Oklahoma City-based GMX Resources Inc. Monday followed cross-town independent Chesapeake Energy Corp. in announcing plans to drastically reduce capital expenditures (capex) in 2009. The junior independent, considered a pure-play gas producer that has earned success in the emerging Haynesville Shale and Bossier Sands of Louisiana and East Texas, plans to cut its projected spending by 45%.
The independent now plans to spend $220 million in 2009, which is down from an earlier capex plan of $400 million. The cuts are needed “due to the continued peril in the global and domestic credit markets and lower commodity prices,” GMX stated.
Estimated production in the last three months of 2008 is projected to be 12.5 Bcfe, which is 44% higher than in 4Q2007 when it produced 8.7 Bcfe. However, GMX had expected to produce 13.0 Bcfe in 4Q2008, and it blamed the slight reduction on decreased activity in a Haynesville/Bossier (H/B) joint development (JD) project it has with Penn Virginia Oil and Gas LP (PVOG), a Penn Virginia Corp. subsidiary.
According to GMX, PVOG has dropped all four of the rigs it was operating in the JD since mid-year. Since the project began, GMX has drilled and completed one H/B well and two H/B wells are set to be completed in early 2009.
“As a result of reducing the H/B development plan for 2009, the company now expects to drill 27 net H/B wells (including five net wells in the JD) with an average initial rate of 4.0 MMcfe/d per well,” GMX stated. “Using this starting rate, the company expects to have production of 24.7 Bcfe, a 93% increase over 2008’s revised production estimate.” PVOG is expected to operate two rigs in the JD in 2009. Across its H/B leasehold, GMX expects to operate four to five wells “throughout 2009.”
“Based on this revised capex budget, we expect to be able to fund 2009’s capex based on cash flow and our existing $190 million bank credit facility and to exit 2009 with $16 million of unused bank capacity,” said CEO Ken Kenworthy Jr. Based on a Henry Hub price of $6.00/MMBtu for natural gas and $50/bbl for oil, the company expects to generate around $158.2 million in 2009, with discretionary cash flow of $116.1 million.
Many of the companies operating in the U.S. onshore have announced plans to reduce capex in 2009. Equitable Resources Inc. last week reduced its capex plans (see Daily GPI, Dec. 8). Rocky Mountain explorers also are cutting back, including Chevron Corp., Williams, EnCana Corp. and Bill Barrett Corp., which operate in the Piceance Basin (see Daily GPI, Nov. 24). Regency Energy Partners LP last month dropped plans to expand a Haynesville Shale pipe system in the coming year (see Daily GPI, Nov. 11), and El Paso Corp. (see Daily GPI, Nov. 7) and Denbury Resources Inc. (see Daily GPI, Nov. 5) both said they would cut their exploration plans.
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