Midstates Petroleum Reports First Quarter 2013 Financial and Operating Results
Key points include:
Adjusted EBITDA totaled $56.5 million, up 16% from $48.6 million in the fourth quarter of 2012.
Adjusted Net Income totaled $1.4 million.
Average production for the quarter was on track to achieve the top end of guidance of 17,300 barrels of oil equivalent ("Boe") per day until snowstorms in Oklahoma shut in production, costing the quarter about 1,100 Boe per day. Average daily production for first quarter 2013 rose to 16,208 net Boe per day from 15,592 net Boe per day in the fourth quarter of 2012.
Cash Operating Expenses were $20.29 per Boe, flat with $20.26 per Boe in the fourth quarter of 2012.
The Wood 10H-1 well in North Cowards Gully reached a total measured depth of 15,366 feet, with a 3,000 foot lateral targeting the Upper Wilcox "B" Sand. The well has been completed with 10 stages of fracture stimulation and produced a seven-day average flow rate of 1,250 Boe per day (64% oil).
In early April, Midstates entered into a Purchase and Sale Agreement with Panther Energy, LLC, ("Panther") to acquire producing properties as well as developed and undeveloped acreage in the Anadarko Basin in Texas and Oklahoma for $620 million in cash. The transaction will be effective April 1, 2013 with closing expected on May 31, 2013, subject to customary closing conditions.
Midstates now plans to fund the acquisition fully with $700 million of debt and has canceled its plans for an equity offering.
Adjusted EBITDA, Adjusted Net Income and Cash Operating Expenses are non-GAAP financial measures. Each measure is defined and reconciled to the most directly comparable GAAP measure under "Non-GAAP Financial Measures" in the tables below.
John Crum, Midstates' Chairman, President and CEO commented, "As a result of our continued successful drilling programs in both Oklahoma and Louisiana, we were well on our way to being at or above our production target during the first quarter when we experienced significant but temporary production shut-ins in Oklahoma due to extreme winter weather in February and March. It took a major effort and significant time and cost for our team to get our wells there back on line with impacts on our production into April. Despite the disruption to production, we remain on target to achieve our 2013 production guidance of 24,000 to 26,000 Boe per day in 2013."
Three Months Ended March 31, 2013 Financial Results
Adjusted EBITDA totaled $56.5 million in the first quarter of 2013, compared to $30.5 million in the first quarter of 2012 and $48.6 million for the fourth quarter of 2012.
The Company reported a net loss of $7.9 million for the first quarter of 2013 as compared to a net loss of $17.5 million for the first quarter of 2012 and a net loss of $2.4 million in the fourth quarter of 2012. The net loss for the first quarter of 2013 includes unrealized losses on derivatives of $15.1 million as well as a non-cash tax benefit of $5.0 million. The fourth quarter 2012 loss included unrealized losses on derivatives of $0.9 million and transaction costs associated with the Eagle Property Acquisition of $12.2 million and a non-cash tax expense of $0.6 million.
Adjusted Net Income, which excludes unrealized losses on derivatives and the related tax impact and is before the impact of Series A Preferred Stock dividends, totaled $1.4 million for the first quarter of 2013.
Production during the first quarter of 2013 increased to 16,208 Boe per day compared to 8,275 Boe per day during the first quarter of 2012, and 15,592 Boe per day in the fourth quarter of 2012. First quarter 2013 production from the Company's Mid-Continent properties averaged 9,468 Boe per day, or 58% of total production, while Gulf Coast properties contributed the balance of 6,762 Boe per day. Oil volumes comprised 49% of total production, natural gas liquids ("NGLs") 19%, and natural gas 32% on a Boe basis. In the comparable period of 2012, which included production solely from Midstates' Gulf Coast properties, oil volumes comprised 54% of production, NGLs 17%, and natural gas 29% on a Boe basis. In the fourth quarter of 2012, oil volumes comprised 51% of production, NGLs 19%, and natural gas 30% on a Boe basis.
