Western Energy Services shrinks capital spending plan for 2015 due to downturn

CALGARY – Western Energy Services Corp. (TSX:WRG) will launch a share buyback program and pull back on its capital spending next year in the face of what could be a prolonged decline in demand for drilling rigs as a result of lower oil prices.

The Calgary-based company says it’s planning a 2015 capital spending budget totalling $64 million, which would be down significantly from this year.

It will also buy back up to 9.9 per cent of its common shares from public markets for a 12-month period beginning Wednesday.

The oilfield service company says about one-third of next year’s budget will be carried forward from the 2014 capital program, partly as a result of the delayed delivery of a drilling rig as a result in the recent fall in oil prices.

As of Sept. 30, Western Energy had spent $77.5 million on capital projects this year, including $61.6 million for expansion, $9.3 million for maintenance and $6.6 million for critical spares.

The 2015 budget calls for $22 million to be carried forward from this year, $6 million in expansion capital and $36 million for maintenance.

The company’s has received permission to buy back and cancel up to 5.55 million common shares between Dec. 17 and Dec. 16, 2015.

Western Energy shares closed at $4.92 on the Toronto Stock Exchange, the stock’s new 52-week low. The shares have traded as high as $11.70 over the past year and have fallen 30 per cent over the past month from $7.13 on Nov. 17.

“Western believes the 2015 capital budget provides a prudent use of cash resources and ensures that it continues to maintain its balance sheet flexibility allowing for the execution on strategic opportunities as they arise, or alternatively adjust downward if necessary should there be a prolonged downturn in oilfield service activity,” the company said.

The company’s move follows cautious spending from larger rival Precision Drilling Corp. (TSX:PD), which said last month that it would spend substantially less in 2015 than in this year on capital projects. It also reduced its 2014 capital budget by another $23 million to $885 million, the second decline since the budget peaked at $934 million during the summer.