Energen Reports 4th Quarter and CY12 Operating and Financial Results
Energen Reports 4thQuarter and CY12 Operating and Financial Results
Double-Digit Growth Generates Record 24.1 MMBOE of Production
- 18% growth drives 2012 production to record 24.1 MMBOE
- 2012 oil production increases approximately 40% from prior year
- 2012 proved reserves total 346 MMBOE despite significantly lower natural gas and NGL prices
- 100 net Upper Wolfcamp locations in Midland Basin added to Energen's 2012 unproved reserves
- Permian Basin now home to 65% of the company's proved reserves
- Liquids comprise 56% of Energen's 3P reserves
- Guidance affirmed for 2013 capital and drilling plans and production and cash flows
BIRMINGHAM, Ala.--(BUSINESS WIRE)-- Energen Corporation (NYS: EGN) announced today that its earnings in the three months ended December 31, 2012, totaled $62.8 million, or $0.87 per diluted share. Excluding non-cash mark-to-market gains on certain financial commodity contracts, Energen's adjusted net income (a non-GAAP measure) totaled $47.2 million, or $0.65 per diluted share, and compared with 4th quarter 2011 adjusted net income of $71.0 million, or $0.98 per diluted share.
Non-cash, mark-to-market revenue gains in the 4th quarter 2012 were $24.7 million ($15.7 million after tax, or $0.22 per diluted share). Non-cash, mark-to-market revenue losses in the same period in 2011 totaled $90.8 million ($56.6 million after tax, or $0.78 per diluted share). [See "Non-GAAP Financial Measures" for more information and reconciliation.]
Relative to the same period a year ago, production in the 4th quarter of 2012 increased 14 percent and realized oil prices rose 3 percent. More than offsetting these gains were significantly lower natural gas and natural gas liquids (NGL) prices, increased depreciation expense (DD&A), and higher lease operating expense (LOE). Also in the 4th quarter of 2012, Energen wrote off $5.3 million ($3.4 million after tax, or $0.05 per diluted share) of Delaware Basin leasehold set to expire in the first half of 2013; the bulk of this acreage was located west of the Pecos River in Reeves County, Texas. (See pp 9-10 for additional 4thquarter information).
Consolidated adjusted EBITDA (a non-GAAP measure) totaled $209.3 million and compared with $208.5 million in the prior-year 4th quarter. The company's oil and gas exploration and production unit, Energen Resources Corporation, had adjusted EBITDA of $175.3 million in the 4th quarter of 2012 and $177.2 million in the same period a year ago. [See "Non-GAAP Financial Measures" for more information and reconciliation.]
"2012 was an exciting year for Energen. Record activity in the Permian Basin led to excellent performances from our 3rdBone Spring and Wolfberry wells as well as double-digit production growth," said James McManus, Energen's chairman and chief executive officer.
"We expect our continued development of the 3rdBone Spring sand east of the Pecos River in the Delaware Basin and the vertical Wolfberry in the Midland Basin to drivestrong, double-digit production growth in the Permian Basin in 2013.
"And, at the same time, we are looking forward to exploring the potential offered by emerging horizontal plays in the Midland and Delaware basins."
2012 Financial Results
Energen's 2012 net income totaled $253.6 million, or $3.51 per diluted share. Excluding non-cash items, adjusted net income (a non-GAAP measure) totaled $229.7 million, or $3.18 per diluted share, and compared with prior-year adjusted results of $283.0 million, or $3.91 per diluted share.
Non-cash items in 2012 were mark-to-market revenue gains on certain financial commodity contracts of $58.8 million ($37.2 million after tax, or 52 cents per diluted share) and a commodity price-related write-down of natural gas properties in East Texas of $21.5 million ($13.4 million after tax, or 19 cents per diluted share). Mark-to-market revenue losses in 2011 totaled $37.6 million ($23.4 million after tax, or 32 cents per diluted share). [See "Non-GAAP Financial Measures" for explanation and reconciliation.]