In the first quarter of 2013, Midstates' average realized price per barrel of oil, before realized commodity derivatives, was $101.08 ($93.31 with realized derivatives) while its average realized price for NGL sales, before realized derivatives, was $35.04 per barrel ($36.31 with realized derivatives). Natural gas averaged $3.14 per thousand cubic feet, before realized derivatives ($3.21 with realized derivatives). Detailed comparisons of commodity prices by period and region are included in the tables below.
Oil, NGL and natural gas sales revenues increased by $35.9 million to $90.7 million during the first quarter of 2013 as compared to $54.8 million for the first quarter of 2012, and by $1.3 million compared to $89.4 million in the fourth quarter of 2012. The Company's net mark-to-market derivative positions moved from unrealized losses of $18.2 million and $0.9 million in the first quarter of 2012 and the fourth quarter of 2012, respectively, to an unrealized loss of $15.1 million in the first quarter of 2013. The realized loss on derivatives for the first quarter of 2013 was $5.0 million compared to a realized loss of $6.5 million for the first quarter of 2012, and an insignificant gain for the fourth quarter of 2012.
Three Months Ended March 31, 2013 Costs and Expenses
Lease operating and workover expenses totaled $13.9 million ($9.51 per Boe), an increase of $2.4 million ($1.46 per Boe) compared to the fourth quarter of 2012. The increase in lease operating and workover expenses per Boe was primarily the result of the winter storm in Oklahoma which resulted in the temporary shut-in of production. There were also higher associated expenses incurred to restore production and repair storm-related damage. In addition, a more active workover program in Oklahoma plus short-term higher salt water disposal and chemical costs in Louisiana contributed to the increase.
Severance and ad valorem taxes as a percentage of oil, NGL and natural gas sales revenue (before derivatives) were 6.6% for the first quarter of 2013 as compared to 7.6% for the fourth quarter of 2012. Severance and ad valorem taxes decreased primarily due to increased production from the Company's Mid-Continent assets, which are subject to a lower effective severance tax rate as compared to production from the Gulf Coast area.
Depreciation, depletion and amortization expense ("DD&A") totaled $42.0 million ($28.77 per Boe), an increase of $3.0 million as compared to $39.0 million ($27.17 per Boe) in the fourth quarter of 2012.
The Company's general and administrative expenses (before costs associated with the Eagle Property Acquisition) were $11.0 million ($7.56 per Boe) compared to $11.6 million ($8.07 per Boe) for the fourth quarter of 2012. The Company did not incur any acquisition and transaction costs during the first quarter of 2013. For the fourth quarter 2012, acquisition and transaction costs related to the Eagle Property Acquisition totaled approximately $12.2 million ($8.51 per Boe) and represented due diligence, legal and other advisory fees that are required to be currently expensed under US GAAP. First quarter 2013 and fourth quarter 2012 general and administrative expenses included non-cash share-based compensation expense of $1.2 million ($0.85 per Boe) and $0.9 million ($0.62 per Boe), respectively.
Total Cash Operating Expenses (which includes lease operating and workover expenses, severance and ad valorem taxes, and the cash portion of general and administrative expenses, but excludes acquisition and transaction costs related to the Eagle Property Acquisition) were flat at $20.29 per Boe as compared to $20.26 per Boe in the fourth quarter of 2012.
Total interest expense (after amounts capitalized) was $10.9 million for the first quarter of 2013 as compared to $9.4 million in the fourth quarter of 2012. The Company capitalized $7.1 million in interest to unproved properties during the first quarter of 2013 as compared to $8.0 million in the fourth quarter of 2012.
The Company recorded an income tax benefit during the quarter of $5.0 million attributable to the loss during the period, as compared to income tax expense of $0.6 million in the fourth quarter of 2012. The Company does not expect to have a cash income tax liability for the foreseeable future.
Liquidity and Capital Investment
On March 31, 2013, Midstates' liquidity was $139 million, consisting of $88 million of available borrowing capacity under the Company's revolving credit facility (which consists of a borrowing base of $285 million) and $51 million of cash and cash equivalents.
