Reflecting widespread expectations of a “lower for longer” oil price environment in 2016, Hess Corp. said it will be dramatically scaling back U.S. onshore exploration and production (E&P) activities heading into the new year.

During the New York-based company’s fourth quarter earnings call with investors Wednesday, COO Greg Hill said Hess will drop down to two rigs in the Bakken Shale by next month, down sharply from the average 8.5 rigs it deployed in 2015 and well below 2014’s average of 17 rigs.

“Clearly 2015 was a challenging year in terms of oil prices, and we believe it is prudent to manage the business assuming that prices remain lower for longer,” Hill said.

On Tuesday, Hess revealed in its 2016 capital guidance that it would be slashing its E&P budget by 40% year/year, down to $2.4 billion (see Shale Daily, Jan. 26), including $425 million in the Bakken (down 70% year/year) and $45 million in the Utica Shale. That represents a 20% reduction from the preliminary guidance Hess issued back in October.

Hill said Wednesday he expects Hess to stay on track to produce 330,000-350,000 boe/d in 2016, consistent with its preliminary guidance despite the further reduction in its E&P budget.

Hess continued to drive down drilling and completion costs in the Bakken and Utica in 4Q2015. In the Bakken, which averaged 112,000 boe/d in 2015, up 35% year/year, per-well costs averaged $5.1 million in 4Q2015, compared to $7.1 million in the year-ago period.

“Looking forward, we expect drilling and completion costs in 2016 to remain near this level, even though we will increase stage counts by approximately 40% as we move from our standard 35-stage design to a 50-stage design,” Hill said. “The 50-stage trials conducted in 2015 have been very successful, delivering more than a 20% average increase” in initial production rates.

Tighter well spacing pilots in the play were also successful in 2015, he said, allowing Hess to add 200 drilling locations to its inventory.

In the Utica, Hess reduced per-well drilling and completion costs by 30% to $9.6 million in 2015 compared to $13.7 million in 2014, Hill said. In 2016, Hess plans to drill five wells and bring another 14 online, with production expected to average 20,000-25,000 boe/d, he said.

“Despite the high quality of our acreage position and low 5% average royalty” the company’s joint venture in the Utica will “lay down the one rig we have operating at the end of” 1Q2016 due to low prices for natural gas and natural gas liquids (NGL) combined with Appalachian basis differentials, Hill said.

In the offshore, Hess will continue to invest in the Tubular Bells field in the Gulf of Mexico (GOM), in which it owns a 57.1% working interest, Hill said. Also in the GOM, Hess will proceed on the Stampede development and is expecting progress in two other non-operated projects in which it owns interest: the Sicily-2 appraisal well operated by Chevron and the Melmar prospect operated by ConocoPhillips.

Hill said the current prices have “enabled access to high-quality longer-term offshore prospects” like Melmar at “attractive entry costs.”

Company-wide production for 4Q2015 was 368,000 boe/d, up slightly from 362,000 boe/d in the year-ago. Year-end total proved reserves came in at 1,086 million boe, down from 1,431 million boe, with the decline driven by commodity price-related negative revisions to proved undeveloped reserves.

Hess reported a net loss for the quarter of $1.821 billion (minus $6.43/share), compared to a year-ago net loss of $8 million (minus 3 cents/share). The loss was driven by its E&P segment, which reported a 4Q2015 net loss of $1.713 billion.

Hess finished the year with a total net loss for 2015 of $3.056 billion (minus $10.78/share), driven by a $2.717 billion loss in its E&P segment.

The company reported $623 million in cash flow from operating activities in 4Q2015 compared to $1.074 billion in the year-ago period. Cash and equivalents excluding its Bakken Midstream joint venture were $2.713 billion, while total debt was $5.920 billion, as of Dec. 31, the company said.

“Three principles are guiding us through this lower-for-longer oil price environment,” CEO John Hess said. “Preserve the strength of our balance sheet, preserve our operating capabilities, and preserve our long-term growth options. By adhering to this disciplined approach, we finished the year with one of the strongest balance sheets and liquidity positions among our E&P peers, with $2.7 billion of cash, an undrawn $4 billion revolving credit facility that goes out to January 2020, and a net debt-to-capitalization ratio, excluding the Bakken Midstream joint venture, of approximately 15%.”