Early this year, Williams officially spun off it’s exploration and production operation into a new company called WPX Energy (see this MDN story). The new company inherited one of the top 10 drilling operations in the Marcellus and Utica Shales.
Yesterday, WPX announced their capital spending plans for 2012 and it’s no surprise, given similar announcements from other major drillers, that WPX is scaling back drilling in the Marcellus from seven rigs to three due to the low commodity price for natural gas. WPX is shifting capital resources to the Bakken Shale where they are drilling for oil and to those geographies rich with natural gas liquids (NGLs).
From the WPX press release:
WPX Energy is forecasting up to $1.2 billion in capital spending for 2012 and full-year EBITDAX of approximately $1.2 billion. A definition of EBITDAX is included at the end of this news release.
Prior to the decline in natural gas prices in 2012, Williams (NYSE:WMB) had originally forecasted a capital budget of $1.2 billion to $1.8 billion and double-digit production growth for WPX Energy.
“For 2012, we’ve lowered our spending in keeping with our philosophy for capital discipline,” CEO Ralph Hill said. “We’re primarily focusing on our Bakken oil and Piceance natural gas liquids properties where we have the best opportunities to generate the highest revenues and returns.”
Approximately 95 percent of the company’s 2012 domestic capital budget is focused on its core areas in the Bakken Shale, Piceance Basin and Marcellus Shale, with approximately 65 percent of the budget designated for areas with oil and NGL production.
WPX plans to add a sixth rig in the Bakken Shale at mid-year and deploy an average of five rigs in the Piceance Basin and three rigs in the Marcellus Shale in 2012. This represents a reduction of six rigs in the Piceance and four rigs in the Marcellus vs. previous plans, which equates to a more than 40 percent decrease in the company’s rig count in these basins.
“This drilling program allows us to remain in a position of strength with regard to our balance sheet,” Hill said. “At the same time, it provides us with the flexibility to grow the oil and NGL component of our portfolio.”
Capital spending is expected to yield a 50-60 percent increase in domestic oil production and a 10-12 percent increase in NGL production.
Domestic natural gas production is expected to remain flat compared with 2011. This is based on $400 million in capital spending reductions for natural gas areas in 2012 vs. the projected 2012 capital budget from late 2011.
Under WPX’s updated capital plan, overall production for all products is expected to grow at 4 percent in 2012 on an Mcf equivalent basis, with volumes for oil and NGL converted to natural gas equivalence using a 6-to-1 ratio. In 2011, WPX averaged 1,408 MMcfe per day.
“We believe that our portfolio remains one of the most flexible and higher returning in the nation. It allows us to be nimble with our drilling activity depending on commodity prices,” Hill added.
WPX is forecasting full-year EBITDAX of approximately $1.2 billion for 2012. This assumes the impact of the company’s existing hedges (detailed below) and a $3 NYMEX natural gas price.
At a $3.50 natural gas price, EBITDAX would be approximately $1.3 billion for 2012. At a $4.00 natural gas price, EBITDAX would be approximately $1.4 billion. All three EBITDAX scenarios assume a $99 per barrel oil price. A $1 change in the price of oil equates to a $5 million impact to EBITDAX.*
*WPX Energy (Feb 6, 2012) – WPX Energy Provides Update on 2012 Capital Spending