Approach Resources to trim drilling budget by 59%

Approach Resources joined other energy companies Thursday in pulling back from the oil field, announcing that it’s cutting its drilling budget by 59 percent.

The Fort Worth oil and gas exploration company will run one rig instead of three in 2015, using a budget of $160 million, down drastically from $393.5 million last year.

That’s also $20 million less than anticipated in December, another indication of how the dramatic drop in oil prices is affecting drillers’ spending decisions. Approach works primarily in the Wolfcamp Shale oil field in West Texas.

“In light of today’s lower commodity price environment, we have taken proactive steps to maintain our commitment to financial discipline and significantly reduce our capital spending budget to align more closely with our operating cash flow,” CEO Ross Craft said.

Approach also expects to cut expenses by up to 20 percent in 2015 because it has negotiated cost reductions from suppliers and completed a large-scale water-recycling facility in Crockett County in Southwest Texas that can store 329,000 barrels of water, five times its current capacity.

So far, the company has avoided layoffs but has not been filling open positions, Craft said, adding that Approach “runs pretty lean anyway.” The company has about 100 employees.

Approach has also established a $1 billion line of credit, and at the end of 2014, it had a long-term debt-to-capital ratio of 34 percent.

While Craft previously believed that oil prices might rebound by the end of 2015, he now says it may be 2016. In the current environment, he said, nobody is making “good money.”

“Given our strong balance sheet and lean cost structure, we believe we are well-positioned to sustain a period of low prices,” Craft said.

Revenue in the fourth quarter totaled $55 million, and the company earned adjusted net income of $3.4 million, or 8 cents per diluted share.

For the year, revenue was $258.5 million, a 43 percent increase over the prior year. Adjusted net income was $29.2 million, or 74 cents per diluted share.

Approach shares (ticker: AREX) climbed 2.7 percent, or 20 cents, to close at $7.64.

This story was originally published February 26, 2015 at 11:30 AM with the headline "Approach Resources to trim drilling budget by 59%."