Murphy cuts spending by $500 million amid oil price volatility

U.S. oil and gas company Murphy Oil has revised its capital spending plans for 2020 given current market conditions and recent commodity price volatility.

Murphy joined its compatriot Apache Corporation in a decision to reduce its spending amid challenging conditions in the oil market, including an oil price war between Saudi Arabia and Russia following the OPEC+ breakdown, the effect of the coronavirus outbreak on global oil demand, and the ‘historic’ plunge of oil prices this week.

Murphy said on Thursday that its revised 2020 budget is approximately $950 million.

According to the company, the reduction of approximately $500 million equates to a nearly 35 percent revision from the midpoint of the previously announced corporate budget of $1.4 billion to $1.5 billion. Murphy said it would release further details of its revised plan on a later date.

“Under current conditions, we believe this capital reduction program allows for financial flexibility and preservation of our longstanding dividend. As always, we will not sacrifice safety in our efforts to reduce costs across all our assets, as it remains a core value within Murphy,” stated Roger W. Jenkins, President and Chief Executive Officer.

GoM projects and exploration wells delayed

As detailed by Murphy, the revised spending plan will be achieved through delaying certain U.S. Gulf of Mexico projects and development wells, postponing spud timing of two operated exploration wells, releasing operated rigs and frac crews in the Eagle Ford Shale, with no operated activity planned for the second half of 2020, and deferring well completions in the Tupper Montney.

Jenkins said: “We have persevered through multiple commodity price cycles in our 70 years of corporate history, and want to provide reassurance that we are focused on a strategy that protects the business, the balance sheet, and our liquidity, while maintaining optionality for additional adjustments given the unstable environment.

“Murphy has an ample liquidity position as of year-end 2019 between its undrawn $1.6 billion senior unsecured credit facility due November 2023 plus cash on hand, along with other sources of liquidity arising in the normal course of business. Further, we have no debt maturities until June 2022.”

It is worth mentioning that, as reported earlier on Thursday, Murphy has hired the Pacific Drilling-owned drillship Pacific Sharav for operations offshore Mexico. The contract is scheduled to start in November 2020.

The effects of volume war

When it comes to the effects of spending cuts by oil and gas operators, the oilfield services firms will be hit hard with prognosis showing that, if the volume war continues throughout 2020 and 2021, it will lead to a massive wave of bankruptcies and consolidation in the service market.

Namely, Norwegian energy intelligence group Rystad Energy has said that the total capital and operational expenditure of exploration and production companies is now likely to be cut by $100 billion in 2020 and another $150 billion in 2021 if oil prices remain at a $30 level – a development that will heavily impact service company revenues, driving some out of the market.

Overall oilfield service purchases, which Rystad Energy previously expected to remain flat year-on-year, are now forecasted to drop by 8% this year if oil averages $40 per barrel and by 15% in a $30 per barrel scenario.