Amid ‘Perfect Storm,’ Oklahoma Energy Companies Gear Up For Budget Cuts And Possible Layoffs | KGOU
KGOU

Amid ‘Perfect Storm,’ Oklahoma Energy Companies Gear Up For Budget Cuts And Possible Layoffs

Mar 18, 2020

The convergence of COVID-19 and recent OPEC disagreements has been called a perfect storm for Oklahoma. Journal Record editor Russell Ray discusses how, amid the concerns, energy companies in the state are gearing up to slash costs and possibly implement more layoffs.

Full Transcript:

Jim Johnson: This is the Business Intelligence Report, a weekly conversation about business news in Oklahoma. I'm Jim Johnson, in this week for Drew Hutchinson. And joining me is Russell Ray, editor of the Journal Record. Hi, Russell.

Russell Ray: It's good to be here, Jim. Thanks for having me.

Johnson: You bet. Well, there's no shortage of news of late—certainly news impacting businesses—is there?

Ray: No, not at all. There's plenty to cover nowadays.

Johnson: Well, the convergence of the coronavirus' spread and recent OPEC disagreements leading to increases in oil production by Saudi Arabia has been called a perfect storm, certainly for us in Oklahoma. Amid the concerns and market instability, Oklahoma energy companies are gearing up to slash costs, including capital spending, budgets and operational costs.

Ray: That's right. And in response to the sharp drop in oil prices, Devon Energy announced an immediate 30% decrease in its capital budget for 2020. Last week, Devon Continental, Oneok and Chaparral Energy announced reductions in capital expenditures and operational costs for the year. Oneok lowered capital growth expenses by $500 million. Oneok also suspended three pipeline projects. Tony Say, an energy strategist with Clearwater Enterprises, described the situation as a perfect storm for the oil and gas industry.

Johnson: Now, Devon Energy is one of Oklahoma's leading energy companies, and President and CEO Dave Hager's said that with the challenging industry conditions, the company's goal is to preserve liquidity and balance its investments with its cash flow. He said he's confident, though, that Devon is reasonably well positioned to navigate this period of uncertainty regarding price fluctuations in the oil and gas industry.

Ray: Yes. Devon said it will provide more detail about these measures when it releases its first quarter results later this year. Further capital cuts may be made later this year if oil prices remain this low at $30 a barrel.

Johnson: Now, Chaparral Energy might be a little bit different story. Last week, they reported a loss of $468.9 million. They're also planning to cut costs moving forward. And their CEO said that when navigating reductions, capital expenditures have the most wiggle room, but costs will also be cut in administrative expenses and other areas. What do you glean from what the CEO said?

Ray: Well, Chaparral expects the decrease in capital spending in 2020 to be significant as it moves to cut costs and prioritize cash flow, which a lot of companies are doing. The company said there are opportunities in its supply chain to work with vendors to drive those costs down further.

Johnson: And in papers filed with the Securities and Exchange Commission, Chaparral said that other energy companies had substantially larger resources and staff and that it can't ensure its investors that it will be able to "compete satisfactorily in the future." Russell, with all this concern, is there any talk of layoffs or other more drastic measures?

Ray: Well, the situation facing Oklahoma oil and gas producers is certainly unprecedented. Tony Say said the timeline for the industry's recovery is really unpredictable at this point. He said if the downturn in oil prices persists for a length of time, more layoffs are indeed possible. The state collects taxes on the production of oil and gas, and the state budget is based on oil selling at $54 a barrel. Right now, as I said previously, the price is hovering around $30.

Johnson: A perfect storm, indeed. Russell, thank you so much for talking with us.

Ray: My pleasure, Jim. Thank you.

Johnson: Russell Ray is editor of the Journal Record. KGOU and the Journal Record collaborate each week on the Business Intelligence Report. And you can follow us both on social media. We're on Facebook, Instagram and Twitter at journal: @journalrecord and @kgounews. The story we discussed today is available on journalrecord.com and this conversation, along with previous episodes of the Business Intelligence Report are available on our website KGOU.org For KGOU and the Business Intelligence Report, I'm Jim Johnson.

The Business Intelligence Report is a collaborative news project between KGOU and The Journal Record.

As a community-supported news organization, KGOU relies on contributions from readers and listeners to fulfill its mission of public service to Oklahoma and beyond. Donate online, or by contacting our Membership department.

The Journal Record is a multi-faceted media company specializing in business, legislative and legal news. Print and online content is available via subscription.

Music provided by Midday Static