"How did you go bankrupt? Two ways. Gradually, then suddenly." - Ernest Hemingway
The challenging price environment in the energy markets has gone on further than many of us have expected, and many truly bullish outlooks have been revised with new and dismal expectations. It was roughly two years ago that Goldman Sachs' Jeff Currie predicted oil to hit $150, yet his recent update to their 2015 predictions for the price of oil has moved the year-end goalposts to a mere $50.40/bbl for Brent crude and $47.15/bbl for WTI.
That circumstances have changed, and why, has been well-covered by now and is beyond the scope of this article. Instead, as with my last article 50 Oil And Gas Companies And Their 2015 Capital Expenditures, we're taking a look at a broad spectrum of energy producers and finding out just what they're up to in the coming year with regards to capital expenditure. With that out of the way, let's begin.
My Still Rather Blind Selection Methodology
Having already covered every issue in my own portfolio as well as most of the majors, I selected these entries in this article based on no particular reason other than that they were oil and gas companies that had at least some exposure to oil. Some of these picks are more heavily weighted natural gas producers than others. Some of them are based in America or Canada, and others are based elsewhere. Some of these producers may not survive the coming year, while others are well-positioned to hunker down and wait out the storm.
Once having selected the stars of this article, I set out to each company's website and read through their news releases to find each company's adjustments in guidance and projected capital expenditures over the course of the next year. Through this exhaustive search, I hope to provide a general sense of the free market's response to the price collapse.
American Eagle Energy Corporation (NYSEMKT: AMZG)
American Eagle Energy Corporation took the turn of mirroring Continental Resources (NYSE: CLR) by cashing out their entire hedging position before the end of the year in order to provide greater liquidity, as indicated on their Dec. 31 operations update news release. Also per this release, American Eagle has indicated that they have completely suspended 2015 capital expenditures for new drilling and will only complete their two net wells (Byron 4-4 and Shelley Lynn 4-4N) started in 4Q 2014. While their 3Q operations update had indicated that American Eagle was planning to lay down one of their two active rigs due to price volatility concerns, the complete slashing of new capital expenditure factors among the most severe reductions we have analyzed in these articles so far.
Anadarko Petroleum Corporation (NYSE: APC)
That Anadarko has been mum about future downward revisions to their 2014 $8.1-$8.5 billion capital expenditure budget should not be surprising, given that their preference is to announce upcoming budgets once at the beginning of the fiscal year, and no further indications are given during their quarterly updates. Furthermore, their recent $1.25 billion issuance of senior notes gives no clues as its listed purpose was to 'fund general corporate purposes'. We will likely have to wait until they are prepared to announce their 2015 budget as per their corporate standard.
ARC Resources (OTCPK: AETUF)
A minor cut, from $875 million to $750 million, in 2015's capital expenditure budget was announced January 7, along with a bought deal financing offer to generate working capital for the company and reduce debt. By way of comparison, 2014 capital expenditures topped $750 million by Q3, according to ARC's Q3 2014 MD&A.
Arsenal Energy (OTCQX: OTCQX:OTCQX:AEYIF)
According to its 4Q guidance release, Arsenal also monetized its hedging at the end of 2014, generating a total of $16.1 million to reduce outstanding debt to $51.2 million. The $26.8 million capital expenditure program for 2015 was also announced in this release, down significantly from 2014's stated budget of $56 million.
BG Group (OTCPK: BRGXF)
We will have to be patient to find out BG Group's plans for the next year, as per their 3Q 2014 results:
2015 guidance will be provided at the Group's fourth quarter and full year results on 3 February 2015.
Birchcliff Energy (OTCPK: BIREF)
Birchcliff Energy targeted capital expenditure budgets of $450-500 million in its November 3Q 2014 report, but this number of course assumes at least the optimistic pricing we saw in that month. That capital expenditure money would have financed production growth to 48-50kboepd. However, the caveat was added:
Birchcliff will adjust its 2015 capital expenditure program to maintain its strong balance sheet if commodity prices weaken or other assumptions materially change from our preliminary estimates.
