[Editor's note: This story was updated from a previous version posted at 7:56 a.m. CT March 9.]
U.S. shale producers Diamondback Energy Inc. and Parsley Energy Inc. said they would scale back drilling as crude prices extended their free fall, marking on March 9 their biggest daily plunge since the 1991 Gulf War.
The fall was triggered as Saudi Arabia and Russia signaled they would hike output in an already well-supplied market against the backdrop of the coronavirus outbreak crimping demand.
Diamondback expects to cut two rigs in April and another in the second quarter, while Parsley will reduce the number of rigs to 12 from the 15 it operated on average in the last two months and projected further reduction in the near term.
Diamondback's shares, which have nearly halved in value so far this year, tumbled about 49% while Parsley dropped 39% amid a broader slump in oil and gas stocks. The S&P energy index touched its lowest level since August 2004.
Early leadership from Diamondback should resonate well while more oil and gas producers should follow suit, analysts at Tudor Pickering Holt & Co. said in a note.
Diamondback said the reduced activity will lead to lower production and spending this year but vowed to protect its free cash flow and dividend.
"Diamondback has never been about growth for growth's sake... Because the expected returns of our 2020 program have decreased, we have decided to wait for higher commodity prices to return to growth," CEO Travis Stice said in a statement.
On the other hand, Parsley now expects its free cash flow to be just $85 million, 57.5% lower than its previous forecast, as the company resets its U.S. crude price expectations.
Parsley is now preparing for the U.S. West Texas Intermediate crude to remain between $30 and $35 per barrel for the rest of this year, down from its earlier assumption of $50 per barrel.
Smaller player Riviera Resources Inc. also said March 9 it was delaying plans to start drilling in the Ruston Field of North Louisiana.
In another grim forecast, oilfield services provider KLX Energy Services Holdings Inc. said it expects coronavirus to force producers to cut spending and investment in the coming months.
Recommended Reading
NextDecade Targets Second Half of 2024 for Phase 2 FID at Rio Grande LNG
2024-03-13 - NextDecade updated its progress on Phase 1 of the Rio Grande LNG facility and said it is targeting a final investment decision on two additional trains in the second half of 2024.
NextDecade Raises ‘Going Concern’ Doubts Amid Rio Grande LNG FID
2024-05-13 - NextDecade, which is developing the Rio Grande LNG project in Brownsville, once again highlighted “going concerns” in its SEC 10-Q filing but says Phase 1 of its project is fully financed and under construction.
Gunvor Group Inks Purchase Agreement with Texas LNG Brownsville
2024-03-19 - The agreement with Texas LNG Brownsville calls for a 20-year free on-board sale and purchase agreement of 0.5 million tonnes per annum of LNG for a Gunvor Group subsidiary.
Mexico Pacific FID Imminent for Saguaro LNG Trains 1 and 2
2024-04-04 - Mexico Pacific Ltd. is close to taking an initial final investment decision for the first two trains at its Saguaro Energía LNG facility in Sonora, Mexico, which will source feed gas from the Permian Basin.
ConocoPhillips Looks to Scale Portfolio, But Citgo Auction Not a Factor
2024-05-15 - ConocoPhillips has a long-term ambition to boost its LNG offtake capacity to between 10 mtpa to 15 mtpa as it keeps a short-term eye on the auction of Citgo Petroleum.