Energy CEO: No need to spend capital until service costs come down

HOUSTON – The CEO of U.S. natural gas producer Magnum Hunter Resources Corp. told investors Friday the company won’t spend any more money on drilling or hydraulic fracturing until oil-field service costs come down.

We’re shooting for 40 percent discounts,” Magnum Hunter CEO Gary Evans said in a conference call with investors. “It will take time. Oil field services have got to feel the pain. I’m not going to spend $2 today for something I could spend $1 on six months from now.”

The small oil company hasn’t announced a 2015 annual budget yet but Evans guessed it may be around $100 million, down from its $400 million plan for last year. That number will depend on how far oil prices fall, he said.

Evans also said the Houston firm expects to increase production 100 percent in each three-month quarter this year compared to the corresponding quarter in 2014 even though it isn’t currently planning to invest in new drilling. That’s because it shut in legacy wells last year and expects to bring higher-producing wells online this year without further capital spending.

Magnum Hunter shares have fallen from $8.20 in June, when oil prices reached their 2014 peak, to $1.65 on Thursday. The price rose about 10 percent to $1.80 during the conference call.

The company had $958 million in debt in the third quarter and was worth $367.8 million on the stock market Friday. Evans assured investors Magnum Hunter isn’t concerned its borrowing base will shrink as it has taken measures to improve its balance sheets.

There’s no gun to our head,” he said.

The executive added he isn’t worried about falling oil prices because the firm has transformed itself from an oil company to a natural gas company, with 90 percent of its output coming from natural gas and natural gas liquids after a string of asset sales last year. Still, he said, he isn’t “too bullish” on natural gas prices for this year.

The company will move its headquarters from Houston to Dallas in March.