Parsley Energy Slashes 2020 Capex By 40%, Expects $225M FCF

The oil industry is battered big time due to the coronavirus pandemic that pervaded most sectors until now. Fuel demand took a huge hit following large-scale travel constraints imposed globally. To make matters worse, oil prices tanked as Saudi Arabia waged a price war and ramped up its oil production substantially in retaliation to Russia’s resistance to lower its crude production at the OPEC meeting.

Notably, West Texas Intermediate began the year with a little above $60 per barrel of oil. However, this upsurge was momentary with the commodity price plunging to 18-year lows to settle at $20.37 on Mar 18.

Such headwinds forced the energy players to take a fresh call on their strategies as well as capital spending budgets.

In response to the bearish oil environment, Parsley Energy, Inc. (NYSE:PE) trimmed its 2020 capital spending to below $1 billion, indicating a 40% cutback from the midpoint of the past projected $1.6-$1.8 billion range.

Measures adopted by Parsley Energy for capex cuts will comprise minimal development activities by driving down the pace of its baseline operations to 4-6 rigs and 2-3 frac spreads over the coming months. This comes after the company already cut its frac spreads from five to three, while trimming active rig count to 12 from 15.

Notably, this Midland, TX-based company anticipates generating a minimum of $225 million of free cash flow from operations if WTI Crude prices average between $30 and $35 per barrel for the remaining year. This represents an increase of almost $150 million from the company’s previously provided outlook.

Keeping in mind this crucial market scenario, Parsley Energy’s executive officers plan to decrease their respective annual cash compensations by a minimum 50% from last year.

Even though this Zacks Rank #4 (Sell) company expects to benefit from these key adopted measures, it looks to closely scrutinize the commodity price movement, adapting to the capex adjustment plans further to get accustomed to an unpredictable price scenario.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Parsley Energy, Inc. Price

Parsley Energy, Inc. Price

Parsley Energy, Inc. price | Parsley Energy, Inc. Quote

Other Companies Reining in Costs

Reacting to the current downbeat market territory, Cenovus Energy Inc., (TSX:CVE) decided to lower its 2020 capital spending and production guidance by 32% and 5%, respectively. Taking a similar action, Matador Resources Company MTDR decided to trim its drilling program. While these companies were the first to respond to the oil price crash, more upstream players are following suit.

Apache Corporation (NYSE:APA) intends to curb its 2020 capital budget to $1-$1.2 billion from the previous view of $1.6-$1.9 billion. Moreover, to restrict exposure to short-cycle oil activities, the company plans to reduce its Permian rig count to zero. Also, this Houston, TX-based company will lower its dividend payments to 2.5 cents from 25 cents.

Occidental Petroleum Corporation (NYSE:OXY) is another exploration and production company that plans to decrease quarterly dividend to 11 cents per share from 79 cents, effective July onward. It will also control capital expense to the tune of $3.5-$3.7 billion from the initial expectation of $5.2-$5.4 billion.

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