Energen Reports 2nd Quarter 2013 Operating, Financial Results
Energen Reports 2nd Quarter 2013 Operating, Financial Results
Vertical Wolfberry EURs Increase
- Contribution from deeper formations and slick water stimulations lead to increase in average EUR of a Wolfberry well by 25,000 BOE to 190,000 BOE
- Revised drilling, capital plans include additional operated Wolfcamp wells in Delaware and Midland basins
- Oil, NGL production increases 19% from prior-year 2nd quarter; Permian Basin production rises 26%
- Production guidance range affirmed at 26.1-26.5 MMBOE (including full year of Black Warrior Basin volumes)
- $101 oil hedges added in second half of 2013
BIRMINGHAM, Ala.--(BUSINESS WIRE)-- Energen Corporation (NYS: EGN) announced today that its earnings in the three months ended June 30, 2013, totaled $83.1 million, or $1.15 per diluted share. Excluding non-cash items, Energen's adjusted net income (a non-GAAP measure) totaled $47.6 million, or $0.66 per diluted share, in the second quarter of 2013; in the same period last year, adjusted net income was $52.8 million, or $0.73 per diluted share.
Non-cash, mark-to-market revenue gains in the second quarter of 2013 were $56.1 million ($35.5 million after tax, or $0.49 per diluted share). In the second quarter of 2012, mark-to-market revenue gains totaled $121.5 ($78.5 million after tax, or $1.09 per diluted share). [See "Non-GAAP Financial Measures" for more information and reconciliation.]
A 7 percent increase in total production, including an 18 percent increase in oil volumes, and higher realized natural gas and oil prices benefited Energen's second quarter earnings in 2013 as compared to the same period a year ago. More than offsetting these gains were increased depreciation, depletion, and amortization expense (DD&A), lease operating expense (LOE) and production taxes, and administrative expense.
Consolidated adjusted EBITDA (a non-GAAP measure) totaled $223.1 million in the second quarter of 2013 and compared with $201.2 million in the prior-year second quarter. The company's oil and gas exploration and production unit, Energen Resources Corporation, had adjusted EBITDA of $209.5 million in the second quarter of 2013 and $186.4 million in the same period a year ago. [See "Non-GAAP Financial Measures" for more information and reconciliation.]
Second Quarter 2013
Excluding non-cash items, Energen Resources reported adjusted net income of $48.4 million in the second quarter of 2013 and $53.2 million in the same period a year ago. Production in the second quarter increased 7 percent year-over-year. Oil and natural gas liquids (NGL) volumes increased 19 percent, reflecting the company's focus on its assets in the oil-rich Permian Basin; production in the basin grew 26 percent in the second quarter of 2013 from the same period last year.
A 4 percent decline in second quarter natural gas volumes year-over-year reflected the company's limited capital investment in its natural gas properties in response to low prices; the San Juan Basin and the company's other gas properties experienced 8 percent and 17 percent declines, respectively, in the second quarter of 2013 from the same period a year ago.
|Natural Gas||3,070||3,213||(4||) %|
Production by Area (MBOE)
|San Juan Basin||2,299||2,493||(8||) %|
Average Realized Sales Prices
|Oil (per barrel)||$||87.13||$||85.70||2||%|
|NGL (per gallon)||$||0.70||$||0.75||(7||) %|
|Natural Gas (per Mcf)||$||4.30||$||3.55||21||%|
Total LOE per unit in the 2nd quarter of 2013 increased approximately 17 percent from the same period a year ago to $13.83 per barrel of oil equivalent (BOE). Base LOE and marketing and transportation expenses increased approximately 15 percent to $11.11 per BOE largely due to increased workovers and repairs, environmental compliance, increased equipment rental expense, higher ad valorem taxes, and increased power and gathering expenses. Commodity price-driven production taxes increased approximately 25 percent on a per-unit basis to $2.72 per unit.
DD&A expense per unit in the 2nd quarter of 2013 totaled $18.54 per BOE, increasing approximately 24 percent from the same period last year largely due to year-over-year increases in development costs and production and to the impact of reduced year-end 2012 natural gas reserves resulting from lower commodity prices.
Per-unit net G&A expense increased approximately 39 percent in the second quarter of 2013 to $3.85 per BOE largely due to performance-based compensation and higher labor costs.
Energen's utility operations under Alagasco generated a net loss of $0.7 million in the 2nd quarter of 2013 as compared with earnings of $0.3 million in the same period a year ago; the difference primarily was due to the timing of rate recovery under the utility's rate-setting process.
YTD FINANCIAL RESULTS
In the first six months of 2013, Energen's net income totaled $139.8 million, or $1.93 per diluted share. Excluding non-cash items, adjusted net income (a non-GAAP measure) totaled $130.2 million, or $1.80 per diluted share. These non-cash items were mark-to-market revenue gains on certain financial commodity contracts of $15.1 million ($9.5 million after tax, or 13 cents per diluted share). Adjusted net income in the prior-year period totaled $149.9 million, or $2.07 per diluted share. [See "Non-GAAP Financial Measures" for explanation and reconciliation.]
