Gas drilling plans hit the wall
Energy companies buckle down amid low prices

BY JACK MONEY

Published: October 3, 2008

SandRidge Energy Thursday said it will cut its capital expenditure budget in half during the coming year because of dropping natural gas prices.

The company said it plans to cut the budget from $2 billion to $1 billion.

SandRidge anticipates it still will grow its production of natural gas by 20 percent, to 120 billion cubic feet.

That compares to this year’s anticipated production of 100 billion cubic feet of natural gas.

"As we move into 2010 and 2011 ... we will be able to grow at a rate of 30 percent or more in those years,” said Tom Ward, SandRidge’s chairman and chief executive.

Like oil, the price of natural gas hit a high point this summer and generally has been dropping since.

In June, it was approaching $14 per million British thermal units. Last week, it was selling at about $7.40 per million British thermal units at the Henry Hub, the sales point on a south-Texas pipeline used by the New York Mercantile Exchange to trade the commodity.

Gas at the wellhead is going for several dollars per thousand cubic feet less than the cost of gathering, processing and compressing it.

SandRidge officials said they are still excited about the company’s anticipated production this year, despite having to close off some production because of hurricanes and a fire it experienced at one of its Texas natural gas processing plants earlier this year.

The Grey Ranch Plant is expected to return to service Nov. 1, and the company has been successful with its wells in west Texas, Ward said.

The company will pay for its 2009 capital expenditure program using cash and an existing $1.1 billion credit facility.

SandRidge is the second big natural gas producing company to announce rollbacks on drilling plans because of soft prices for natural gas.

Chesapeake Energy Corp. announced in September it would cut its capital expenditure budget by about $3.2 billion through 2010.

"This is not a surprise,” said Bruce Bell, chairman emeritus of the Mid-Continent Oil and Gas Association of Oklahoma.

"It does not pay to drill a well that you are going to have $4 million in on drilling costs when you are only getting $3.50 a thousand cubic feet for the gas it produces,” he said.

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