US shale players respond to oil price drop, COVID-19

By Luke Geiver | March 10, 2020

The uncertainties created by COVID-19, the oil price war escalation between Russia and OPEC and the resulting oil price decrease to levels not seen since 2015, major U.S. shale players are making it clear that they will continue operating—but they will do so at decreased scale.

Parsley Energy has dropped two frack crews, bringing its current frack spread count to three. Although Parsley was operating 15 drilling rigs, the near-term plan is to drop roughly 12 rigs as soon as is practicable. At $50/b oil, Parsley was planning to generate free cash flow of $200 million this year, but after altering its assessments of oil prices to a range of $30/b to $35/b, the company now believes it will generate roughly $85 million in free cash flow.

“The combination of a strong balance sheet and corporate agility is critical in these challenging and volatile times,” said Matt Gallagher, president and CEO of Parsley Energy. “We must act swiftly with an aim to preserver a stable free cash flow profile and remain committed to doing whatever is necessary to protect our balance sheet in the weeks and months ahead.”

Gallagher added that the company is focused on maintaining value for the long term. “We will focus on our rigourous project returns process and will not destroy capital if the commodities tape does not support sufficient returns. This approach worked in 2015 to 2016,” he said, “and will best position us again to emerge from this volatile time.”

Occidental Petroleum has decided to cut its quarterly dividend from $0.79 per share to $0.11/share. The plan for spending in 2020 has also been altered. Oxy will now invest roughly $3.7 billion this year, down from the $5.4 billion plan previously announced.

Vicki Hollub, president and CEO of Oxy, said, “these actions lower our cash flow breakeven level to the low $30s WTI, excluding the benefit of our hedges, positioning us to succeed in a low commodity price environment.”

Marathon Oil will reduce spending for 2020 by roughly 30 percent or more. After the reduction was announced this week, the company said it could spend $1.9 billion instead of $2.4 billion. In the company’s Oklahoma operations, drilling and completion activity—where the company is running one drilling rig and one frack crew—has been suspended. In the Northern Delaware Basin, Marathon will slow activity, putting the main focus for Marathon in the Bakken and Eagle Ford plays where the company is running eight drilling rigs and three frack crews. To date, the company hasn’t made any changes to its dividend plan. In May, Marathon will provide further updates on its go-forward plan.

Diamondback Energy is also immediately reducing activity, going from nine completion crews to six. The Midland-based energy giant will also drop two drilling rigs in April and another in the second quarter.