Consolidated adjusted EBITDA (a non-GAAP measure) totaled $486.4 million in the year-to-date period ended June 30, 2013, and compared with $464.0 million in same period last year. Energen Resources' adjusted year-to-date 2013 EBITDA was $382.3 and compared with $359.6 million in the same period a year ago. [See "Non-GAAP Financial Measures" for more information and reconciliation.]
EXPLORATION & PRODUCTION
Excluding non-cash items, Energen Resources' adjusted year-to-date net income totaled $83.1 million in 2013 as compared with $102.4 million in the same period in 2012.
Production, January-June (MBOE)
|Natural Gas||6,018||6,395||(6||) %|
Production by Area, January-June (MBOE)
|San Juan Basin||4,513||4,992||(10||) %|
Average Realized Sales Prices, January-June
|Oil (per barrel)||$||86.43||$||85.43||1||%|
|NGL (per gallon)||$||0.73||$||0.81||(10||) %|
|Natural Gas (per Mcf)||$||4.28||$||3.75||14||%|
Total LOE per unit in the first six months of 2013 increased approximately 24 percent from the same period last year to $14.96 per BOE. Base LOE and marketing and transportation expenses increased approximately 27 percent to $12.38 per BOE largely due to increased workovers and repairs, equipment rental expense, ad valorem taxes, water disposal, gathering, and environmental compliance. Commodity price-driven production taxes increased approximately 12 percent on a per-unit basis to $2.58 per BOE.
DD&A expense per unit in the first six months of 2013 increased approximately 23 percent from the same period last year, excluding the non-cash write-down of natural gas properties in East Texas, to $18.03 per BOE; this increase largely reflected year-over-year increases in development costs and production and the impact of reduced year-end 2012 natural gas reserves resulting from lower commodity prices.
Per-unit net G&A expense increased approximately 36 percent in the first six months of 2013 to $4.00 per BOE largely due to performance-based compensation and higher labor costs.
Alagasco generated net income of $46.5 million in the first six months of 2013 as compared with $47.2 million in the same period last year.
First Operated Wolfcamp Well in Midland Basin Generates Strong Results
Energen reported today in a separate announcement that its first operated Wolfcamp well in the Midland Basin produced at a peak 24-hour initial rate (3-stream) of 861 boepd (60% oil, 23% NGL, 17% gas) and has a 20-day peak average rate (3-stream) of 709 boepd (65% oil, 20% NGL, 15% gas). Drilled in the upper Wolfcamp shale to a lateral length of 4,250 feet in Glasscock County, Energen's Lavaca 38 #101H initial rates are comparable to those of similar wells operated by others in the area.
"Based on the result of this well and the results of others in the Basin, it appears that multiple benches of the Wolfcamp shale will be productive and are candidates for future pad drilling, which will only make the economics stronger," said Energen Chief Executive Officer James McManus. The company estimates that, based on 80-acre spacing and 4,400-foot lateral lengths, success in the three benches of the Wolfcamp would translate into some 2,000 potential drilling locations (unrisked) on its approximately 70,000 net acres in the play.
In the second half of 2013, Energen plans to add a horizontal rig in the Midland Basin and increase the number of wells drilled this year from 6 gross (6 net) to 9 gross (9 net). The company also expects to drill progressively longer lateral lengths - up to 7,500 feet. Energen's second Glasscock County well is currently being completed, and the vertical section of a third well is being drilled.
Vertical Wolfberry EURs Raised
Energen Resources' vertical Wolfberry wells continued to generate strong results in the second quarter. Sixty-seven gross (62 net) wells tested at an average peak 24-hour initial production rate (2-stream) of 114 boepd (78% oil). The peak 30-day average rate (2-stream) was 96 boepd (78% oil).
These rates are above the company's average Wolfberry type curve primarily due to continued performance enhancement from slick water stimulations in the southern half of the Midland Basin and to contributions from deeper formations in the northern half of the basin. In the north, by adding approximately 500 feet to total depth, Energen is now drilling below the Strawn into the Mississippian to include the Atoka, Barnett, and Mississippi Lime in its completions. In addition to enhancing current vertical production, the deeper wells are holding these zones for potential horizontal drilling in the future.
Based on an analysis of well performance, Energen believes that the improvement in results supports an increase in the estimated ultimate recovery (EUR) per well from an average of 165,000 BOE to 190,000 BOE. The new average drill and complete cost is $2.5 million, and the estimated pre-tax rate of return has increased to 31 percent at commodity prices of $100 per barrel oil and $4 per Mcf gas.
