On Monday we reported that Anadarko, which previously had been lamenting the egregious amount of liquidity in the energy sector, became the first company to slash its full year capex budget by $300 million from a previous range of $4.5-$4.7 billion. As noted in our discussion, this was a material event not only for APC but the entire sector as “the Anadarko news is clearly negative for its shale peers, most of whom are set to announce similar capex declines.”
Moments ago, this was confirmed when Whiting Petroleum, the largest oil producer in North Dakota’s Bakken region, became the second shale driller in the current cycle to slash its full year capital spending budget by 14% to $950 million from a prior estimate of $1.1 billion. .
Whiting CEO James J. Volker explained it as follows: “One of our priorities is to maintain a strong balance sheet while delivering high returns and sustainable growth to investors. We plan to reduce capital spending to $950 million while achieving 14% production growth from first quarter to fourth quarter 2017. This is a testament to the high quality of our asset base, which is also evident in the strong 23% growth in proved reserves from year-end 2016 levels. A large component of this growth was driven by the effect of enhanced completions in the Williston Basin.”
The recent collapse in WLL’s capex as a result of the drop in oil prices is shown below, and at the current budget it appears that there will be little if any incremental capex growth from here.
In addition to being the latest confirmation of Horseman’s bearish shale thesis, Whiting also posted its eighth consecutive quarterly loss, as production slipped, sending its shares lower by 4% to $5 in after-hours trading. The company’s stock has fallen 60% YTD.
As we said on Monday, the launch of a new round of CapEx cuts “will likely end up being positive for oil prices as much of the “swing” crude production courtesy of the US shale basin is about to be reduced substantially, in a clear victory for OPEC which has been waiting long for just this day.”
That said, future pain may be deferred courtesy of WLL’s aggressive hedging. In the press release, the company announced that it was more than 64% hedged for the remainder of 2017 as a percentage of June 2017 production, with price hedges going as low as $35 for Q3 and Q4 and $38.57 all of 2018.