Commodity prices certainly have weakened since then, so we will likely see revised figures in the company's 2015 budget which will be released on February 11.
Bonavista Energy Corporation (OTCPK: BNPUF)
A halving of the dividend to $.035/share accompanied a 2015 capital expenditure budget reduction to $375-$425 million, down from a previously targeted range of $525-575 million. By way of comparison, $477 million had already been spent by 3Q 2014, which targeted $580-600 million spending throughout the course of the year after a budget increase in 2Q 2014.
Bonterra (GREY: BNEFF)
A corporate update issued December 18 promised that the company would be reviewing its 2015 capital expenditure plans, but no concrete numbers were stated. They will be looking to complete 9 wells in Q1 2015, and be looking to reduce costs across the board rather than merely focusing on reduced capital expenditures. By way of comparison, a 2014 capital expenditure budget of $120 million was posted in Q4 2013 results.
Cairn Energy (OTCPK: CRNCY)
Cairn Energy's ongoing battle with India's tax authorities set the stage for a rocky 2015, with no end in sight to the trouble. If Nokia (NYSE: NOK) set any kind of precedent by the surrender of their Chennai plant, the delay in resolution seems to bode ill for Cairn. In the meantime, Cairn hints at a forward capex reduction of at least $380 million over 3 years in their pre-close update, but the actual data is vague.
Canacol Energy (OTCQX:CNNEF)
Per Canacol's guidance update dated January 12, the company will release its calendar 2015 capital expenditure plans in early February. By way of comparison, Canacol's 2014 capital expenditure program totaled $150 million announced on January 23, but we will likely see this decline.
Canadian Natural Resources Limited (NYSE: CNQ)
Canadian Natural Resources Limited announced a $2.4 billion reduction in their projected 2015 capital budget on January 12, down from $8.6 billion announced on November 6. With a large percentage of their production hedged, the company anticipates a daily production target of 552k-592kbbl/day of oil and 1,730-1,770mmcf/day of natural gas, down from 571k-611kbbl/day and 1,790-1,830mmcf respectively.
Cenovus (NYSE: CVE)
2014 guidance had planned for Cenovus to execute capital spending of $3.0-3.1 billion over 2015, but the company has elected to cut spending for the new year to a total of $2.5-2.7 billion. Of that amount, 75% is committed to current oil sands production and is likely to remain unflexible. The company hopes for at least $65/bbl WTI in order to fully fund its productions via internal cash flow.
Continental Resources (NYSE: CLR)
The lurid details of the ongoing divorce battle between oil magnate Harold Hamm and ex-wife Sue Ann Arnall aside, Continental Resources also made the news recently by cashing out their entire hedging position late last year in a bullish move targeting higher oil prices. While the wisdom of both maneuvers remains to be seen, Continental Resources' $2.7 billion 2015 capital expenditure budget was announced on December 22, slashing their active rig count from 50 to 34 by the end of 1Q 2015. This decrease was itself a reduction from a prior reduction, which was cut at the time to $4.6 billion from $5.1 billion in their 3Q 2014 report.
Crescent Point Energy (NYSE: CPG)
While Crescent Point Energy has announced a $1.45 billion capital expenditure budget for 2015, a 28% drop from their prior announced budget for the year, they were careful to add that hedges over C$90/bbl comprised over 50% of their targeted output for that calendar year, and that a portion of production was hedged even out until 2018. If low prices persist, these moves could bolster the company's fortunes in hard years to come.
DeeThree Exploration (OTCQX: DTHRF)
DeeThree's capital expenditure budget of $290-295 million, announced in their 3Q report, has not been updated further as news releases from the company are sparse and limited largely to quarterly reports. Therefore, we should not expect to see further guidance from the company until early February, when 2014 year end reports are due.
Devon Energy (NYSE: DVN)
Devon Energy made the rather bold promise of 20-25% production growth with roughly frozen year-over-year capital expenditures in their 3Q report, but holds out more details for later. We should look for news again in early February and their annual report.
