WPX Energy Cuts Spending By $400M To Preserve Liquidity

WPX Energy Inc. (NYSE:WPX) recently decided to lower its 2020 capital expenditure guidance by nearly 25% to $1,275-$1,400 million from the prior expectation of $1,675-$1,800 million after taking into consideration the ongoing decline in commodity prices.

The planned reduction will help the company to maintain financial flexibility amid ongoing decline in crude oil prices. Notably, crude oil prices have dropped 56.9% in the year to date period to $26.37 per barrel.

The company has hedged around 70% of expected oil production. However, the balance 30% oil production that is exposed to volatile prices can take a toll on the overall profitability

The falling prices can hurt WPX Energy as it has gradually transformed into an oil focused company from a natural gas focused one. At present, 79.2% production of the company is liquid and the rest is natural gas. It was simply the opposite five years ago.

Why is the Commodity Prices Low?

The sharp decline in commodity prices can be attributed to reduction in global demand as novel coronavirus has impacted global economic growth. Governments across the globe are issuing directives related to travel, temporary closure of schools, factories, offices, and asking people to avoid mass gatherings, which are adversely impacting demand for crude.

The coronavirus pandemic continues to spread with total count of infected people having touched 198,942 and out of which 7,991 people have lost their lives. With social awareness among the people rising, millions worldwide are going for self-quarantine, which is a good ploy as it controls the spread but at the same time it is lowering the global demand for oil.

Additionally, 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. Over the past three years, OPEC and its allies have been cutting down crude oil production to have a control over crude price, which in a way allowed the U.S. shale-based producer to increase crude production.

The decision of Russia and Saudi Arabia — the major producers of crude apart from the United States — to produce more crude volumes could further lower the price of the commodity from the current level due to supply glut. Notably, U.S. shale based oil and gas companies will find it difficult to sustain themselves for a prolonged period under this scenario.

Other than WPX Energy, we have already seen companies belonging to the oil and gas sector like Occidental Petroleum Corporation (NYSE:OXY) , Devon Energy (NYSE:DVN) and Murphy Oil Corporation (NYSE:MUR) cutting down on capital expenditures to preserve liquidity and slow down expansion plans amid the falling oil prices.

Price Performance

WPX Energy’s shares have underperformed the industry in the past 12 months.

Zacks Rank

Currently, WPX Energy carries a Zacks Rank #4 (Sell).

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

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