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Midstates Drops One Rig After Reducing Well Costs

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   |    Friday,August 07,2015

Midstates Petroleum Company, Inc. has announced its financial and operating results for the three months ended June 30, 2015.

Second Quarter and Other Highlights:

• Increased average production in the Mississippian Lime to a record high of 27,029 barrels of oil equivalent (Boe) per day in the second quarter, up 31% from 20,698 Boe per day in the second quarter of 2014 and up 2% from 26,531 Boe per day in the first quarter of 2015.
• Attained total Company production of 33,893 Boe per day in the second quarter, up 6% from 31,912 Boe per day in the second quarter of 2014 and essentially flat with 34,164 Boe per day in the first quarter of 2015.
• Maintained estimated well level returns of greater than 30% in the Mississippian Lime, using July 27, 2015 strip pricing and current AFE of $3.3 million.
• Closed the sale of remaining Louisiana producing properties in the Dequincy area on April 21 for approximately $42 million in net cash proceeds.
• Executed a $625 million Second Lien note offering and approximately $525 million Third Lien note exchange that significantly boosted liquidity and captured debt reduction opportunity.
• Reported liquidity on June 30, 2015 of $402 million comprised of $151 million in cash and $251 million of availability on its revolving credit facility.
• Increased full year 2015 production guidance to 31,500 to 33,500 Boe per day.

Operational Discussion

• In the second quarter of 2015, Midstates invested $70 million of operating capital, spud 17 wells, and brought 19 wells on line.

Mississippian Lime Update

• Production from the Company’s Mississippian Lime properties averaged 27,029 Boe per day for the second quarter of 2015, an increase of approximately 31% over the second quarter of 2014. Since acquiring these properties in October 2012, Midstates has grown production in the Mississippian Lime from approximately 7,000 Boe per day to over 27,029 Boe per day. Through July 26, 2015, the Company had 258 wells on production for more than 30 days with an average peak 30-day production rate of 559 Boe per day.
• The Company had four rigs drilling in its Mississippian Lime horizontal well program in Woods and Alfalfa Counties, Oklahoma for the entire second quarter. Midstates spud a total of 17 wells, of which six were producing, seven were awaiting completion and four were drilling at June 30, 2015. The Company brought 19 fracture stimulated horizontal wells online during the second quarter.
• In late July, the Company reduced its active rig count to three operated drilling rigs in the area. In spite of the reduction in rig count, Midstates intends to drill approximately the same amount of net wells during 2015. The reduction is due to continued drilling efficiency gains and increased working interests in operated wells attributable to partner non-consents, all of which allow the Company to drill a higher number of net wells with fewer rigs. Midstates increased its 2015 production guidance to 31,500 to 33,500 Boe per day, while maintaining its capital expenditure guidance for the year. 
• Additionally, through a combination of operational efficiencies and service cost reductions, the Company has already accomplished its goal of reducing standard well costs to $3.3 million in the Mississippian Lime by year-end. With current well cost AFEs of $3.3 million, Midstates is generating rates of return in excess of 30% at the current strip and will continue to work with its service providers on cost reductions and design improvements to further improve well level returns.

Anadarko Basin Update

• Due to the commodity price environment, the Company does not currently plan to operate any rigs in the Anadarko Basin area during 2015. Midstates’ focus thus far in the basin in 2015 has been on its high-return capital and expense workover program designed to offset some natural production decline and to reduce lease operating costs. The Company intends to continue a limited workover program through the end of the year.
• Midstates did not spud or bring on line any new wells during the second quarter and had no wells awaiting completion on June 30, 2015. Production for the second quarter in the area averaged 6,586 Boe per day.

Sale of Remaining Louisiana Producing Properties

• On April 21, 2015 the Company closed the sale of its ownership interest in developed and undeveloped acreage in the Dequincy area located in Beauregard and Calcasieu Parishes, Louisiana to Pintail Oil and Gas LLC, for net cash proceeds of approximately $42 million, which was after customary closing adjustments. The proceeds from the sale will be used for general corporate purposes.

Liquidity Enhancing Transaction and Note Exchange

• On May 21, 2015 the Company completed a private offering of Senior Secured Second Lien Notes at par with an aggregate principal amount of $625 million and an annual interest rate of 10%. A portion of the net proceeds were used to fully repay borrowings under the Company’s revolving credit facility, with the remainder held in cash for general corporate purposes.
• Concurrently with the offering of Second Lien Notes, the Company exchanged approximately $279.8 million of its 10.75% Senior Unsecured Notes due 2020 and approximately $350.3 million of its 9.25% Senior Unsecured Notes due 2021 for new Third Lien Senior Secured Notes in an aggregate principal amount of $504.1 million, representing an exchange at 80% of par value. Additionally, on June 2, 2015, Midstates exchanged approximately $26.5 million of its 10.75% Senior Unsecured Notes due 2020 and approximately $2.0 million of its 9.25% Senior Unsecured Notes due 2021 for new Third Lien Senior Secured Notes in an aggregate principal amount of $20 million, representing an exchange at 70% of par value. The Third Lien Notes will pay cash interest of 10% and pay-in-kind interest of 2% per annum.
• The Company also amended its revolving credit facility to provide additional covenant flexibility and allow for the Second Lien Note issuance and Third Lien Note exchange transactions. Upon completion of the transactions, the Company’s borrowing base under its revolving credit facility was reduced to $253 million.