Thursday, September 9, 2010

GMX Lowering Capex Projection

Yesterday, GMX Resources announced that it will adjust its previously announced 2011 and 2012 capital expenditures by $25 million each year, from $200 million to $175 million. The company extended a sublease to another producer on one of its three rigs through March 25, 2013, the entire term of the lease, which accounts for the lower spending.  GMX will instead maintain two rigs in E. Texas.

The company will be able to maintain projected production levels but will eschew the growth opportunity provided by running the third rig.  To me, this is an indication that the company doesn't see gas prices picking up significantly in the next couple of years, and it knows it won't be rewarded for extending itself to grow production.

The company also noted results from two recent completions:
  • Mercer #11H, GMX Resources:  8.17 MMcf/day IP (average for 30 days of production); North Carthage Field (Bossier Shale), Harrison Co.
  • Verhalen "F" #1H, GMX Resources:  5.74 MMcf/day IP (average for first 60 days of production); Carthage Field (Haynesville Shale), Harrison Co.


Joe Z said...

If you look at the GMX August 24th presentation on their website, particularly slides 15 & 16, it looks like GMX has struck a balance of meeting production goals and working within cashflow with the two rig program. This keeps them from having to borrow working capital..a wise thing in todays market. It appears GMX has adequate hedges in place to keep the program profitable with the reduced rig count. Most likely will see more companies follow this lead as companies capitalize on drilling and completion cost efficiencies and technology advances become more widespread.
Appreciate your work on the Haynesville Play. Have had the link as a favorite for the last year and find your comments very informative.

Robert Hutchinson said...

Thanks, Joe. Just to be clear, I wasn't criticizing the wisdom of the strategy. I was noting the concept that they were "maintaining" their projections even though they are seeing stronger production numbers. It shows that companies aren't getting much credit for driving lots of dry gas production in this market.

In a world where growth is king, there aren't many businesses bragging on "maintaining." It is an unfortunate market reality for some folks these days, though. If you can't brag on growth, the next best thing is efficiency.