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Halcon Halves Capex Again; American Energy Pulls Back in Permian

Houston's Halcon Resources Corp., which in November reduced 2015 capital expenditures by half of 2014, on Thursday cut that forecast by half again. The Permian Basin unit of American Energy Partners LP (AELP) also is setting its sights lower.

Halcon's drilling and completion spending now is set at $375-425 million, with all of the capital still to be directed to the Williston Basin and East Texas. About $20 million also is set aside for leasehold, infrastructure seismic and other expenses.

In November, Halcon set its capital budget at $750-950 million, which was half 2013 spending levels (see Shale Daily, Nov. 12, 2014).The rig count plans in November were cut to six from 11. Now Halcon is down to three rigs for 2015, with two now planned in the Fort Berthold area of the Williston, and one in East Texas.

Capital is to be directed where estimated ultimate recoveries (EUR) and output are higher than the type curves, said Halcon CEO Floyd Wilson.

"Our plan is to deploy capital to assets where results indicate EURs and initial production rates higher than our published type curves. We are comfortable with our current liquidity position and we expect our strong hedge portfolio to continue generating income well into 2016."

Total production is set to average 40,000-45,000 boe/d this year, compared to an average of 43,554 boe/d in 3Q2014. Wilson had said in November the company's output would rise 15-20% this year.

"Although we are significantly hedged, the continued weakness in crude oil prices, combined with elevated service costs, calls for conservative planning," Wilson said. "We expect to see these costs come down dramatically during 2015."

Based on the midpoint of its 2015 production guidance range, Halcon is 88% hedged on its estimated oil volumes at a weighted average price of $87.29/bbl and 86% hedged on its estimated natural gas volumes at an average of $4.00/MMBtu. Eighty-four percent of this year's production is expected to be oil, with 8% gas and 8% liquids.

Meanwhile, Oklahoma City-based Aubrey McClendon's AELP affiliate American Energy-Permian Basin, LLC (AEPB) has realigned its planned drilling activity levels. The unit exited 2014 producing more than 20,000 boe/d net, with 4Q2014 output estimated at 15,500-16,000 boe/d.

AEPB ended last year with 106 gross operated horizontals in the Permian's Wolfcamp Shale, exceeding a 100-plus goal. It had five operated rigs working Reagan County, TX, and plans were to increase that number to nine. However, no more rigs are to be added "until oil prices improve," the company said.

"The company will continue to monitor market conditions and adjust activity levels accordingly with a key focus on maintaining adequate liquidity and delivering attractive returns," management said.

AEPB has oil swaps and purchased puts at an average weighted price of $91.68/bbl on close to 4.7 million bbl, or around 70% of anticipated output this year. The company also has secured basis protection between Midland, TX, and Cushing, OK, markets at a weighted average discount to Cushing of $2.41/bbl on 2.6 million bbl. The natural gas hedging position includes swaps of $4.62/Mcf on a total of 502 MMcf, or 29% of its anticipated production for 1Q2015.

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