Centennial Curbs 2020 Capex to Half Amid Weak Crude Prices

Centennial Resource Development, Inc. CDEV recently announced that it has revised its 2020 capital budget downward in the wake of a weak crude pricing scenario.

The company’s reaffirmed capital budget for this year is indicative of a roughly 50% cut from its prior guidance of $590-$690 million, which in turn, suggested a 28% fall from the reported 2019-level. The oil price is persistently trending in the bearish territory since the coronavirus pandemic is hurting global energy demand. As a result, the outlook for exploration and production business seems gloomy. Thus, upstream energy players are restricting their operational activities by reducing capital budgets.

Centennial ramped down its operated rigs program to one from five in early March. Per the previous guidance, the company expected 2020 production in the range of 74,500-80,500 barrels of oil equivalent per day. Oil production was expected within 42,000-45,600 barrels per day (BPD) for 2020, the mid-point implying a 3% rise from the year-ago reported figure. However, with the curtailed drilling program, the guidance might change, which will be updated at the first-quarter results announcement.

Notably, the company hedged around 25,500 BPD of oil at $26.08 per barrel for April-September period to counter any additional decrease in commodity prices.

With the capex-reduction move, Centennial joins other energy players including Pioneer Natural Resources Company PXD, Apache Corporation APA and Cimarex Energy Co. XEC. These companies intend to wade through this tough phase while sustaining a solid financial footing and strong operational efficiency. Significantly, fortifying the companies’ capital position at a time when oil prices are unprofitable for most producers, is touted to be a prudent strategy. Notably, there are only 16 companies in the U.S. shale plays operating in fields wherein average new well costs are lower than $35 per barrel, per Rystad Energy.

Price Performance

Shares of this Zacks Rank #3 (Hold) company have lost 90.4% year to date compared with 68.8% decline of the industry it belongs to. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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