PDC Energy Inc. said Thursday it would cut capital spending this year and drop one rig in the Denver-Julesburg (DJ) Basin of Colorado to capitalize on operational efficiencies and protect against a downturn in natural gas prices.

The company also reduced its workforce by 15% in June to better align staffing with its “updated operational plan.”

While operational efficiencies and wells that came online ahead of schedule will allow the company to reduce its budget, PDC has been focused on a gassier block of the Wattenberg field in northeastern Colorado as prices have fallen. It expects midstream constraints there in the second half of the year. As a result, it plans to cut back from three to two rigs in September in the play, where a similar level of activity is expected next year.

This year’s budget is now forecast at $810-840 million versus previous guidance of $810-870 million. Second quarter gains led PDC to increase full-year production guidance by 1 million boe at the mid-point to 48-50 million boe.

The operational changes follow management’s success in fending off a challenge in May from activist investor Kimmeridge Energy Management Co. LLC. Kimmeridge claimed the company was underperforming and had sought to install candidates on the board. Shareholders rejected the firm’s nominees.

“The combination of lowering our full-year capital investment guidance while increasing our full-year production guidance enables PDC to generate in excess of $150 million of free cash flow in the second half of 2019,” CEO Bart Brookman said, “...Over the past several months, we have met extensively with our long-term shareholders and are confident our cost control measures, slowed Wattenberg development pace and return of capital align with our long-term value proposition.”

The company operates in both the Permian Basin’s Delaware sub-basin and the DJ, but the bulk of its activity is focused on the Wattenberg, where it turned-in-line 27 wells during the second quarter, compared to eight that came online in West Texas.

Management expects higher line pressures in the Wattenberg for the remainder of the year as the result of a delayed processing capacity expansion in the play, something it’s dealt with periodically in recent years as activity has ramped up in the Rockies. The midstream constraints now have PDC forecasting overall production to consist of 40% oil compared to an earlier target of 41-45%.

In the Delaware, which the company entered in late 2016, production continued to increase during the second quarter, hitting 31,500 boe/d. Volumes were up 26% from the year-ago period. Drilling times improved in Delaware, with spud to rig release averaging 23 days, or an 11-day improvement from 2Q2018. PDC is currently running two rigs in the play.

Overall, the company produced 12.4 million boe during the second quarter, up 32% from the year-ago period and 10% from 1Q2019. Year/year oil volumes increased 24% to 4.9 million bbl.

The company also received $264 million after completing the sale of Permian water and natural gas midstream assets during the second quarter. PDC also earned $35 million from the sale of 6,500 net acres in the Delaware lease that was set to expire this year.

PDC expects to generate up to $200 million of free cash flow next year. The spending cuts and reduced Wattenberg rig count should help that target, management said.

The company has so far returned $125 million to shareholders this year with the repurchase of 3.7 million shares as part of a broader $200 million repurchase program.

On a blended basis, excluding hedges, average realized prices were $27.28/boe in the second quarter, down from $34.74/boe in the year-ago period. Derivatives helped boost revenue over the same time to $390.7 million from $212.5 million.

PDC reported second quarter net income of $68.5 million ($1.04/share), compared with a net loss of $160.3 million (minus $2.43) in 2Q2018.