Excluding non-cash items, Energen Resources' adjusted 2012 net income totaled $180.3 million as compared with $236.4 million in 2011.
Consolidated adjusted EBITDA (a non-GAAP measure) in 2012 totaled $845.3 million and increased 10 percent from 2011 adjusted EBITDA of $771.7 million. Energen Resources' adjusted 2012 EBITDA totaled $708.6 million and compared with 2011 adjusted EBITDA of $645.7 million. [See "Non-GAAP Financial Measures" for more information and reconciliation.].
Production in 2012 increased 18 percent year-over-year, including a 40 percent increase in oil production; and the average realized sales price of oil increased 5 percent. The company's decreased net income relative to 2011 was driven largely by substantially lower natural gas and NGL prices, increased DD&A expense, and higher LOE.
Production by Area (MMBOE)
|San Juan Basin||9.9||9.6||3||%|
Average Realized Sales Prices
|Oil (per barrel)||$||83.45||$||79.72||5||%|
|NGL (per gallon)||$||0.79||$||0.96||(18|
|Natural Gas (per Mcf)||$||3.79||$||5.39||(30|
Total LOE per unit in 2012 increased approximately 1 percent from the prior year to $12.73 per BOE. Base LOE and marketing and transportation expenses increased 5 percent to $10.41 per BOE largely due to increased water disposal costs, ad valorem taxes, and equipment rental partially offset by lower operations and maintenance expense. Commodity price-driven production taxes declined approximately 14 percent on a per-unit basis to $2.32 per unit.
DD&A expense per unit in 2012, excluding the first quarter write-down of natural gas properties in East Texas, increased approximately 32 percent from the same period last year to $15.50 per BOE; this increase generally reflected year-over-year increases in development costs.
Energen's utility operations under Alagasco generated net income of $49.4 million in 2012; this $2.8 million increase from 2011 reflects the utility's ability to earn on a higher level of equity representing investment in utility plant.
3rdBone Spring and Wolfberry Programs Generate Excellent Results in 2012
Energen Resources' 3rd Bone Spring and Wolfberry programs wrapped up a successful 2012 with continued strong results in the 4th quarter.
In the company's horizontal 3rdBone Spring program in the Delaware Basin, Energen Resources tested 10 gross (10 net) wells in the 4th quarter of 2012 that had an average initial stabilized rate of 1,007 BOE per day (61% oil). The 30-day average production rate of 7 gross (7 net) wells tested was 609 BOE per day (57% oil).
For the calendar year 2012, Energen Resources drilled 42 gross (40 net) 3rd Bone Spring wells. The average initial stabilized rate of 38 gross (35 net) wells was 1,031 BOE per day (68% oil). The 30-day average production rate of 35 gross (32 net) wells with sufficient production history was 661 BOE per day (65% oil).
On the east side of the Pecos River, the company's core holdings total approximately 30,000 net acres, of which 9,500 remain undeveloped. Energen Resources estimates that it has approximately 59 potential locations remaining to be drilled on 160-acre spacing in this core area.
Energen Resources' vertical Wolfberry program in the Midland Basin finished the year strong. During 2012 the company drilled 172 gross (167 net)Wolfberry wells. Some 179 gross (172 net) wells -- including 7 drilled in late 2011 - were completed and tested at an average initial stabilized rate of 90 BOE per day (75% oil); the average 30-day rate of the wells was 76 BOE per day (77% oil).
Through acquisition of proved property and leasehold during 2012, Energen Resources now has approximately 65,000 net acres in the Midland Basin that are prospective for the vertical Wolfberry play; approximately 34,000 net acres remain undeveloped. Based on 40-acre spacing, Energen Resources estimates that it has 850 potential locations remaining to be drilled; 20-acre downspacing could add another 800 locations.
