Consol Energy on Wednesday sharply cut its 2016 capital budget for its E&P division, Kallanish Energy reports.
Capital expenditures (CAPEX) for E&P is now set at $205 million to $325 million — $185 million lower than the previous guidance of $400-$500 million, based on the guidance midpoint.
Total E&P capital, including midstream, has been cut by roughly $1 billion since 2014 – from $1.2 billion to the projected $205-$325 million — with corresponding production projected to grow 60%, from 235.7 billion cubic feet-equivalent (Bcfe), to roughly 377 Bcfe, respectively.
The reduction in 2016 E&P CAPEX “reflects continued benefits from drilling and completion efficiencies, and the deferral of mainly wet gas completions into 2017,” Consol said.
“Consol’s updated 2016 plan reflects the company’s operational flexibility to respond effectively to the continued weakness in commodity prices, as well as the company’s commitment to de-lever the balance sheet through the execution of the organic free cash flow plan,” said Nicholas J. DeIuliis, company CEO.
DeIuliis added the expected weighted average rate of return on 2016 incremental capital is above 30%.
The energy company believes it has a “meaningful lever” to pull to partially offset the deferral of activity via potential production benefits related to additional gathering system debottlenecking projects in the second half of the year.
The additional debottlenecking projects could provide upside benefits to 2017 gas production volumes, Consol added.
The lower end of the E&P CAPEX primarily reflects capital associated with completing roughly 37% of the company’s inventory of drilled but uncompleted wells (DUCs). The higher end of the range adds back what Consol called a “modest” level of drilling activity, which could begin around mid-year.
“The extent of drilling activity in 2016, if any, will primarily be a function of rates of return and commodity prices, and the assessment of the dry Utica wells drilled in 2015,” according to Consol.
The company expects to make a decision regarding drilling capital allocation before mid-year 2016.
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