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September 23, 2020
Primary commodity type determines level of impact by the crisis on US midsize companies’ operations

Most COVID-19 Impacted Midsize US Oil Operators Have Primarily Liquid-rich Operations

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Oil operators have been struggling since oil prices plummeted in March. Many are not able to adjust as quickly as needed and have nothing left to do but to keep shutting in mature wells, idle rigs and stop drilling new wells. As per analysis by GlobalData, the most impacted U.S. midsize producers have primarily liquid-rich operations, low percentage of their production hedged in 2020 and have committed to high capex reductions.

Svetlana Doh, Oil and Gas Analyst at GlobalData, comments: “Natural gas production in the asset portfolio of a number of U.S. midsize operators* determines just how severe the negative impact of weak demand and low commodity prices can be on operations.

“Comparing announced capital expenditure cuts shows that these oil-focused companies had at least 40 percent capex reductions this year. Some, for example Ovintiv, reduced their spending by a drastic 80 percent. On the other hand, natural gas producer Gulfport Energy announced an 8 percent capex cut, despite the fact that the company has the highest debt-to-equity ratio in the selected group.”

Other characteristics, such as percentage of production hedged in 2020, drilling efficiencies, gas transportation costs and debt-to-equity ratio will also impact companies’ performance. However if the company has a larger proportion of gas production in its portfolio this can actually make up for shortcomings in other indicators. For instance, CNX Resources produces more than 90 percent of gas, which is predominantly dry gas, and has one of the lowest debt-to-equity ratios in the group. And unlike all the other companies in the sample, its normalized stock index showed positive trend since March and even exceeded December 2019 levels.

Doh continued: “Apache Corporation, Diamondback Energy and WPX Energy are oil-focused operators with a high percentage of capex cuts in 2020 that saw a significant cashflow impact from the low oil price scenario. Among these, Apache Corporation is in a relatively worse position due to its high debt-to-equity ratio and pretty much non-existent 2020 hedged production.”

* Concho Resources, Ovintiv, Noble Energy, Apache Corporation, Cimarex Energy, Gulfport Energ, CNX Resource, WPX Energy, PDC Energy and Diamondback Energy

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