Exxon Mobil is cutting its number of oil rigs in the Permian Basin and says it might even reduced planned capital expenditures as the spreading coronavirus takes a hit on energy demand.
The announcement came as oil prices are down more than 25% since the start of the year and another 8% in the past month.
“We all know today, oversupply, driven by industry investments in some of these growth markets, have exceeded demand, and we’ve got a very challenging short-term margin environment which is now being compounded by the growing economic impact of the coronavirus that we’re seeing around the world,” CEO Darren Woods said while visiting the New York Stock Exchange. “And that is creating a lot of uncertainty, particularly in the near term, and I would say particularly here in Wall Street. However, the longer term horizon is clear, and today our focus is on that horizon, and the future.”
Oil prices were already under pressure due to signs of a slowing economy in the U.S. and abroad. Energy demand dropped dramatically as flights to and from China were halted and factories slowed production.
Exxon expects $30 billion to $35 billion in capital expenditures this year, but it will likely be toward the bottom half of that range. The company had previously expected to be in the top half of that range, Woods said.
Capital expenditures include expenses such as drilling and completing wells. The heaviest spending cuts will come within the Delaware Basin, which is contained within the Permian Basin.
“We anticipate reducing the number of rigs in 2020 by more than 20% this year versus where we are today,” said Neil Chapman, senior vice president, said of spending in the Delaware Basin.
Exxon, which is based in Irving, Texas, expects to produce 360,000 of oil per day in the Permian Basin this year, down from its previous estimate of 380,000 barrels per day. But the company says it’s on track to produce more than 1 million barrels per day from the Permian in 2024.
Source: Associated Press