Two large exploration & production (E&P) companies have reported: Devon Energy and Occidental Petroleum. We now have enough data points to make some broad generalizations about what oil companies are doing to cope with $40 oil.
Both Devon and Occidental:
1) Declined to predict where the price of oil was going. No one is in the oil predicting business any more, instead the emphasizing is on factors that are under their control: production, costs, and asset sales.
2) Said production was high and would continue. Why, with an oil glut, is production still high? Because everyone needs to keep their cash flow up! Between capital spending and dividends, most oil companies are still cash flow negative. The good news is that the more they produce, the lower the per-unit costs. The bad news is, the more they keep doing this, the longer they prolong the oil glut.
3) Are continuing to cut costs, in part using better technology. Devon noted that production exceeded expectations and they were able to do that with dramatically lower costs, on pace to reduce operating and general & administrative (G&A) expenses by nearly $1 billion in 2016.
4) Are continuing to sell assets. Like Chevron, they continue to acknowledge that many of their assets will not be profitable in the near future if oil stays in this price range, so they are selling. Devon sold $3.2 billion in assets, more than they had previously indicated.
What are they doing with these cost savings and asset sales? They are reducing debt and, in some cases, continuing to invest modestly in new technology.
Bottom line: it's a long and winding road, but E&P companies are continuing to slowly improve their balance sheets.
One key point: OXY reiterated that the dividend was safe. Occidental has one of the highest dividends in the business — 4.3 percent dividend yield — and they are not only not cutting, they are increasing it modestly, from $0.75 to $0.76 a share.