respond to the oil market downturn. As a result, ConocoPhillips will be making further capital, operating cost, and share repurchase reductions of $3 billion.

These follow initial actions announced on March 18 when ConocoPhillips said it would reduce its 2020 operating plan capital expenditures by $0.7 billion, representing about a 10 per cent decrease from the previously announced guidance.

Furthermore, the company said that its 2020 planned share repurchase program would be reduced to a quarterly run rate of $250 million beginning in the second quarter, from the previous run rate of $750 million.

On a combined basis, the capital and share repurchase actions represent a reduction in 2020 cash uses of $2.2 billion.

In an update on Thursday, Ryan Lance, ConocoPhillips chairman and chief executive officer, said: “In March we exercised $2.2 billion of flexibility via reductions in both our planned 2020 capital spending and share repurchases”.

“At that time, we stated we would continue to monitor the market and exercise additional flexibility, if warranted. Today we are announcing further capital, operating cost and share repurchase reductions of $3 billion.

“We also announced our intention to defer production where we have a compelling economic reason to do so. These actions reflect our view that near-term oil prices will remain weak, largely due to demand impacts from COVID-19 and continued oil oversupply”.

ConocoPhillips’ new actions include an additional reduction in 2020 operating plan capital expenditures of $1.6 billion, bringing the current estimate to $4.3 billion.

Including the company’s previously announced reduction of $0.7 billion, this represents a total reduction in operating plan capital expenditures of $2.3 billion, or approximately 35 per cent, compared to the 2020 announced guidance. These reductions are sourced from across global portfolio, primarily focused on Lower 48, Alaska and Canada areas.

The company’s actions also include a reduction in operating costs of approximately $0.6 billion, representing roughly 10 per cent of the initial 2020 guidance. This brings the current estimate to $5.3 billion. These reductions were sourced from lease operating expenses, general and administrative costs, and foreign exchange impacts.

The company’s share repurchase program has been suspended.

On a combined basis, the cumulative capital, operating cost, and share repurchase actions represent a reduction in 2020 cash uses of over $5 billion versus original operating plan guidance.

The company also announced it will elect to curtail production in Canada and the Lower 48 regions until market conditions improve.

Given ongoing uncertainty, continued market volatility, and the potential for both voluntary and involuntary curtailments over the coming months, the company’s previous 2020 guidance items should not be relied upon and further guidance will be suspended, COnocoPhillip said.

Lance continued, “We entered this downturn with several competitive advantages, including a very strong balance sheet with over $14 billion of liquidity, a diverse portfolio with low capital intensity, and significant financial and operating flexibility. We believe this puts us in an advantaged position to take rational, economic actions, including voluntary curtailments that align with reasoned views of the market”.

Lance further added: “The combination of COVID-19 and the oil market downturn has been difficult on industry and on stakeholders everywhere. As we manage through this unprecedented event, ConocoPhillips’ priorities are to protect the health and safety of our stakeholders, help mitigate the spread of COVID-19, and safely execute our business plans”.