Encana Energy (NYSE: ECA)
Encana's stated 2015 capital expenditure budget of $2.7-2.9 billion targets their higher margin properties, anticipating a major surge in oil production to 140k-160kbbl/day and 1.5-1.8bcf/day in natural gas, but these targets are assuming $70/bbl WTI and $4/mmcf gas prices. No further updates have been provided since this release, which was made on December 16.
Enerplus (NYSE: ERF)
A December 17 press release indicated a projected capital expenditure budget of $635 million, a reduction of $195 million from prior targets. By way of comparison, their 2013 Q4 results set an initial goal of $760 million, which was revised to $800 million by 2014 2Q results.
Epsilon Energy (OTCPK: EPSEF)
Having seen fit to provide capital expenditure guidance of $3 million for the balance of 2014 in their October 29 release of 3Q results, Epsilon Energy demurred on pontificating further into the future. We will likely see more information in late January or early February when year end results are released.
Freeport-McMoRan (NYSE: FCX)
Freeport-McMoRan's oil and gas capital expenditures for 2014 were projected to be $3.6 billion in their October 28 3Q report, but no further guidance has been issued at this time.
Gastar (NYSEMKT: GST)
The specter of their Axiall lawsuit now behind them, Gastar's 3Q report indicates reductions in projected capital expenditure spending by revising their 2015 capital expenditure budget downward to just $173 million, from a previously announced $257 million. This will keep spending roughly in line with 2014 totals.
Hess Corporation (NYSE: HES) (author's note: no relation)
Hess Corporation has positioned themselves as an outlier in the energy sector, with bold plans to carry on with their 25%-controlled $6 billion Gulf of Mexico deep sea drilling project and a 5-year projection promising growth, but that was before $48/bbl WTI. We will have to wait for additional guidance from the company for more information.
Husky Energy (OTCQB: HUSKF)
A recent fire at their Lima, Ohio refinery certainly put a muzzle on Husky Energy's outlook, but their projected capital expenditure of $3.4 billion had already been announced on December 17, down from a 2014 projected budget of $5 billion. As of their 3Q results, $3.6 billion had already been spent in the calendar year, not counting 4Q.
Imperial Oil (NYSEMKT: IMO)
Imperial Oil CEO Rich Kruger's earnest 2013 projection of a production increase to 600,000bbl/day now seems a little more thinly valued now than it did at the time. Regardless, Imperial's 2014 presentation at the London Energy Conference indicated no signs of halting this ambitious goal. Imperial's focus on oil sands development rather than shale drilling makes their growth plans more inflexible than average.
Lukoil (OTCPK: LUKOY)
A $2 billion year-over-year capital expenditure cut, to $14 billion for 2015, is in the cards for Russian-based Lukoil as of last month. With Russia fighting to stave off economic turmoil, Lukoil's forward direction will inevitably beg questions yet unasked.
Marathon Oil (NYSE: MRO)
Marathon's 2015 capital budget was revised to an approximate total of $4.3-4.5 billion, down roughly 20% from prior announced levels.
MEG Energy (OTCPK: OTCPK:OTCPK:MEGEF)
A major drop in MEG Energy's 2015 capital expenditure budget was announced on December 17, slashing planned spending from $1.2 billion to $305 million. Nonetheless, the company believes it can maintain a portion of its upward trajectory of growth without additional spending. We will have to wait and see.
Midstates Petroleum (NYSE: MPO)
Expecting to hold firm to their 2014 capital expenditure guidance of $500-550 million, Midstates Petroleum hit a snag when their planned sale of their DeQuincy Assets fell through, shorting the company of $90 million in proceeds. Further guidance for 2015 has not yet been released.
Murphy Oil (NYSE: MUR)
Their 2014 Wells Fargo Energy Conference presentation set expectations of a 2015 capital budget of roughly $3.12 billion, or 20% lower than 2014.