During the three months ended March 31, 2013, the Company incurred capital expenditures of $132.8 million, consisting of (in thousands):
For the Three Months
Drilling and completion activities
Acquisition of acreage and seismic data
Facilities and other
Total capital expenditures incurred
Excluding capitalized interest, of the $125.7 million spent during the first quarter in 2013, $60.5 million was spent in the Gulf Coast region and $65.2 million was spent in the Mid-Continent region.
Gulf Coast Operations Update
During the three months ended March 31, 2013, Midstates completed a total of seven wells, including five vertical wells at Pine Prairie and two horizontal wells consisting of the McFatter 8H-1 at North Cowards Gully and the AKS 5H-1 at West Gordon. Midstates spud a total of nine gross wells in the region, including three horizontals, during the first quarter of 2013, of which five were producing, three were drilling, and one was awaiting completion.
Gulf Coast horizontal well update since March 31, 2013:
The Wood 10H-1 well in North Cowards Gully reached a total measured depth of 15,366 feet, with a 3,000 foot lateral targeting the Upper Wilcox "B" Sand. The well has been completed with 10 stages of fracture stimulation and tested at a seven-day average flow rate of 1,250 Boe per day (64% oil). The well cost approximately $9.0 million, an improvement over the previous two wells drilled in the field. This well successfully tested the east side of North Cowards Gully, an area not previously tested with a horizontal well. The Company continues to believe it has the potential for over 20 horizontal drilling locations in the field.
The Musser Davis 33-28HC-1, spud in February 2013 in South Bearhead Creek and targeting the Lower Wilcox "C" sand, has been drilled to a total depth of 18,156 feet and is currently being completed with 14 stages of fracture stimulation.
Two additional North Cowards Gully wells have been spud in April 2013, the Musser Davis 8H-2 and the Olympia Minerals 16H-1, both targeting the Upper Wilcox "B" Sand.
At March 31, 2013, Midstates had approximately 141,600 net acres under lease or option in the Gulf Coast region, comprised of approximately 85,900 net leased acres and approximately 55,700 net optioned acres.
For the second quarter of 2013, Midstates currently plans to invest $55 million to $60 million and drill three to four horizontal wells.
Mid-Continent Operations Update
During the first quarter the Company had four rigs active in the Mid-Continent region, all of which were drilling in the Company's Mississippian Lime horizontal well program in Woods and Alfalfa Counties, Oklahoma. Midstates completed a total of nine wells, all of which were horizontal. Midstates spud a total of 10 gross wells, of which four were producing, five were awaiting completion and one was in process at March 31, 2013. Midstates said that it continues to see results in its Mississippian program that are in line with its expectations at the time of the acquisition.
The Company recently added a fifth rig to the program in Oklahoma and has continued to see drilling improvements. Midstates has seen improvement in its ability to cut cycle time and costs by moving to pad drilling, using point-to-point techniques and optimizing drilling plans.
At March 31, 2013, Midstates had approximately 100,800 net acres under lease in the Mid-Continent region, comprised of approximately 86,000 net leased acres in the Mississippian Lime (80,400 in Woods and Alfalfa Counties in Oklahoma and 5,600 acres in Kansas) and approximately 14,800 in the Hunton in Lincoln County, Oklahoma. The Company acquired approximately 3,300 acres in Oklahoma near its core Mississippian Lime operating area during the first quarter of 2013.
For the second quarter of 2013, Midstates plans to invest $70 million to $80 million in the drilling of 16 to 18 wells.
John Crum, Midstates' Chairman, President and CEO commented, "Our planned drilling program for 2013 reflects the encouraging results we have achieved across our portfolio. We have added a fifth rig in Oklahoma and continue to achieve improved drilling efficiencies. In Louisiana, we have two follow-up wells drilling in Louisiana in North Cowards Gully and are awaiting results from our first horizontal Wilcox well in South Bearhead Creek. Additionally, when our Panther acquisition closes in late May, we will have three rigs drilling in the Anadarko Basin and expect to invest about $15 million there during the latter part of the second quarter." Crum continued, "Post-closing, we believe we will have the ideal mix of lower risk to higher potential drilling opportunities that will enable us to build a strong, more stable base of production but still offer significant upside growth. Our focus in 2013 will be executing our planned drilling program across our portfolio of assets as well as the successful integration of the Panther assets and people."
