Independent producers Devon Energy Corp. and PetroQuest Energy Inc. Monday joined the growing list of domestic producers that have scaled back their quarterly production projections and/or cut back their capital expenditures (capex) due to lagging natural gas prices, reduced production volumes in the aftermath of Hurricanes Gustav and Ike and the growing credit crunch.
Other producers announcing similar cutbacks in recent weeks have been Chesapeake Energy Corp. (see Daily GPI, Sept. 24), Petrohawk Energy Corp. (see Daily GPI, Oct. 2), Penn Virginia Corp. (see Daily GPI, Oct. 6) and SandRidge Energy.
As a result of the back-to-back hurricanes, Devon said it has revised its third quarter and fourth quarter oil and gas production forecasts. It now projects that the companywide production for the third quarter will be 59 MMboe, down from its previously forecast 61 MMboe. About two-thirds of the reduction is attributable to the U.S. hurricanes and typhoons in the South China Sea. The weather-related reduced volumes are roughly 40% oil and 60% natural gas, according to Devon, the largest U.S.-based independent producer.
As for the fourth quarter, the Oklahoma City-based producer said it expects to produce 61-62 MMboe, depending upon the timing of repairs, down from its prior projection of 64 MMboe. Most of the reduction in production volumes is hurricane-related, and is evenly split between oil and gas.
To date, Devon estimates that it has restored approximately 60%, or 30,000 boe/d, of its pre-hurricane oil and natural gas production level of 50,000 boe/d in the Gulf of Mexico. It said it expects to restore another 5,000 boe/d of offshore production during the fourth quarter as repairs are made to production facilities and transportation systems. But Devon noted that 1,200 boe/d of offshore produce will be curtailed indefinitely because of Hurricane Ike, which toppled two of the company’s platforms in the Eugene Island area.
Devon’s remaining shut-in Gulf production (about 14,800 boe/d), about half of which is oil and half of which is natural gas, is scheduled to be restored in 2009 as third-party facilities are repaired, it said. The onshore oil and gas production that was curtailed in the third quarter following Hurricane Ike (600,000 boe/d) has been restored, the company reported.
Lafayette, LA-based PetroQuest Energy reported that 1.2 Bcfe of net production was deferred from the third quarter as a result of the downtime cause by the twin hurricanes. The producer said most of its Gulf Coast properties have been restored. It is currently producing approximately 100 MMcfe/d, with an additional 6.5 MMcfe/d of Gulf Coast production shut in from storm damage.
Because of the hurricanes, PetroQuest Energy said it expects third quarter production to be in the range of 86-90 MMcfe/d, and sees the remaining shut-in production being restored either in the fourth quarter of 2008 or first quarter of 2009.
Citing lagging gas prices, the company said it has cut back its capex program for the remainder of the year. While so far this year PetroQuest has expanded its acreage position in the Woodford Shale in Oklahoma’s western Arkoma Basin by about 65%, it said it expects to scale back its leasing efforts for the rest of the year. It also has deferred the drilling of several East Texas and other Gulf Coast projects to 2009.
With a smaller program, PetroQuest estimates that its capital expenditures this year, excluding acquisitions and capitalized interest and overhead, will range from $265 million to $285 million.
To help finance its future projects, the company announced that it closed on a $300 million bank credit facility. The credit facility provides an initial borrowing base of $150 million, which represents a $55 million increase from its previous facility, PetroQuest said.
“Our strong growth in reserves from our diversified portfolio of assets was recognized by the group of banks that forms our new credit facility. We continue to forecast reserve growth in excess of 40% during 2008 from the drill bit alone, while remaining mindful of liquidity as we navigate the effects of the global economy on our business,” said PetroQuest CEO Charles T. Goodson.
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