NuVista Energy (GREY: NUVSF)
Nuvista's guidance from their October 30 3Q report calls for a capital expenditure budget of $340-380 million, roughly a 10% increase from 2014's $310-320 million. No further guidance has been provided from the company so far, but their recent November 2014 investor's presentation upheld this view so far.
Occidental Petroleum (NYSE: OXY)
Occidental has not specifically named their 2015 capital expenditure targets yet, hinting instead in their 3Q report that:
Our 2015 plans will include a variety of spending levels affording us the flexibility to respond rapidly as the commodity price environment dictates.
We are likely to hear more when their 4Q report is released January 29.
Pacific Rubiales Energy (OTCPK: PEGFF)
A $1.5 billion capital expenditure budget, delineated in their December 13 investor presentation, hopes for a realized WTI price of $70/bbl. Their Q3 report, meanwhile, displays Pacific Rubiales' first hint of cutting capital expenditure, with a 2014 drop from $2.5 billion to $2.3 billion to be realized in the final quarter.
Parex Resources (GREY: PARXF)
An optimistic 2015 capital expenditure budget of $300 million has been slashed in half, to $145-150 million, in an update released on January 8. Parex is targeting reduced drilling and fewer wells for the year, although if Brent creeps up above $60 they may increase this number. Despite these cuts, Parex still anticipates an 18% growth in production for the year.
Pengrowth Energy Corporation (NYSE: PGH)
Pengrowth's $755 million capital expenditure budget for 2014 has been dialed back to $700 million for 2015, as indicated in their November 11 investor presentation. Similar to Parex, however, Pengrowth anticipated a 9% material increase in production over the course of the year, to 78,200boepd. Given the extreme difference in oil prices between November and now, however, we may see these numbers revised further.
Penn West Petroleum (NYSE: PWE)
After a November 17 announcement of an $840 million 2015 capital expenditure budget proved too enthusiastic, Penn West announced both a cut in projected capital expenditures (to $625 million) and a major dividend reduction to $.03/share. The memo also indicated a suspension of the ongoing DRIP plan.
Perpetual Energy (OTCQX: PMGYF)
Perpetual Energy has elected to give guidance of $65 million on 1Q 2015's spending targets in their Q3 2014 report, finalizing their 2015 budget at the close of 1Q. Therefore, we should have more information by May 2015, unless the company decides to give further guidance sooner. By way of comparison, Q3 2014 resulted in $83 million capital expenditure, with $193 million spent throughout 2014.
Premier Oil (OTCPK: PMOIY)
Another year-over-year reduction is in the cards as Premier Oil announced that their total capital expenditure budget for 2015 would sink to $820 million, down from $1.16 billion in 2014. Of these totals, $600 million will go toward development while $220 million will be spent on exploration (2014 totals of $1 billion and $160 million, respectively).
Rosetta Resources (NASDAQ: ROSE)
A December 16 press release indicated 2015 plans targeting a capital expenditure budget of $700-800 million. This is significantly down from 2014's roughly $1.2 billion in spending, as well as their 3Q projection of $950 million.
Sanchez Energy (NYSE: SN)
Another recent update, released on January 7, provides for an annualized capital expenditure budget of $600-650 million, of which $400-450 million excludes 2014 carryover capital and is the annualized 2015 capital expenditure figure. This is down significantly from previous projections of $1.15 billion for the coming year.
ShaMaran Petroleum Company (OTCPK: OTCPK:OTCPK:SHASF)
Kurdistan-based ShaMaran Petroleum announced a 2014 capital budget of $101 million during their Q1 2014 release, so we should not expect further updates for some time.
Statoil (NYSE: STO)
Statoil's financial calendar hints at a February 6 strategy update news release, which is consistent with other producers waiting for year-end results to guide on 2015 capital expenditure.
