RSP Permian Reports Sharp Rise in Fourth-Quarter Profits, Cuts Back on Capex in 2015

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Researched by Industrial Info Resources (Sugar Land, Texas)--Impacted by low commodity prices, oil and gas producer RSP Permian (NYSE:RSPP) (Dallas, Texas) is budgeting $400 million to $450 million in capital expenditures for this year, roughly half that of 2014, according to its earnings release. The company, which operates in the Spraberry and Wolfcamp zones of the Permian Basin, reported $57.7 million in fourth-quarter net income, up more than three times from $14.1 million in fourth-quarter 2013.

Industrial Info is tracking RSP Permian's 2015 and 2016 oil and natural gas drilling programs for the Spanish Trail 48-07G lease near Midland, Texas, in the Spraberry production field. Sidewinder Drilling (Houston, Texas) is the contractor for this year's program. The drilling programs for this year and next each have a total investment value of $24 million.

Not including a $70.1 million non-cash gain on derivatives and a $4.3 million non-cash impairment, adjusted net income for the fourth quarter was $15.7 million, compared with $12.4 million in adjusted net income a year earlier.

Fourth-quarter revenue totaled $79.46 million, compared with $53.82 million a year earlier. Production in the fourth quarter increased 106% to 16,100 barrels of oil equivalent per day (BOE/d).

For all of 2014, net income totaled $116.12 million, compared with $40.84 million in 2013. On an adjusted basis, net income was $70.6 million, compared with $38.29 million in 2013. Revenue for 2014 totaled $286.9 million, compared with $196.71 million in 2013.

Capex for 2014 totaled $846 million, which included $442 million for drilling and completion, $42 million for infrastructure and other items, and $362 million for acquisitions and leasehold additions.

Citing the fall of oil prices and likely service-cost reductions, RSP said it deferred completion activities on its operated vertical wells and several operated horizontal wells during the fourth quarter. At yearend 2014, RSP had 10 operated horizontal wells and nine operated vertical wells awaiting completion. In addition, four horizontal wells and two vertical wells were in the process of being drilled, and one horizontal well was undergoing completion.

Deferral of completions have continued as the company renegotiates service contracts to take advantage of lower costs, RSP executives said.

The company said it has four operated horizontal rigs and one vertical rig, but intends operate just three horizontal rigs and no vertical rigs in the second half of 2015.

"Although we will decrease the rig count as we continue through 2015, we also have a significant inventory of wells waiting on completion," Chief Operating Officer Zane Arrott said. "This will allow us to have sustained and somewhat regulated growth throughout the year."

The company will work through its well completion backlog into the third quarter this year, he said.

Looking forward, Arrott said he expects to see production by RFP to average as much as 18,500 BOE/d, compared with 11,868 BOE/d in 2014.

He said about 85% of the 2015 capex budget is earmarked for horizontal wells in the lower Sprayberry and Wolfcamp formations. As the year progresses, the company will spend more money on its acreage in Glasscock County. He said the company will probably drill its first Glasscock wells in the third quarter.

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