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The disturbance from the COVID-19 outbreak across the global commodity market and businesses is towering and arresting global economic growth. While various central banks such as the United States Federal Reserve are taking collaborative actions, nothing seems to be building the confidence of the investing community at the moment and be it the global commodity space or the equity space, most of its constituents are trading in red for quite some time now.
Whilst the effort from various central banks across the globe are evident, it is time for individual companies to act for their shareholders without waiting for any panacea as many relief and stimulus packages, for example, the relief package from the World Health Organization, stimulus by the Morrison government and cash injection from the Reserve Bank of Australia, are already in place and failing miserably in uplifting the market, consumer, and business confidence.
To Know More, Do Read: Is FED Running Out of Bullets in Bringing Down The COVID-19 Impact? Oil Market Yet Under Duress
As virus outbreak is spreading roots across the global financial market, more and more associations, groups, individuals are joining hand to trim the impact, and now, it is time for individual companies to take a stance as well, especially in the oil space, where crude oil prices are under a freefall mode.
Many ASX-listed companies, such as Oil Search Limited (ASX:OSH), Monadelphous Group Limited (ASX:MND), are already adopting measures to secure and streamline their business and its future potential.
Oil Search Limited (ASX:OSH)
- Oil Search Defers Investment and Reduces Cost
OSH, an ASX-listed oil & gas exploration company, undertook a review over its capital expenditure and balance sheet in the wake of business turmoil due to the falling crude oil prices; and,
- The objective of the review was to minimise the forward expenditure in 2020 while increasing liquidity and preserving the base value and option to deliver world-class growth projects when market conditions improve ahead.
OSH suspended or deferred all discretionary activities, which is yet to commence, within its control, apart from work programmes required to ensure ongoing operations, and the Company further suggested that where possible, it has suspended some projects which started previously.
OSH further assesses that the deferred or suspended development or discretionary activities would materially reduce the investment expenditure for 2020 from US$710 – US$845 million to US$ 440 – US$530 million, down by over 38 per cent from the lower range.
The Company also assesses that the forecast capital expenditure going forward from April 2020 is going to fall by 50 per cent from the lower range of the previously expected level of US$400 – US$500 million to stand at US$200 – US$ 300 million.
OSH also started a systematic review of all operating and corporate overhead costs, which aims at delivering a sustainable and material reduction in these costs without hampering the ongoing oil and gas production at the PNG prospect. As per the Company, the deferment of non-essential capital projects would directly support the operating cost reduction.
The Company is currently undergoing through the analysis and implementation of the flow-on impact on operating costs, and it would provide the revised guidance on the operating cost once it quantifies the associated restricting costs. Apart from that, OSH is managing for the low oil price and preparing continuity plans along with adjusting its work practices to reduce the risk over operations due to the emergence of the COVID-19 outbreak.
The revised 2020 guidance is as below:
Source: Company’s Report
Also Read: Production Cut and Central Bank Actions Propel Crude; Weak Demand Across Refineries Persist
Oil search is not the only company on ASX which has responded with reduced future guidance many other ASX players are pulling same strings of reducing investment, halting development, and reducing cost where possible to deal with the COVID-19 impact on the business.
The stock of the Company last traded at $2.440, down by 7.92 per cent against its previous close on ASX.
Monadelphous Group Limited (ASX:MND)
- Monadelphous Withdraws Revenue Guidance for FY2019-2020
MND, an ASX-listed engineering company, has withdrawn the revenue guidance for the financial year of 2019-2020. The Company forecasted about a 10 per cent revenue growth in its half-year financial report recently; however, the impact of COVID-19 across the supply chain prompted it to reassess future guidance.
MND advised that it has withdrawn its previously published guidance due to the significant level of uncertainty relating to the extent and duration of the ongoing economic slowdown across the globe, and is unable to devise future guidance as of now; however, MND has established a dedicated team to monitor, assess and provide guidance, apart from that, the Company is consulting with government agencies and the WHO.
The stock of the Company last traded at $10.500, down by 16.66 per cent against its previous close on ASX.
In a nutshell, the impact of the COVID-19 outbreak is making ripples throughout the global financial market, and while central banks and supranational agencies are working in collaboration to reduce its impact on the global economy, the ASX-listed companies are now taking their much-required individual stance to protect the shareholders’ interest.
The individual stance, however, is varying from companies to companies, and while some companies such as Oil Search is responding to the unprecedented challenge by reducing cost, limiting and deferring exposure to development activities for the right time, some companies such as Monadelphous Group are still reviewing the possible solution to tackle the challenge, presently faced by many businesses worldwide.
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