Conference Call Information
The Company will host a conference call to discuss first quarter results on Tuesday, May 7 at 10:00 am Eastern time. Participants may join the conference call by dialing (877) 645-4610 (for U.S. and Canada) or (707) 595-2723 (International). The conference access code is 58651786 for all participants. To listen via live web cast, please visit the Investor Relations section of the Company's website, www.midstatespetroleum.com.
An audio replay of the conference call will be available approximately two hours after the conclusion of the call. The audio replay will remain available for seven days until May 14 and can be accessed by dialing (855) 859-2056 (for U.S. and Canada) or (404) 537-3406 (International). The conference call replay access code is 58651786 for all participants. The replay will also be available in the Investor Relations section of the Company's website approximately two hours after the conclusion of the call and remain available for approximately 90 calendar days.
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements that are not statements of historical fact, including statements regarding the Company's strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management, and the closing, financing and benefits of the acquisition are forward-looking statements. Without limiting the generality of the foregoing, these statements are based on certain assumptions made by the Company based on management's experience, expectations and perception of historical trends, current conditions, anticipated future developments and other factors believed to be appropriate. Although the Company believes that its plans, intentions and expectations reflected in or suggested by the forward-looking statements made in this press release are reasonable, the Company gives no assurance that these plans, intentions or expectations will be achieved when anticipated or at all. Moreover, such statements are subject to a number of factors, many of which are beyond the control of the Company, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. These factors include, but are not limited to, the inability of the Company to close the acquisition; costs and difficulties related to the integration of the acquired businesses and operations with Midstates' business and operations; unexpected costs, charges or expenses resulting from the acquisition; litigation relating to the acquisition; variations in the market demand for, and prices of, oil and natural gas; uncertainties about the Company's estimated quantities of oil and natural gas reserves; the adequacy of the Company's capital resources and liquidity including, but not limited to, access to additional borrowing capacity under its revolving credit facility; general economic and business conditions; failure to realize expected value creation from property acquisitions; uncertainties about the Company's ability to replace reserves and economically develop its current reserves; risks related to the concentration of the Company's operations. drilling results; and potential financial losses or earnings reductions from the Company's commodity derivative positions.
Any forward-looking statement speaks only as of the date on which such statement is made and the Company undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law.
Midstates Petroleum Company, Inc.
Consolidated Balance Sheets
(In thousands, except share amounts)
March 31, 2013
December 31, 2012
Cash and cash equivalents
Oil and gas sales
Severance tax refund
Commodity derivative contracts
Deferred income taxes
Other current assets
Total current assets
PROPERTY AND EQUIPMENT:
Oil and gas properties, on the basis of full-cost accounting
Other property and equipment
Less accumulated depreciation, depletion, and amortization
Net property and equipment
Commodity derivative contracts
Other noncurrent assets
Total other assets
LIABILITIES AND EQUITY
Commodity derivative contracts
Total current liabilities
Asset retirement obligations
Commodity derivative contracts
Deferred income taxes
Other long-term liabilities
Total long-term liabilities
COMMITMENTS AND CONTINGENCIES
Preferred stock, $0.01 par value, 49,675,000 shares authorized, no shares issued or outstanding, respectively
Series A mandatorily convertible preferred stock, $0.01 par value, $1,040 and $1,000 liquidation value, respectively; 8% cumulative dividends; 325,000 shares issued and outstanding
Common stock, $0.01 par value, 300,000,000 shares authorized; 68,363,508 and 66,619,711 shares issued and outstanding, respectively
Retained deficit/accumulated loss
Total stockholders' equity
Midstates Petroleum Company, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
For the Three Months
Natural gas sales
Natural gas liquid sales
Losses on commodity derivative contracts — net (1)
Lease operating and workover
Severance and other taxes
Asset retirement accretion
Depreciation, depletion, and amortization
General and administrative
OTHER INCOME (EXPENSE)
Interest expense — net of amounts capitalized
Total other income (expense)
INCOME BEFORE TAXES
Income tax benefit
Preferred stock dividend