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‘Our focus is on the future’

An ExxonMobil drilling operation in the Permian Basin. The company plans to reduce the number of oil rigs in the area in response to the effect of the new coronavirus on energy demand. (Courtesy of Exxonmobil)

NEW YORK – ExxonMobil plans to reduce the number of oil rigs operating in an oil-rich region in the Southwest, including in New Mexico, and may cut planned capital expenditures as the spreading coronavirus saps energy demand.

The price of a barrel of oil has fallen more than 20% since the start of the year, and 8% in the past month, with energy demand expected to shrink as the outbreak drags on the global economy.

Oil prices were already under pressure due to signs of a slowing economy at home and abroad. Energy demand dropped dramatically as flights to and from China were canceled, and factories slowed production.

Exxon will reduce the number of rigs in the Permian Basin, a region that stretches across the border of New Mexico and Texas.

“We all know today (that) oversupply, driven by industry investments in some of these growth markets, has exceeded demand and we’ve got a very challenging short-term margin environment, which is now being compounded by the growing economic impact of the coronavirus that we’re seeing around the world,” CEO Darren Woods said Thursday at the New York Stock Exchange. “And that is creating a lot of uncertainty, particularly in the near term, and I would say particularly here in Wall Street. However, the longer-term horizon is clear, and today our focus is on that horizon and the future.”

The state budget in New Mexico relies heavily on oil and gas revenue. In the 2019 fiscal year, for example, revenue from extractive industries made up about 36% of the state’s general fund revenue, according to Legislative Finance Committee documents.

In recent years, unprecedented growth in oil and gas production has helped push state revenue to record highs, state economists say, but it’s also made the state increasingly dependent on energy revenue to support government spending.

New Mexico Oil and Gas Association Executive Director Ryan Flynn said in a written statement Thursday that New Mexico’s oil and gas operators plan to be here “for the long term.”

“As in any business – oil and gas or otherwise – it is not uncommon to adjust plans according to market conditions,” Flynn wrote. “The oil and gas industry is committed to New Mexico and will continue to be significantly invested in our state and our future.”

Exxon expects $30 billion to $35 billion in capital expenditures this year, but likely toward the bottom half of that range. The company had previously expected to be in the top half, Woods said.

Capital expenditures include such expenses as drilling and completing wells. The heaviest spending cuts will come within the Delaware Basin, which is part of the Permian Basin.

“We anticipate reducing the number of rigs in 2020 by more than 20% this year versus where we are today,” Neil Chapman, senior vice president of ExoonMobil, said of spending in the Delaware Basin.

The company currently has 58 drilling rigs in the Permian Basin in New Mexico and Texas. Investor’s Business Daily reported it plans to scale back production in the Permian Basin by 10% over the next two years, though leaders still plan to triple output in the region by 2024.

Major oil companies have already been pulling back on spending. The world’s five largest oil and gas companies in 2019 spent $88.7 billion on capital projects, down nearly 50% from the $165.9 billion spent in 2013, according to the Institute for Energy Economics and Financial Analysis.

Investor’s Business Daily reported that global demand for oil in the first quarter will be 3.8 million barrels per day lower than a year earlier. That would represent the biggest quarterly drop ever and top the previous record, set in the first quarter of 2009, when demand fell by 3.6 million barrels per day.

Journal reporter Dan McKay and business editor Gabrielle Porter contributed to this report.