The recent weakness in commodity prices prompted energy players to rethink strategies as well as reconsider capex cuts. Notably, after abiding by the capital discipline during the crude downturn (from mid-2014 to 2016), energy companies resorted to escalating their capital expenditure since 2017. However, a pullback in commodity prices convinced explorers and producers to take a relatively conservative approach to capex programs again this year. Instead of raising capital outlays, the energy companies are now focusing on optimizing shareholder value.
West Texas Intermediate started the year with a little above $60 per barrel of oil. However, the rally was pretty temporary, with the commodity price plunging to multi-year lows to settle at $31.13 on Mar 9.
Reacting to the sudden oil price slump, QEP Resources, Inc. QEP istaking steps to "rationalize" its planned capital spending for the current year and the next.
Inside the Headlines
Amid the growing crisis, Denver, CO-based QEP Resources reduced its 2020 and 2021 collective capital spending by around $300 million (or 30%).
Notably, the company expects to suspend completion activities in the Permian Basin, beginning early May through no less than the start of the fourth quarter. It also plans to halt its Williston Basin’s refracturing program, effective on the completion of the current projects. The company further plans to discharge drilling rig functioning in the Permian Basin on the completion of its March 2020 activities.
QEP Resources, Inc. Price
QEP Resources, Inc. price | QEP Resources, Inc. Quote
Apart from disciplined capital allocation, QEP Resources intends to suspend quarterly dividend worth 2 cents per share. The move will be effective after the payment of the dividend for fourth-quarter 2019 on Mar 20. While this does not come as pleasant news for steady income-oriented investors, it will certainly help the company to boost its financials amid volatile commodity prices.
Moreover, the independent energy player anticipates generating free cash flow of $75 million at $35 per barrel in 2020. Notably, QEP Resources previously expected $100 million of free cash flow at an oil price of $50 a barrel.
Importantly, QEP Resources will not only be aided by the key measures but will also continue to keep tabs on the commodity price movement, further aligning itself with the capex adjustment plans in response to a volatile price scenario.
Zacks Rank & Key Picks
QEP Resources has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are Oasis Petroleum Inc. OAS, Apache Corporation APA and FTS International, Inc. FTSI, each currently carrying a Zacks Rank of 2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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