Energen Corp. plans to sell off its non-core assets in the San Juan and Delaware basins as it transitions to a pure-play operator in the Permian Basin, the company said.

The asset sales are expected to generate about $400 million for the Birmingham, AL-based exploration and production (E&P) company. CEO James McManus discussed the planned divestiture with analysts during a 4Q2015 earnings call Friday in which the company also revealed its 2016 capital budget and other operational highlights.

McManus said Energen plans to spend $250-350 million on drilling and development in 2016, with oil prices influencing whether the company opts for the upper or lower end of that range. The low end of the range (based on current strip pricing of around $36/bbl) would reflect costs to hold acreage in the Delaware and Midland basins and to complete 47 net horizontal drilled but uncompleted wells in the company’s inventory as of year-end 2015. Higher prices would see the company spend at the higher end of its range on additional drilling activities in the Midland Basin.

Heading into 2016, McManus said the company estimates it “will have a funding gap between capital investment and after-tax cash flows of approximately $225-325 million, depending on which of those scenarios we go with, the $250 million or the $350 million.” The divestiture of the non-core San Juan and Delaware basin assets will be used to close this gap, he said.

“We decided to exit the San Juan Basin after completing our assessment of the early performance of the exploratory wells we drilled in the latter half of 2015 to test the oil play’s potential on portions of our acreage,” McManus said. “The bottom line is…we do not find the results to be competitive with our other high quality assets in the Midland and Delaware basins.”

Energen sold roughly 70% of its San Juan acreage last March (see Shale Daily, Feb. 17, 2015). The remaining San Juan acreage is “primarily natural gas with some upside in the Mancos oil play.”

Energen announced the day before its 4Q2015 conference call that it had discontinued its cash dividend “in response to the significant decline in the market prices of oil, natural gas and natural gas liquids.” The E&P said it has also taken other cost-cutting measures — including layoffs — that would, assuming reduced costs from selling its San Juan assets, lead to total 2016 general and administrative expenses of roughly $89 million, a 25% year/year decrease.

Energen’s first two Jo Mill wells in Martin County, TX, returned encouraging test results during the fourth quarter, the company said. The Jo Mill wells averaged a peak 24-hour initial production (IP) rate of 1,062 boe/d and an average 30-day peak of 943 boe/d while producing 75% oil content. A 10,000-foot-lateral well the E&P drilled in the lower Spraberry Shale in Glasscock County averaged a peak 24-hour IP of 1,460 boe/d at 74% oil and a peak 30-day average production rate of 1,213 boe/d at 70% oil.

Full-year 2015 production, excluding the non-core assets on the auction block, totaled 20.2 million boe, or 55,397 boe/d. Energen said it expects 2016 production to come in slightly lower at 19.9 million boe, or 54,437 boe/d.

The company reported a net loss for the quarter of $590.8 million (minus $7.50/share) driven by $528.1 million in impairments and dry hole expenses. That’s compared with a net income of $65.4 million (89 cents/share) in the year-ago period.

For full-year 2015, Energen reported a net loss of $945.7 million (minus $12.43/share), compared with a 2014 net income of $568 million ($7.75/share).