Despite a backdrop of low commodity prices, Bill Barrett Corp. said it plans to increase its capital expenditures (capex) for the second half of 2015, deploying a second drilling rig to the Denver-Julesburg (DJ) Basin as it looks to expand its stable of wells drilled with longer laterals.
Meanwhile, the Denver-based company also said it has filed a prospectus supplement with the U.S. Securities and Exchange Commission (SEC). It told regulators that it may choose to sell up to $100 million of its common stock, the proceeds from which would go toward funding the expanded drilling program in the DJ Basin.
Last Wednesday, Bill Barrett said the second rig would be deployed to the Northeast Wattenberg area of the DJ Basin early in 3Q2105, and it expects to spud an additional 11 gross (eight net) operated wells with extended reach laterals (XRL) during the second half of 2015. The company said it now anticipates participating in 35-40 gross (28-32 net) operated development wells in the Northeast Wattenberg during 2015, most of which would be XRL wells.
CEO Scot Woodall said the company is continuing to gain "operational momentum based on the results of our XRL drilling program. The initial 30-day production data from our latest completion design is yielding improved early well performance and attractive returns of nearly 40% at current commodity prices." The company elaborated that the 40% figure was calculated for an XRL well with a 9,500-foot lateral, a 55-stage plug and perf completion, a well cost of $6.25 million, and flat pricing (Nymex) of $65/bbl for crude oil and $3.25/MMBtu for natural gas, while incorporating a $9/bbl long-term oil price differential.
"With a large and significant opportunity set in front of us, we recognize the benefit of increasing our XRL activity at this time to be better positioned for increased production growth and stronger cash flows in 2016," Woodall said. "We expect DJ Basin production to significantly increase as the full benefit of adding the second rig is realized."
According to the company, increased activity in the DJ Basin would contribute "only slightly" to its production total for 2015, due to the amount of time required to complete multi-well pad drilling, but it would have a greater impact in 2016. It added that DJ Basin production is expected to grow more than 60% in 2015, followed by a 25% increase in 2016.
Bill Barrett raised its production guidance for 2015 to 6.0-6.4 million boe, up from the 5.5-5.9 million boe it announced in February. The company also raised its capex guidance for 2015 to a range of $320-350 million -- a figure that includes the second rig, additional working interests in wells and a small number of wells needed in order to retain leaseholds. Previous capex guidance, also issued in February, was $240-280 million.
The company provided an initial corporate production growth target of 10-15% for 2016, with a capex budget of $225-275 million -- assuming the approximately 40 gross (32 net) operated XRL wells drilled through the two-rig program are drilled at current service cost levels, and also assuming the board approves such action during the normal budgeting cycle.
Bill Barrett said its capex budget is expected to be funded internally through operating cash flow, cash on hand, borrowings under its revolving credit facility, noncore asset divestitures and sales of common stock from time to time.
In a separate statement last Wednesday, the company said it told the SEC that "it may offer and sell from time to time and at its discretion shares of its common stock having an aggregate gross sales price of up to $100 million pursuant to an 'at-the-market' offering program."
Said Woodall, "Our financial position remains strong and is supported by an undrawn revolving credit facility and a significant cash position. We also have [more than] 90% of our 2015 oil and natural gas production and nearly half of 2016 hedged at favorable commodity prices. We will remain capital disciplined and flexible in our capital policies as we utilize a two-rig program to efficiently create value from our DJ Basin acreage position."
In a note Friday, Dan McSpirit, an analyst with BMO Capital Markets Corp., said that when Bill Barrett announced its 1Q2015 earnings it was "hard to reconcile the positive field-level results highlighted in the period with little/no change in the game plan. Well, we got a new game plan, but it came with what we believe to be an overhang in the form a continuous equity offering.
"We find the approach and timing curious, especially in light of how well positioned the company is in terms of hedges (about 90% oil this year) and some semblance of operational momentum achieved for the first time in a long time. To this we add the comment that there is little to no upside in casting production growth as far out as the next year so early in the current year, especially when there is little/no track record of real success in meeting production guidance. Happy trails."