Houston oil company Apache Corp. is making deeper budget cuts, capping a week in which crude oil continued to sink, oil-field services companies slashed their budgets and the rig count, a barometer of the industry’s health, plummeted.
Apache said Friday it cut $1.3 billion from its 2020 capital spending budget, reduced its annual dividend by $340 million and cut $150 million in other expenses. The company had already announced a $700 million capital spending cut.
The further reductions come two weeks after Apache said it would reduce the number of its rigs in the Permian Basin to zero and a week after it laid off 85 workers at its Midland office. Standard & Poor's reduced Apache’s credit rating from BBB to BB+ on Thursday.
In a statement responding to the credit downgrade, Apache's Chief Financial Officer Stephen Riney said the company has $4.0 billion of credit from 18 banks through through March 2024.
“Apache has ample liquidity and a very manageable bond maturity profile for the next five years," Riney said. "We have taken aggressive actions to protect our balance sheet and cash flows."
Apache returned to the chopping block as numerous energy companies cut billions of dollars from their budgets in response to rapidly falling oil prices. West Texas Intermediate, the U.S. benchmark, settled Friday at 21.51 as a price war between Russia and Saudi Arabia exacerbates a global supply glut created by the coronavirus pandemic.
The industry’s troubles can be seen in the oil patch, where the number of operating U.S. oil and gas rigs plummeted by 44 this week, according to the Baker Hughes. The rig count is seen as a leading indicator of oil and gas production activity in the U.S. The number of operating rigs in the U.S. is now 728.
U.S. operators have shed 77 rigs in 2020, after an already steep drop off in activity in 2019. Last year, the rig count dropped by more than 25 percent. A year ago this week, there were 1,006 operating oil and gas rigs in the U.S.
Texas has 368 rigs, half the nation's total. More than half of the rig losses this week were in the Permian Basin, in West Texas and eastern New Mexico. .
Meanwhile, three of the largest rig operators in Texas joined the industry this week in cutting their budgets.
Although exact figures have yet to be released, Helmerich & Payne, the top drilling rig operator in Texas, has pledged to cut its capital spending budget on top of already existing plans to cut operating costs by $200 million.
Nabors Industries, the second most-active drilling rig operator in Texas, is cutting $75 million dollars from its capital spending budget, suspending dividends to stockholders, cutting salaries for its CEO and chief financial officer by 20 percent and cutting salaries of all employees who make more than $100,000 by 10 percent.
"The announced reactions from operators have been swift and substantial, and the market conditions we face are sure to be difficult," Nabors Industries CEO Anthony Petrello said. "We are acting quickly and decisively. We remain committed to improving the company's capital structure this year even under the expected market conditions, and we are confident these announced measures will support that goal."
Patterson-UTI, the fourth most-active drilling rig operator in Texas, also plans to make cuts but has yet to release exact figures. In an investor presentation released on Tuesday, the company reported that it has a strong balance sheet and has a financial runway that may be able to outlast the oil price downturn.
The drilling rig operator has a $100 million loan but it is not due until 2022 while $875 million worth of senior notes are not due until 2028 and 2029.
“Many rigs that are drilling today have been told that they will be relieved of service once their current wells are finished,” West said. “This is already leading to massive layoffs across the oil patch. We can also expect completion and pressure pumping activity to be cut in half.”