Halcon Resources (NYSE:HK) is the latest shale driller to slash its capital budget by roughly 50% for 2015. The company announced this week it would reduce capital expenditures from an earlier forecast of $750 million-$800 million to $375 million-$425 million. Management is making the move to preserve liquidity as concerns grow that Halcon could be among the many overlevered oil companies to default on its bonds if the price of petroleum remains at, or below, current levels.

A look at Halcon Resources' 2015 plan
Halcon Resources' updated 2015 capital plan calls for the company to operate only two rigs in North Dakota's Bakken shale and just one in its El Halcon play in Texas. Those rigs should produce an average of 40,000 to 45,000 barrels of oil equivalent per day, or BOE/d, in 2015. That would keep production roughly flat from the 40,000 to 42,000 BOE/d the company expects as its 2014 exit rate. Overall, that would be a major reduction from the 15%-20% production growth the company projected for 2015 under its previous budget estimate.

Before oil prices began to fall, Halcon had planned to operate 11 rigs in 2015. However, the company whittled down the 2015 spending plan as oil plunged, with its November guidance anticipating Halcon would run six rigs for the full year. Even that lower rig count has now been sliced in half.

Digging in and waiting for the turn
By keeping its rig count low and production roughly in line with 2014, the company is protecting more of its cash flow due to its robust hedge book. Typically, Halcon hedges 80% of its production for 18-24 months. However, because output is not growing as fast as expected, its hedges should now cover 88% of its oil production in 2015. This means the company believes that it can comfortably wait out the downturn in oil prices. This point was driven home by CEO Floyd Wilson in the company's press release on the latest spending update:

We are comfortable with our current liquidity position and we expect our strong hedge portfolio to continue generating income well into 2016. Although we are significantly hedged, the continued weakness in crude oil prices, combined with elevated service costs, calls for conservative planning. We expect to see these costs come down dramatically during 2015.

Wilson also said he believes oil-field services costs will dramatically drop in 2015. This should improve the company's profitability and returns going forward should oil prices persist at, or below, current levels. This sentiment has been echoed by a number of Wilson's peers, who see cost improvements mitigating some of the sting from plunging oil prices. While the exact extent of service cost reductions is the big unknown at the moment, those reduced expenses could help producers continue to make decent money, enabling weaker players to skate past bankruptcy fears, even if oil prices don't recover.

Investor takeaway
Halcon Resources is taking a cautious approach to 2015 by joining other shale-focused peers in slashing spending by 50%. The company believes this will enable it to survive the downturn as it is conservatively positioned thanks to its strong hedge book. Furthermore, management believes oil-field services costs should fall in 2015, which could help Halcon continue to make decent money on oil in the future even at current pricing.