BHP Billiton’s (BHP) US oil and gas cuts naturally dominated business news yesterday. So a much smaller hacking and slashing by oil and gas tiddler, Senex Energy (SXY) was overlooked by most investors.
But the cuts and the reasons for them are no less important than those impacting BHP – weak demand and that near 60% slump in global oil prices since last June.
Senex is a mid-level oil and gas producer from the Cooper Basin. It has been hinting at cuts now for the last two months, and yesterday firmed up their size.
In a statement to the ASX yesterday Senex revealed a 20% hack to its capital expenditure for the June 30, 2015 financial year.
The company said capex in 2014-15 will now be reduced to $85 million-$90 million, down from the original budget of $100 million-$120 million, while other costs are also being cut.
Senex said higher-risk exploration spending was being delayed, with the emphasis to fall on investment that enhances production. Just 16 wells will now be drilled in the 2014-15 drilling program, down from a planned 26.
So far production guidance for the full year of at least 1.4 million barrels of oil equivalent isn’t affected.
SXY 1Y – Senex hacks into spending
Managing director Ian Davies said the company has also hedged its production for the rest of the financial year to give it certainty on cash flows.
“We have a very large portfolio of growth projects with long term tenure. In this environment we must continue to show discipline in the prioritisation of these projects,” Mr Davies said in the statement yesterday.
Cost savings of $6 million a year have been implemented, Senex said.
Senex shares have slumped more than 60% in the past 12 months, closing on Tuesday at 26c.
The company also reported a 33.5% fall in December quarter sales compared to the September quarter, thanks to the slide in oil prices.
Revenues fell to $28.2 million in the quarter, from $42.4 million in the preceding three months, and from $44.5 million in the December quarter of 2013.
Naturally the cuts by Senex are smaller than those outlined yesterday by BHP (with more to come), the $700 million plus slash by Santos and the $1 billion suggested by last week’s comments from Woodside. But they do reflect the impact of the slide in oil and gas prices on producers of all sizes.
The next problem for many companies will be the question of asset impairment if oil prices do not recover by mid year.
