• North American oil producer, PetroShale (TSXV:PSH), is slashing its capital spending budget by 89 per cent, despite reporting strong 2019 financial results
  • The budget was cut from C$70 million down to $26 million, due to the recent market volatility and the steep drop in oil price
  • The company generated a net profit of $9.6 million in 2019, almost doubling the profits reported in 2018
  • With the cost cutting measures in place, the company still expects to generate a positive cashflow in 2020
  • PetroShale (PSH) is up 25 per cent, with shares trading for $0.12 and a market cap of $23.95 million

PetroShale (TSXV:PSH) has reported strong financial results from 2019, but is still slashing its 2020 capital budget by 89 per cent.

The capital spending budget was initially approved at C$70 million but has now been reduced to just $26 million, due to the current market volatility and the steep drop in oil price.

The North American oil producer generated a net profit of $9.6 million in 2019, almost doubling the profits reported in 2018. Earnings also spiked 41 per cent and revenue was up 36 per cent to $165.3 million.

This was a largely due to the company’s significant increase in oil production throughout the year. Petroshale increased the barrels per day of oil produced by 54 per cent, compared to 2018.

However, PetroShale’s netback, a key financial indicator for oil companies, dropped by around 11 per cent. The netback is the amount of revenue generated per barrel of oil sold after operating and other costs are taken into account.

Despite the company strong 2019 report, recent adverse developments in the global oil and gas industry pose significant challenges in the year ahead.

CEO and Director of PetroShale, David Rain, outlined the challenges facing the company in 2020.

“The rapid and severe deterioration of economic activity related to COVID-19, combined with a price war fuelled by Russia and Saudi Arabia, led to a global equity market and oil price shock in early March.

“With meaningful added oil supply expected over the near term, oil prices and energy equities are expected to remain under pressure,” he said.

However, David went on to say that, along with the capital budgeted severely reduced, the company is implementing a number of other cost-saving initiatives. 

PetroShale is also reducing oil production and expects the oil price to improve slightly as other oil companies follow suit.

With these measures in place, PetroShale still expects to generate positive cash flow in 2019.

PetroShale (PSH) is up 25 per cent, with shares trading for $0.12 at 10:48am EST.

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