Midcontinent pure-play Chaparral Energy Inc. had dropped all but one of its 10 rigs by early April, delayed completing wells and worked with vendors to reduce costs, a plan that is bearing fruit as it plans to add one rig within the next few days and third by the end of the year to enable it to hit production targets, the CEO said Monday.

The Oklahoma City-based independent's average output fell in 3Q2015 by 11% year/year proforma and by 6% sequentially. But it was done thoughtfully, CEO Mark Fischer said during a conference call. His management team knew it could garner better prices from oilfield service vendors if it delayed drilling and completions (D&C), and better efficiencies could be installed all the way around.

"While we have scaled back our 2015 drilling, we plan to continue the momentum of our long-term growth projects in our Midcontinent area by focusing our drilling efforts in core areas of those plays that have the greatest potential to improve recoveries and rates of return," Fisher said. "We have budgeted the addition of a second rig in November and a third rig in December, and therefore plan to exit the year with three rigs operating."

D&C activities are underway now in earnest, and "we expect this incremental production to reverse the decline and stabilize our production during the fourth quarter. With this said, we are reaffirming our upwardly, revised annual production guidance to 10.0-10.6 million boe."

The biggest focus remains on the Mississippian Lime in Kansas and in Oklahoma, where Chaparral can earn more bang for the buck because drilling one well in a stacked reservoir means lower costs overall. Oklahoma targets include the Meramec, Oswego, Woodford and Marmaton formations, collectively part of the STACK, or Sooner Trend Anadarko (basin) in Canadian and Kingfisher counties. Progress also was made in the carbon dioxide enhanced oil recovery (EOR) operations at the North Burbank unit, even though capital was cut by 70% from 2014.

Average production in 3Q2015 was of 26,700 boe/d, 54% weighted to oil, 31% to natural gas and 15% to liquids. Nearly all -- 85-90% -- of planned capital spending remains focused in the Mississippian Lime and Oklahoma's STACK, the Sooner Trend Anadarko (basin) in Canadian and Kingfisher (counties).

In the Mississippian, production fell in 3Q2015 from a year ago to 501,000 boe from 447,000. STACK output declined to 360,000 from 381,000. In the Texas Panhandle's Marmaton, output slumped by more than half to 122,000 boe from 331,000 boe, while legacy production from the Ark-La-Tex, Permian Basin and from North Texas fell to 612,000 boe from 775,000 boe. EOR output also declined overall to 2.452 million boe from 2.767 million boe.

Through the first nine months of this year, Chaparral drilled 24 gross operated wells, with 13 in the STACK, nine in the Mississippian Lime and two in the Marmaton. North Burbank EOR production rose by 47% year/year.

"Specifically, out of 20 wells drilled and rig-released during the first half of the year, three wells were completed in the first quarter, eight wells in the third quarter and seven wells are expected to be completed in the fourth quarter," Fischer said. "We drilled an additional four wells during the third quarter with three completed in October and the remaining well is expected to be completed during the fourth quarter."

Chaparral in late 2014 implemented a company-wide effort to decrease costs, including laying off to date 200 people, including 131 in Oklahoma City. It also has aggressively pursued price concessions from third-party service vendors. And to further capture gains with improved vendor concessions, many completions in newly drilled wells were delayed into the second half of this year.

D&C, lease operating expenses (LOE) and general/administrative (G&A) costs fell across the board. Not only is the company meeting an internal goal of $3 million/well in D&C, "but we've also achieved our stretch goal of $2.5 million in several of our most recent wells," Fischer said. One recent Mississippian well cost a total of $2.3 million. The last seven operated wells averaging a cost of slightly less than $2.7 million/well.

"At a $2.5 million cost, this equates to a 31% reduction in our well D&C cost from a year ago," Fischer said. Quarterly LOE was $10.15/bbl, almost 28% lower than a year ago and 4% lower sequentially. G&A expenses fell 20% sequentially and by half from a year ago.

"In an environment of a 54% reduction in the oil price and a 35% reduction in the natural gas price, and where it is not uncommon to see corporate earnings down by 60-70%, we feel good about our limited 19% drop in earnings and believe it is a strong testament to our cost reduction efforts and our significant hedge position," Fischer said.

Chaparral lost $647,142 net in 3Q2015, versus profits a year ago of $83,513 net. Impairments to the value of the portfolio led to a $737.8 million one-time writedown. Through September, Chaparral has had $955.3 million in impairments. Revenue fell in 3Q2015 from a year ago to $74.5 million from $94.2 million.

The independent is 85% hedged through 2015 and 65-70% hedged throughout 2016. For natural gas, 3.9 Bcf is hedged for the remainder of 2015, 14 Bcf in 2016, 12.7 Bcf in 2017 and 8.3 Bcf in 2018. For oil, 1.5 million bbl is hedged through December, with 4.4 million bbl in 2016 and almost 500,000 bbl hedged in 2017.