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Sanchez Energy’s (NYSE: SN) market cap fortunes have fallen by nearly 70% since June 1, when oil began its tumble toward $50 per barrel (bbl).
On Jan. 7, the Eagle Ford intensive company again revised down its capital budget for 2015 to $600-$650 million, a drop of 45% from its original capex this year of $1.15 billion. Overall, the company’s budget is basically a repeat of 2014 spending.
Sanchez’ budget reflects continuing deep cuts to 2015 spending across the E&P sector. In December, North American budgets were down about 14%, but the spending decline could fall to as much as 30% if WTI prices don’t bounce back from $50 prices, said Dave Anderson, analyst, Barclays, in a Jan. 9 conference call.
On Jan. 8, for instance, Halcón Resources (NYSE: HK) continued to cull its budget, saying it would bring its drilling and completion budget to $375-$425 million. The revision is a 60% decrease from HK’s 2014 capex of $1 billion and a deeper cut than its earlier capex estimate of $775 million.
Sanchez said about $560-$600 million will be spent on drilling and completion and as much as $50 million on midstream and other expenses.
Activity, primarily in the Eagle Ford, will be reduced from 8 gross (7 net) rigs to 3.5 rigs (3 net), a decrease of about 60% from fourth-quarter 2014 levels. Part of a well will also be drilled in the Tuscaloosa Marine Shale.
“SN is making a dramatic cut to total spending,” said Brian Gamble, analyst, Simmons & Co. International. “Even though SN discussed carryover capital spending of $150 MM for completion of wells drilled in 2014, we still believe total capex could fall lower if current oil prices of $51/bbl persist for any significant period of time.”
At Simmons’ current price deck of $51/bbl and $3 per million btu (MMbtu), SN’s outspend will reach $300 million based on capex estimates of $550 million. However, Sanchez assumes a flat price deck of $60/bbl for oil and $3.75 per MMbtu for natural gas. Sanchez does not think it will have to tap its bank credit facility, which has a $650 million borrowing base with an elected commitment of $300 million.
Tony Sanchez III, president and CEO of Sanchez Energy, said the new capital plan reduced another 30% from the $875 million capital revisions the company announced in early November.
The revised budget will put three of its rigs at Catarina and one rig at Palmetto, said Patrick Rigamer, analyst, Global Hunter Securities.
As a result, 2015 production is expected to average between 40,000-44,000 barrels of oil equivalent per day (boe/d), allowing SN to maintain expected fourth-quarter 2014 average daily production and increase 2015 production year over year by about 40%.
Sanchez said the company has asked all service vendors to reduce prices according to the changing commodity-price environment.
“Material reductions have been made and are ongoing in all operating cost segments,” he said. “At Catarina, we expect a decrease in overall well costs with total drilling and completion costs averaging $5 million per well by mid-January.”
Simmons pointed out that the reduction would drop Catarina costs from the $7.5 million SN paid in the third quarter of 2014.
The 33% drop may be optimistic, with Baird Energy predicting drilling and completion reductions of 10%, said Ethan Bellamy, senior analyst.
“Time will tell is SN can execute upon this strategy,” he said.
At Halcón, production guidance was lowered to 40-45 Mboe/d, reducing growth to 4% from 17%.
The company is significantly hedged throughout 2015 and into 2016.
Floyd C. Wilson, chairman and CEO, said the company’s plan is to put money into where EURs and initial production rates are highest.
“We are comfortable with our current liquidity position and we expect our strong hedge portfolio to continue generating income well into 2016,” Wilson said. “Although we are significantly hedged, the continued weakness in crude oil prices, combined with elevated service costs, calls for conservative planning. We expect to see these costs come down dramatically during 2015."
E&Ps Recalibrate Spending In 2015 | ||||||
Ticker | 2014 Capex ($MM) | 2015 Capex ($MM) | 2015 Capex Change | 2015 Production Change | Guidance Issued | |
Abraxas Petroleum Corp. | AXAS | $190 | $54 | -72% | 26% | December |
Anadarko Petroleum | APC | 9563 | 8100 | -15% | 5% | December |
Apache Corp. | APA | 10,500 | 6660 | -37% | 0% | December |
Approach Resources | AREX | 400 | 180 | -55% | 12% | December |
Bill Barrett Corp. | BBG | 565 | 513 | -9% | -18% | December |
Cabot Oil & Gas | COG | 1415 | 1542 | 9% | 21% | December |
Callon Petroleum | CPE | 215 | 175 | -19% | 35% | |
Carrizo Oil & Gas | CRZO | 700 | 450 | -36% | 23% | |
Chesapeake Energy | CHK | 6243 | 5841 | -6% | 0% | December |
Concho Resources | CXO | 2,600 | 3,000 | 15% | 30% | November |
ConocoPhillips | COP | 16,875 | 13,500 | -20% | 5% | |
Continental Resources | CLR | 4.59B | 2.7B | -40% | 18% | December |
Denbury Resources | DNR | 1,100 | 550 | -50% | 0% | November |
Devon Energy | DVN | 6900 | 6000 | -13% | 1% | December |
Emerald Oil | EOX | 250 | 72 | -71% | 30% | |
Encana Corp. | ECA | 2,550 | 2,800 | 10% | -9% | |
Energy XXI | EXXI | 875 | 680 | -22% | N/A | November |
EOG Resources | EOG | 8404 | 7720 | -8% | 13% | December |
EQT Corp | EQT | 2,400 | 2,500 | 4% | 26% | |
Gastar Exploration | GST | 224 | 173 | -23% | 49.5% | November |
Goodrich Petroleum Corp | GDP | 350 | 175 | -50% | -2% | |
Halcón Resources Corp | HK | 1,025 | 400 | -61% | 4% | January |
Kosmos Energy | KOS | 575 | 705 | 23% | 18% | December |
Laredo Petroleum | LPI | 1000 | 525 | -48% | 12% | December |
Magnum Hunter Resources | MHR* | 537 | 225 | -58% | N/A | December |
Marathon Oil | MRO | 5190 | 4700 | -9% | 25% | December |
MEG Energy | MEG | 1320 | 1373 | 4% | 3% | December |
Newfield Exploration | NFX | 2130 | 1560 | -27% | 4% | December |
Noble Energy | NBL | 4885 | 4165 | -15% | 18% | December |
Oasis Petroleum | OAS | 1,096 | 800 | -27% | 6% | December |
Occidental Petroleum | OXY | 9054 | 8000 | -12% | 9% | December |
PDC Energy | PDCE | 648 | 557 | -14% | 42% | December |
Pioneer Natural Resources | PXD | 3400 | 3300 | -3% | 14% | December |
QEP Resources | QEP | 1759 | 1653 | -6% | -6% | December |
Range Resources | RRC | 1,585 | 1,300 | -18% | 25% | December |
Rex Energy | REXX | 412 | 200 | -43% | 33% | December |
Rosetta Resources | ROSE | 1,200 | 750 | -38% | 20% | December |
Southwestern Energy | SWN | 2,400 | 2,600 | 8% | 31% | December |
Sanchez Energy | SN | 625 | 625 | 0% | 40% | January |
Swift Energy Corp. | SFY | 395 | 250 | -37% | -1% | November |
Talisman Energy | TLM | 3000 | 1875 | -38% | 8% | December |
Ultra Petroleum | UPL | 1495 | 689 | -54% | 18% | December |
WPX Energy | WPX | 1735 | 1530 | -12% | -11% | December |
Source: Global Hunter Securities, Topeka Capital Markets, Barclays, Simmons & Co., company press releases, Hart Energy (OilandGasInvestor.com). *Based on analyst/management discussion. |
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