CALGARY (CP) -- Compton Petroleum [TSX:CMT; NYSE:CMZ] will cut its capital spending this year by C$100 million but still drill about as many wells as 2006 by focusing on lower-cost, shallow gas production.
Calgary-based Compton plans to spend C$375 million in 2007 and drill 330 wells. More drilling will be done in the second half of the year, when the company expects costs to be lower.
''Although industry costs remain high, we believe the situation is changing,'' president and chief executive Ernie Sapieha told analysts Wednesday.
Compton's share price, which had been on decline throughout 2006, hit new 52-week lows Wednesday, falling to C$9.96 per share but climbing back to C$10.09 in early afternoon trading on the Toronto stock market.
Citing two key goals of growing production and maintaining tight discipline on spending, Sapieha said his company was moving forward with a ''moderate'' capital program.
Compton is just the latest of the oil and natural gas producers to cut spending following a year of dropping prices, particularly for gas, and higher labour and material costs.
Oilpatch major EnCana [TSX:ECA; NYSE:ECA] has said it intends to cut capital spending by 6% to US$5.9 billion while increasing natural gas production, part of a slower growth plan set to continue for five years to deal with soaring costs. And Canadian Natural Resources Ltd. [TSX:CNQ; NYSE:CNQ] said it will slash its 2007 drilling activity by 46%, part of US$1.5 billion in cuts designed to ''push back'' on prices charged by service providers and suppliers.
The Canadian Association of Petroleum Producers has estimated that overall industry spending in 2007 will reach C$41 billion, down from the C$44 billion estimated to have been spent in 2006 and the 2005 record of C$45 billion.
One of the few companies planning to spend more in 2007, Petro-Canada [TSX:PCA; NYSE:PCZ] has said it plans to grow production by 15% and raise capital spending by 15% to C$4.1 billion while increasing its dividend by nearly a third.
For its part, Compton said it will spend less on facilities, equipment, land and seismic work in order to maintain drilling levels.
''In the past, we have made significant investments in these areas that will benefit us in 2007 and beyond,'' said Sapieha.
Compton will drill more shallow gas wells than last year, further reducing spending on exploration drilling. The company actually released its 2007 spending plans in late December, but waited until Wednesday to address analysts.
Compton expects average production this year to be between 37,000 and 38,000 barrels of oil equivalent daily - an increase of nearly 14% over 2006 levels.
Operating cash flow is projected to be in the range of C$310 to C$320 million, based on budgeted average realized natural gas prices of US$7.50 per thousand cubic feet and crude oil prices of US$60.00 per barrel.
Currently about 30% of Compton's production is hedged on futures markets. And while the hedges last until the end of October, the company hopes to boost its hedges throughout the year ''under appropriate market conditions'' to about 60% of production.
In order to help pay for its development plans, Compton has long-term debt that is not due until 2013. Additionally, it authorized C$500 million in credit facilities last year and had spend C$325 million by the end of December.
''We're comfortable with our debt position, given the low-risk development nature of our drilling program,'' chief financial officer Norm Knecht told analysts.
Compton has also accepted offers worth about C$75 million for ''minor non-core properties,'' and hopes to have the sales finalized soon.
(c) The Canadian Press 2006
