Natural gas explorer SandRidge Energy Inc. has drastically reduced its 2009 capital expenditure (capex) budget and plans to cut its U.S. onshore rig count to 12 by the end of the month, down from 47 rigs in September.
The Oklahoma City-based independent on Tuesday said it would reduce its 2009 capex plans to $500 million, down from an early October guidance of $2 billion. The revised budget would allow the producer to operate “within its cash resources and increase production by 10% over expected 2008 production,” it said.
“During the fourth quarter, we have reduced our planned 2009 capital expenditures from $2 billion to the current $500 million in response to the weak commodity and economic environment,” said CEO Tom Ward. He noted that “even with a reduction of our capex to $500 million, we can grow our production by 10%” in 2009 from 2008.
SandRidge explores and develops leaseholds in the gas-prone Cotton Valley Trend in East Texas and in the West Texas Overthrust.
Additions to SandRidge’s natural gas and oil derivatives contracts for 2009 production resulted in swaps and collars covering a total of 79.8 Bcfe, or around 83% of expected gas production and 73% of expected total production. The output is hedged at an average New York Mercantile Exchange (Nymex) price of $8.61/Mcfe, and basis swaps cover 65.7 Bcf at an average differential to Nymex prices of 74 cents/Mcf.
SandRidge received “several bids” for a package of assets that it wanted to sell in East Texas, and it said it would have accepted a bid “had there been certainty with respect to capital availability. While the company is negotiating an agreement to sell its undeveloped deep rights in East Texas, it has decided that retaining and developing its Cotton Valley assets is a better alternative than selling into a weak commodity price environment.”
SandRidge’s Cotton Valley leasehold is producing 50 MMcfe/d net. Twenty-three recent wells drilled in the Minden field produced an average of 64 MMcfe in the first month, which is 68% above the company’s forecast.
The company has scheduled a conference call for 9 a.m. EST on Wednesday. The call may be accessed within the United States at (866) 783-2138 or via www.sandridgeenergy.com.
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