Continental Resources Inc. said it is slashing its capital expenditure (capex) budget, except for possible acquisitions, by two-thirds, with daily production expected to average 200,000 boe/d in 2016, as it adds to its inventory of drilled but uncompleted (DUC) wells.

The Oklahoma City-based independent said it plans to spend $920 million for non-acquisition capex in 2016, a 66% decline from the $2.7 billion allocated in 2015. Continental estimated that it actually spent $2.5 billion on non-acquisition capex in 2015, coming in under budget by $200,000.

Under the plan, Continental would devote the largest piece of spending — $320 million, or 34.8% — to the Bakken Shale. Spending this year in Oklahoma’s SCOOP (South Central Oklahoma Oil Province) is estimated to be $260 million (28.3%) and in the STACK (Sooner Trend of the Anadarko Basin in Canadian and Kingfisher counties) is set at $142 million (15.4%).

The company said it would also spend $62 million (6.7%) to develop acreage in the northwest Cana-Woodford Shale, where it has a joint development agreement (JDA) with SK E&S, a subsidiary of South Korea’s SK Group (see Shale Daily, Oct. 27, 2014). The remaining $136 million (14.8%) is to be spent on other costs, including routine leasing and renewals, workovers and facilities.

“Continental’s 2016 budget confirms our intense focus on cash flow neutrality,” said CEO Harold Hamm. “Strategically, we are dedicated to preserving the value of our premier assets and building operational efficiencies in preparation for crude oil prices to stabilize and start recovering later this year. Fortunately our lean organization and strong liquidity have us well-positioned to manage through this period until the recovery begins.”

Capex (minus acquisitions) is expected to total $300 million in 1Q2016 and decline to about $200 million by the end of the year. By comparison, non-acquisition capex spending was about $395 million in 4Q2015.

The capex budget is expected to be cash flow neutral in 2016, based on an average West Texas Intermediate (WTI) crude oil price of $37/bbl for the full year. If WTI prices average $40/bbl, the result would be cash flow positive in excess of $100 million. But the company added that it could cut the capex budget further, if necessary.

“We will continue to focus our investments in our core operating areas and expect to realize further efficiency gains and cost reductions as we optimize our portfolio,” said CFO John Hart. “In terms of our budget, each $5 move in WTI prices impacts our full-year cash flow by $150-200 million.”

Continental plans to average 19 operated drilling rigs in 2016. It would deploy four rigs in the Bakken; five to six rigs in the SCOOP; five rigs in the northwest Cana JDA; and four to five rigs in the STACK. The company has reduced its operated rig count to 19 by dropping four rigs in the Bakken, something it hinted at doing last November (see Shale Daily, Nov. 6, 2015).

The company expects to complete 71 net wells in 2016 — 26 in the Bakken, 25 in the SCOOP, 11 in the Cana and nine in the STACK. Most of the Bakken wells are to be deferred this year, which should increase the DUC inventory to 195 gross from 135 at the end of last year.

Continental said its DUC inventory has an average estimated ultimate recovery (EUR) rate of 850,000 boe per well. Plans are to deploy an average of 2.5 completion crews in Oklahoma in 2016. The company exited 2015 with about 35 DUCs gross in Oklahoma and expects to exit 2016 with about 50, with an average EUR per well of 1.8 million boe.

“This high quality DUC inventory represents a significant asset for the company as prices recover,” said COO Jack Stark.

Continental is forecasting production of 210,000-220,000 boe/d in 1Q2016, but an anticipated decline in drilling and fewer well completions would lower guidance to 180,000-190,000 boe/d for 4Q2016. The company expects the production mix for the full year will be 60% crude oil and 40% natural gas.

By comparison, Continental expects average production for 2015 would be about 221,700 boe/d, above its previously revised guidance of 210,000-215,000 boe/d (see Shale Daily, Aug. 6, 2015). The company plans to report its full-year 2015 results after markets close on Feb. 24.