Devon to Cut 2020 Spending Again Amid Choppy Oil Prices
Devon Energy Corporation DVN recently decided to lower its 2020 capital expenditure again by $300 million to $1 billion for preserving liquidity amid the coronavirus-induced crisis. Reduction in demand adversely impacted prices of crude oil as evident from a decline of 66.5% year to date.
At present, there are hardly any positive indications regarding upward revision in demand. Further, with governments worldwide resorting to complete lockdown to break the chain of virus spread is lowering demand.
Amid such declining demand and prices, oil and gas companies are being compelled to take remedial measures to safeguard their financial interest. Earlier this month, Devon Energy had already lowered planned 2020 spending by nearly 30% to $1.3 billion to counter the challenges posed by the decline in commodity prices.
Notably, Devon is not the only oil and gas company that has decided to lower its capital spending twice in recent times, Occidental Petroleum OXY also lowered its expenditure plan twice this month to preserve liquidity.
What’s Impacting Oil Prices?
The breakout of COVID-19 is adversely impacting demand for crude oil. The U.S. Energy Information Administration (“EIA”) release also indicates the same, and predicts global petroleum and liquid fuels consumption to average 99.1 million barrels per day in first-quarter 2020, indicating a decline of 0.9 million from the same period in 2019. COVID-19 pandemic has ravaged countries and now it is spreading like wildfire in the United States, which prompted President Trump to announce that the federal guidance urging social distancing will stay in place through Apr 30.
The United States lockdown will mean further decline in demand for crude oil as United States is one of the major consumer of crude oil globally. Per a report from EIA in 2019, the United States consumed an average about 20.46 million barrels of petroleum per day and this lockdown will result in massive reduction in the United States petroleum demand per day, which will further hurt prices.
Saudi Arabia — the world’s top oil exporter — has plans to increase crude oil production to 12.3 million barrels per day in April, after the collapse of its OPEC supply cut agreement with Russia. The decision of Russia and Saudi Arabia to produce more crude volumes could further lower the price of the commodity from the current level on account of supply glut.
These factors are having a negative impact on crude oil prices. International crude oil prices are trading below $25 per barrel for the past eight days. The sustained low cost of commodities will make it very difficult for oil and gas companies to sustain their normal level of operation without taking any corrective measures.
Other companies belonging to the oil and gas sector such as WPX Energy WPX and Murphy Oil Corp. MUR have also lowered their 2020 capital expenditures to preserve liquidity and slow down expansion plans amid the falling oil prices. The U.S. oil and gas companies might have to face a tougher battle ahead as the $2 trillion economic stimulus package does not have any direct funding for the troubled oil and gas companies.
Zacks Rank
Currently, Devon Energy carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price Performance
Devon Energy’s shares have underperformed the industry in the past 12 months.
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Murphy Oil Corporation (MUR) : Free Stock Analysis Report
Devon Energy Corporation (DVN) : Free Stock Analysis Report
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