Continental Resources, Inc. yesterday announced plans to spend approximately $300 to $350 million less than its previously approved capital budget for 2015 to better align spending with cash flow at current commodity prices. The Company plans to defer well completion activity, except for where it has contractual considerations or it accomplishes specific strategic objectives. Continental is also reducing its operated rig count in the Bakken from 10 to eight rigs by the end of the month.
“While we do not believe today’s low commodity prices are sustainable long term, we are committed to living within cash flow until they recover,” said Harold Hamm, Chairman and Chief Executive Officer (pictured). “We are reducing capital expenditures to protect our balance sheet and to preserve the value of our world-class assets until commodity prices improve.”
The Company’s 2015 guidance remains unchanged. Continental continues to expect production growth of 19% to 23% for the year, compared with 2014, but now expects to exit the year with production in a range of approximately 200,000 to 215,000 barrels of oil equivalent (Boe) per day. The bottom end of the range is 10,000 Boe per day below its previously stated outlook, reflecting an increase of inventory from the previously expected 100 gross operated wells that are drilled but not yet completed at year-end 2015 to the current estimate of 160 gross wells drilled but not yet completed at year-end 2015. Maintenance capital to maintain 2016 production at the 2015 exit rate is now projected to be $1.6 to $2.0 billion.
In its August 5, 2015 earnings press release and on its August 6 earnings conference call, the Company noted actual capital spending was trending below its $2.7 billion non-acquisition capital expenditures budget and further noted that, if weak oil prices persisted, the Company would take additional measures to balance capital expenditures with reduced cash flow.
“We continue to focus on achieving cash flow neutrality in the current environment,” said John Hart, Chief Financial Officer. “We believe it is in the interest of shareholders to defer new production growth until we see stronger commodity prices. We can achieve this objective due to our focus on costs, operating efficiencies and having a large portion of our high-potential leasehold already held by production,” he said.
“We are pleased with our results year-to-date, and operating performance versus guidance remains strong, especially in terms of production growth and cost controls. Annual production growth is expected to be toward the top end of our guidance range, even with deferred completions,” he said.
“Production expense per Boe and general and administrative expense per Boe are also trending positively toward the low end of guidance. Lower capex spending and excellent operating performance should position us to be cash flow neutral for the remainder of 2015 in an environment of approximately $50 per barrel for West Texas Intermediate. In a $40 per barrel WTI environment, our updated spending outlook would result in capital expenditures being approximately $150 million over cash flow. We continue to have ample liquidity with approximately $1.3 billion available under our credit facility at August 31, 2015, basically in line with our June 30, 2015 balance.”
“Obviously we are in a dynamic environment, and our outlook could change. We will continue reviewing our spending plans and update our outlook as appropriate,” Mr. Hart said.
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