Testing of the horizontal Wolfcamp shale continues in the Delaware Basin. The 4 wells remaining in the 2012 drilling program are in various stages of completion or testing. Successful results from these wells could help prove up the Wolfcamp potential in this region and add substantially to the company's drilling inventory in the Delaware Basin.
Year-end Proved Reserves Total 346 MMBOE
Energen's proved reserves at year-end 2012 totaled a record 346 MMBOE and were essentially unchanged from the prior year as record production and price-related, downward revisions offset the addition of previously classified unproved reserves and acquisition-related reserves. Oil and NGL reserves represent 61 percent of total proved reserves and are expected to increase as Energen continues to focus on the exploration and development of the liquids-rich Permian Basin.
Natural gas and NGL prices used for calculating reserves were down substantially in 2012 relative to 2011. Reserves pricing in 2012 was $2.76 per Mcf of gas vs $4.12 per Mcf in 2011; $0.88 per gallon of NGL (before transportation and fractionation) vs $1.23 per gallon in 2011; and $94.71 per barrel of oil vs $96.19 per barrel in the prior year.
The bulk of proved reserves added through acquisition were vertical Wolfberry in the Midland Basin. Of reserves that moved from unproved to proved, approximately 50 percent were 3rd Bone Spring sands in the Delaware Basin, approximately 45 percent were vertical Wolfberry in the Midland Basin, and approximately 5 percent were waterfloods in the Central Basin Platform. Twenty-five percent of Energen's proved reserves are undeveloped.
Proved Reserves by Basin (MMBOE)
|San Juan Basin||129.6||(9.9||)||0.0||0.9||(19.7||)||100.9|
Proved Reserves by Commodity (MMBOE)
|Natural gas liquids||56.2||54.0||4.1|
100 Net Upper Wolfcamp Locations Added to Midland Basin Unproved Reserves
Probable and possible reserves at year-end 2012 declined to 407 MMBOE. Substantially lower gas and NGL prices resulted in the loss of approximately 137 MMBOE of unproved San Juan reserves at the end of the 2012. In the Delaware Basin, 3rd Bone Spring reserves west side of the Pecos River were revised down by some 64 MMBOE. Approximately 54 MMBOE of prior-year unproved reserves - primarily in the Delaware and Midland basins - were proved up.
The company added net reserves of approximately 36 MMBOE for 100 net Upper Wolfcamp locations in Glasscock County; this represents gross EURs of 460 MBOE per well assuming 160-acre spacing and 4,400' horizontal lengths. Energen also gained 18 MMBOE of unproved Wolfberry reserves through acquisition.
Potential reserves not yet reflected in Energen's probable and possible reserves include Wolfberry downspacing, horizontal Cline in the Midland Basin, horizontal Wolfcamp in the Delaware Basin, and horizontal Avalon shale in the Delaware Basin. Energen also has identified 685 net horizontal Wolfcamp locations (Upper, Middle, and Lower) that are not currently included in the company's unproved reserves.
Oil and natural gas liquids now comprise more than 55 percent of Energen's proved and unproved (3P) reserves, and the Permian Basin is home to 52 percent of the company's 3P reserves.
YE2012 3P Reserves (MMBOE)
|Basin||Proved||Probable||Possible||Total Unproved||3P Total|
The definitions of probable and possible reserves imply different probabilities of potential recovery in each classification; the quantities reported here are unrisked and based on the Company's best estimate of current costs to drill wells in each basin/area and bring associated production to market.
2013 Capital, Production Outlook Affirmed
Energen today affirmed its guidance for 2013 capital, production, cash flows, and earnings.
2013e Capital, Drilling, and Production Summary
|Gross (Net)||Rig Count|
|Midland Basin||$||465||185 (173||)||10-11|
|Delaware Basin||$||325||44 (38||)||6|
3rd Bone Spring
|Other Permian*||$||85||110 (88||)||1-2||4.5||4.8|
San Juan Basin/Other
* Includes 5 gross (4 net) injector wells