CWEI’s Cutback in Spending may Signal Greater Market Trend for Oil and Gas Companies


The recent decision by oil and gas company Clayton Williams Energy, Inc. (CWEI) to reduce capital expenditures and cut back production could potentially be part of a broader market trend for oil and gas companies.

CWEI's 2Q results, which were released on Monday, stated that the company would reduce its capital expenditure 6 percent from its previous spending level of $410 million, according to Wunderlich Securities. Although the company had originally planned on raising capital expenditures to $450 million for the quarter, it is now planning to reduce that metric to $385 million.The 2Q report also indicated that the company is reducing its production guidance due to lower capital expenditures and also increased cost per well for drilling.

The company has added incremental hedges of 547,000 barrels at $83.78 each for the third quarter of this year. In addition, CWEI has 729,000 barrels hedged at $87.56 for the last three months of 2011, according to Wunderlich. If the economy worsens and oil prices continue to fall, spending reductions and increased hedging could become a broader trend among oil and gas companies.