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RSP Permian Cuts Cost of Wolfcamp, Spraberry Wells

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   |    Thursday,August 14,2014

RSP Permian, Inc. reported financial and operating results for the quarter ended June 30, 2014.

Certain information presented in this release is on a pro forma basis, giving effect to the completion of the corporate reorganization and acquisitions in connection with the Company's initial public offering and adjusted to eliminate certain items associated with the IPO. 

Highlights:

• As previously reported, average production in the second quarter increased by 43% to 10,714 Boe/d as compared to pro forma production during the same period in 2013 and 15% over pro forma production during the first quarter of 2014.
• Pro forma net income of $9.1 million, or $0.12 per diluted share.  Pro forma net income includes a $14.4 million non-cash loss on derivatives. Our pro forma adjusted net income, which does not include this item, was $18.5 million, or $0.25 per diluted share. Pro forma adjusted EBITDAX was $53.7 million in the second quarter of 2014
• Net income of $8.2 million, or $0.11 per diluted share.  Net income includes a $14.4 million non-cash loss on derivatives. Our adjusted net income, which does not include this item was $17.4 million, or $0.24 per diluted share. 
• As previously announced in July 2014, entered into multiple agreements to acquire predominantly undeveloped acreage and certain oil and gas producing properties located in Glasscock County, Texas, for an approximate aggregate price of $259 million. 
• Increased our horizontal inventory by 50% to a total of 1,760 locations, up from 1,169 at the time of our IPO.
• Added fourth operated horizontal rig and third operated vertical rig.  Recently contracted a fifth horizontal drilling rig and finalizing terms on a sixth horizontal rig, which are expected to arrive in late 2014 and by the end of the first quarter 2015, respectively.
• Updated 2014 production outlook to a range of 11,500 to 12,000 Boe/d and increased expected total capital expenditures to approximately $425 million.
• Increased  borrowing base on the revolving credit facility by 25% to $375 million from $300 million.

Steve Gray, Chief Executive Officer, commented: "We have delivered two quarters of strong operating performance and growth since our IPO. We are continuing to grow our horizontal drilling program with the addition of three horizontal rigs since this time last year, and we plan to add two more horizontal rigs by the end of the first quarter of 2015 for a total of six horizontal rigs.  In addition, our recent agreement to acquire properties in Glasscock County adds a substantial inventory of horizontal and vertical locations in a top tier area in the Midland Basin and creates critical mass in a new primary operating area for RSP."

Recent HZ Wells and Current Activity

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During the second quarter of 2014, RSP drilled 17 horizontal wells (ten operated) and completed 16 horizontal wells (six operated).  Of the six operated completed horizontal wells, RSP has one well targeting the Lower Spraberry, one well targeting the Wolfcamp A, three wells targeting the Wolfcamp B, and one well targeting the Wolfcamp D (Cline).  The average lateral length of those wells was 5,904 feet and excluding the Wolfcamp D (Cline) well, was 6,178 feet.  The 30-day IP rate of all wells completed during the quarter was 675 Boe/d (82% oil) or 112 Boe/d per 1,000 feet of lateral.  The average 30-day IP rate was 774 Boe/d (82% oil) or 126 Boe/d per 1,000 feet of lateral excluding the Wolfcamp D (Cline) well, which performed below average due to issues associated with hitting a fault during drilling operations.  As previously communicated, RSP is in the final stages of a 3D seismic acquisition process which will provide data to optimize wellbore placement in the Wolfcamp D (Cline) as well as other zones on RSP's acreage.

The Company's operated horizontal rigs are working in Midland County (one rig), Ector County (one rig), Martin County (one rig) and Andrews County (one rig).  The Company's three operated vertical rigs are working in Midland (two rigs) and Martin Counties (one rig).  As previously mentioned, the Company expects to add a fifth horizontal rig in the fourth quarter and a sixth horizontal rig by the end of the first quarter of 2015.  In addition, the Company intends to maintain one vertical rig drilling on the properties acquired in Glasscock County upon closing of the Glasscock acquisitions.

The Company is currently in the drilling or completion phase on 13 operated horizontal wells targeting four horizontal zones located in four counties on its leasehold (Andrews, Ector, Dawson, and Midland): three Middle Spraberry, five Lower Spraberry, one Wolfcamp A, and four Wolfcamp B.  RSP recently finished the drilling and completion of its first two horizontal wells in the Spanish Trail leasehold area off a two well pad targeting the Wolfcamp B and Lower Spraberry.

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The Company also recently finished the drilling of another two well pad in the Spanish Trail leasehold targeting the Lower and Middle Spraberry and these two wells are the Company's longest two horizontals to date with each lateral measuring approximately 9,900 feet.

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Additionally, RSP finished drilling and completing its first two horizontal wells in Dawson County targeting the upper Wolfcamp and Lower Spraberry formations which are in early flowback and results are expected in the third quarter.

Production volumes for the quarter ended June 30, 2014 averaged 10,714 Boe/d or a total of 975 MBoe.  Production for the second quarter of 2014 was comprised of 71% crude oil, 17% NGLs, and 12% natural gas.  RSP's average realized commodity price for the second quarter 2014, before effects of hedges, was $75.96.  Per unit cash expenses (including lease operating, gathering and transportation, production and ad valorem taxes, and general and administrative) were $19.30 per Boe.  For the quarter, Adjusted EBITDAX was $53.7 million, pro forma adjusted net income was $18.5 million or $0.25 per share, and adjusted net income totaled $17.4 million or $0.24 per diluted share.

Capital Expenditures

RSP's updated 2014 capital expenditures budget is approximately $425 million, excluding acquisitions, and includes approximately $400 million for drilling and completion activities and $25 million for infrastructure and other projects.  The Company spent approximately $95 million in the second quarter of 2014 on capital expenditures, which included $89 million for drilling, completion, and capitalized workovers.

Liquidity Update

As of June 30, 2014, the Company had borrowed $140 million on its revolving credit facility which has a $375 million borrowing base, and had approximately $125 million of debt, net of cash, outstanding.  RSP recently closed an 11.5 million share public stock offering, with the Company selling 4.8 million shares, raising $117.8 million of net proceeds to the Company, and the selling shareholders selling 6.7 million shares.  Immediately prior to the offering, RSP had approximately $170 million outstanding on its revolving credit facility.  As of August 13, 2014, after applying the proceeds of the stock offering, RSP had approximately $70 million of borrowing under its revolving credit facility and approximately $304 million of borrowing capacity. 

RSP intends to fund a portion of the pending acquisitions in Glasscock County with borrowings under its revolving credit facility.  Following the closing of the acquisitions, the Company will evaluate the potential issuance of senior notes.