Energen has drilled 94 gross (85 net) Wolfberry wells in the first six months of the year and plans to drill another 42 gross (39 net) wells by year end. This reflects a reduction of 42 net wells from prior drilling plans as the company redeploys capital to accelerate testing of the horizontal Wolfcamp potential on its Midland Basin acreage. Energen estimates that its 27,000 net undeveloped Wolfberry acres in the Midland Basin support 670 net drilling locations on 40-acre spacing.
Wolfcamp Wellsin Delaware Basin Show Potential
Energen reported today in a separate announcement that three horizontal Wolfcamp wells it drilled in the Delaware Basin have generated strong early rates. The E.J. Brady 56-1 #1H was drilled in the upper Wolfcamp to a lateral length of 3,800 feet in Reeves County. It produced at a peak 24-hour initial rate (3-stream) of 1,798 boepd (27% oil, 29% NGL, 44% gas) and had a peak 20-day average rate (3-stream) of 1,585 boepd (27% oil, 29% NGL, 44% gas).
The University 39-17 #1H and University 28-21 #1H wells were drilled in Ward and Winkler counties in the eastern side of the Delaware Basin. They both tested the upper Wolfcamp and had lateral lengths of 4,000 feet and 4,200 feet, respectively. The 39-17 #1H produced at a peak 24-hour initial rate (3-stream) of 1,187 boepd (61% oil, 18% NGL, 21% gas) and had a peak 30-day average rate (3-stream) of 950 boepd (60% oil, 18% NGL, 22% gas); the 28-21 #1H produced at a peak 24-hour initial rate (3-stream) of 969 boepd (74% oil, 14% NGL, 12% gas) and had a peak 30-day average rate (3-stream) of 652 boepd (74% oil, 14% NGL, 12% gas).
"We are pleased with our early Wolfcamp results in the Delaware Basin, but more work needs to be done to fully understand the complexities of this thick shale formation," McManus said. With approximately 114,000 net acres in the Texas Delaware Basin estimated to have Wolfcamp potential, Energen's potential (unrisked) drilling inventory could reach into the thousands (based on 80-acre spacing and 4,400-foot lateral lengths) if the play is successful in one or more benches of the shale on a large-scale basis.
Energen has added two more operated Delaware Basin Wolfcamp wells to its exploratory drilling schedule for 2013 and has converted a second Wolfbone well to a Wolfcamp well. This brings the total number of operated Wolfcamp wells in the company's 2013 exploration program in the Delaware Basin to 10 gross (10 net). Three wells are currently drilling.
3rdBone Spring Development Wells Continue Solid Performance
In the company's horizontal 3rd Bone Spring program in the Delaware Basin, Energen Resources tested 10 gross (10 net) wells in the second quarter of 2013 that had an average 24-hour peak rate (2-stream) of 1,035 boepd (70% oil). The 30-day average production rate (2-stream) of 7 gross (7 net) wells tested was 695 boepd (68% oil).
On the east side of the Pecos River, the company's core 3rd Bone Spring holdings total approximately 30,000 net acres, of which 7,500 remain undeveloped. Energen Resources estimates that it has 46 potential locations remaining to be drilled on 160-acre spacing in this core area.
Energen today affirmed its production guidance range of 26.1-26.5 million BOE (MMBOE). Included in this range is a full-year of Black Warrior Basin gas production; these assets currently are on the market. A sale of the properties prior to year-end would affect production for the year.
Drilling capital is estimated to remain approximately $1.0 billion; costs associated with additional Wolfcamp wells, deeper northern Wolfberry wells, additional working interests, and other change-in-scope items have been largely offset by a reduction in vertical Wolfberry wells.
2013e Revised Drilling and Production Summary
Operated Wells Drilled
|Midland Basin||145 (133)||5.4|
3rd Bone Spring
|Other Permian*||83 (80)||4.3|
San Juan Basin/Other
26.1 - 26.5
* Includes 2 gross (2 net) injector wells
|Total||26.1 - 26.5||24.1|
2013e Capital Summary
|San Juan Basin/Other||$||30|
Energen's revised guidance range for 2013 consolidated after-tax cash flows is $907-$937 million. Energen Resources' after-tax cash flows are estimated to be $806-$836 million, and Alagasco is expected to generate after-tax cash flows of approximately $101 million.
Net income guidance for 2013 was revised down to $3.15-$3.55 per diluted share due largely to increased estimates for LOE and slight changes to product mix. A sale of the company's Black Warrior Basin assets before year end would not materially impact earnings. Energen's earnings guidance does not include non-cash, mark-to-market gains or losses. [See "Non-GAAP Financial Measures" for more information and reconciliation.]
|Energen Resources' estimated exploration and production expenses per BOE in 2013 are:|
|Lease Operating expense|
|Base, marketing, and transportation||$|
|General & Administrative expense, net||$|