Stone Energy (NYSE: SGY)
Stone Energy's 2014 capital expenditure budget, increased to $895 million as of their Q3 2014 report, dwarfs the required portion of their 2015 capital budget which sits roughly below $600 million (as drawn on their December 11 investor presentation, presented at the Capital One Southcoast Energy Conference). While the graph demonstrates a potential range of up to over $800 million, I would find it unlikely for this number to be achieved.
Suncor Energy (NYSE: SU)
Decisive actions taken by Suncor in response to falling oil prices include a $1 billion capital expenditure cut, down from $6.2-6.8 billion previously announced in their 3Q guidance, as well as $800 million in roster trimming and other cost cuts.
Synergy Resources (NYSEMKT: SYRG)
Synergy's December operations update promises an optimistic target of 100% production growth increase at the same time as diminishing projected capital expenditures for fiscal 2015, dropping from $200 million to $180 million for the year. This is down from their prior assumption of $225 million, from their 4Q 2014 results report released on October 28. (Therefore, Q1 FY2015 concluded November 30). Therefore, Synergy's total figures for FY 2015 may average slightly higher than many other producers due to increased capital spending in their 2015 Q1 which was most companies' 2014 Q4.
Tourmaline Oil Corporation (OTCPK: OTCPK:OTCPK:TRMLF)
Reducing its 2015 capital expenditure program to $1.4 billion from a previously projected $1.6 billion, Tourmaline Oil Corporation has nonetheless not adjusted its 2015 guidance of 164kboepd. The company will be operating 16 rigs rather than 20, and will drill a total of 30 fewer net wells than previously anticipated. This is a step back from their August increase to 20 rigs and boost in production guidance.
Trilogy Energy (OTCPK: TETZF)
By suspending its dividend and reducing its 2015 capital expenditure budget to $250 million, Trilogy Energy hopes to find stability in a tumultuous market. Trilogy will, however, reserve the right to return funds to shareholders via a recently approved normal course issuer bid. A planned 2014 capital expenditure budget of $375 million had been nearly exhausted by the release of the Q3 report, and the company revised this figure upward to $430 million as of that same news release.
Tullow Oil (OTCPK: TULWF)
A 2014 capital expenditure budget of $2.1 billion is likely to see year-over-year declines, as the November 12 news release assumed a 2015 budget of $2 billion. With job cuts looming on the horizon for Tullow, expect the anticipated January 15 news release to provide for a much smaller budget than initially projected.
Venoco (NYSE: VQ)
Venoco announced a 2014 capital expenditure budget of $88 million in their Q4 2013 report, of which only $17 million was expended in Q3 2014 while $28 and $26 million were spent in Q2 and Q1 respectively. This quarterly decline is hardly surprising given that the company already hinted at their target numbers, and with declining oil prices on the horizon, likely to continue or even accelerate in 2015.
A Libyan production halt due to increased hostilities notwithstanding, details are flimsy on Wintershall's 2015 capital expenditure plans. However, a $1.3 billion September acquisition by Wintershall from Statoil is calculated to reduce capital expenditure through 2020 by a total of $1.8 billion, and this transaction will prove accretive if these speculations are true. Still, data is extremely thin. (Author's note: Wintershall is a subsidiary of BASF (OTCQX: OTCQX:OTCQX:BASFY)).
ZaZa Energy (NASDAQ: OTC:ZAZA)
CEO Todd A. Brooks' May 2014 acceptance of a $1 cash salary plus equity can only be seen as a bullish and confident move, but he may lately have wished he took the money instead. In any event, ZaZa's details are thin on their 2015 plans, and their total 2014 capital expenditures are only given up to the 3Q report, which indicates $5.6 million in new capital expenditures and $21.1 million in carried costs.
Subsequent to my previous article, more companies have gone on the record indicating capital expenditure cuts for the coming year. I will continue to monitor these and release updates to both of these articles as more information rolls in.
One common thread I seem to be finding is this-for many companies that reduce capital expenditures, most are promising stable year-over-year production despite spending reductions. We will have to monitor what that exactly means to the ongoing price of oil, but it may indicate that the recovery will be slower than investors hope.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
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