Continental cuts 2016 capex by 66pc to $920mn

Key Bakken producer Continental Resources cut its 2016 capital expenditure (capex) by 66pc to $920mn in a bid to conserve funds until an expected crude price recovery later this year.

Continental expects its 2016 capex will be cash flow neutral at an average WTI price of $37/bl. At a WTI average of $40/bl, the independent expects to generate cash flow in excess of $100mn.

The budget "confirms our intense focus on cash flow neutrality," chief executive Harold Hamm said. "We are dedicated to preserving the value of our premier assets and building operational efficiencies in preparation for crude oil prices to stabilize and start recovering later this year."

Producers are accelerating capex cuts to keep spending within their hugely reduced cash flows as options to tap equity or debt markets for funds run dry with the oil market weakness lasting for more than a year now, and prices plunging to 12-year lows.

The sharply reduced spending plan will lower output, to an average 200,000 b/d of oil equivalent (boe/d) compared with 221,700 boe/d expected this year, it said. First quarter output will range between 210,000-220,000 boe/d, but reduced drilling and lower well completions will cut output to 180,000-190,000 boe/d by the fourth quarter.

If market weakness persists, the company may reduce capex further in 2016. "In terms of our budget, each $5 move in WTI prices impacts our full-year cash flow by $150mn to $200mn," chief financial officer John Hart said.

Of its total capex, the company expects to spend 35pc in the North Dakota Bakken basin and 28pc in the South Central Oklahoma Oil Province (SCOOP).

The company plans to operate an average of 19 rigs for the year, including four in the Bakken and five to six in SCOOP. It recently decreased its rig count 19 from 23 by dropping four rigs in Bakken. The company expects to complete 71 wells in 2016, with 26 in Bakken and 25 in SCOOP.

It plans to defer completing most Bakken wells in 2016, which will increase the drilled but uncompleted (DUC) well inventory to 195 by the end of 2016 from 135 at the end of this year.