Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Eclipse Resources Corp (NYSE: ECR) stock surged more than 10% today after the company announced its revised 2015 capital plan. Clearly, investors liked what Eclipse had to say when it announced its plan to slash its capital budget while also giving up its pursuit of a joint venture to help fund drilling in 2015.
So what: Last month Eclipse Resources announced that it was going to delay its final 2015 budget, which had already been cut to $640 million, or 20% less than it spent in 2014. It told investors that it was aggressively seeking cost reductions as well as exploring a potential drilling joint venture. At the time, investors didn't approve of the announcement, as shares were rocked by a double-digit sell-off.
With investors not taking too kindly to the joint venture idea, and the fact that it couldn't find a good partner, Eclipse Resources decided to forgo a joint venture at this time. In addition, the company also cut its 2015 spending plan all the way down to $352 million, or 57% less than it spent last year. Despite that steep drop in spending, the company will still be able to grow its production by a stunning 154% over what it produced last year since it's starting off a very low base, having just been formed in 2011 and having just gone public last year.
Now what: Given the current weak commodity price environment, Eclipse Resources' management team realized there's no need to invest as much money on new wells as it had in the past, especially when a 50% capital cut could still lead to a 150%-plus surge in production. That's why the company chose the prudent course to wait until conditions improve before pumping a lot more money into new wells.