Exploration & Production | Quarterly / Earnings Reports | Production | Third Quarter (3Q) Update | Forecast - Production

Bill Barrett Mulling 2015 Strategy as Oil Prices Drop

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   |    Thursday,November 06,2014

Bill Barrett Corporation reported third quarter 2014 results and announced operational updates.

Highlights:

• Produced 2.7 million barrels of oil equivalent, including oil production of more than 1.1 million barrels
• Grew Denver-Julesburg Basin production by 150% and increased total production from active programs by 32%, year-over-year
• Completed portfolio transition through $757 million of asset sales and an acreage exchange to close the third quarter with a simplified, oil focused portfolio and a 20% increase in the key Northeast Wattenberg leasehold position
• Initiated production from four mid-length (7,300' laterals) Northeast Wattenberg wells located in the southern acreage block. The wells averaged 548 barrels of oil equivalent per day per well over 30 days of production, meeting expectations
• Drilled 4 mid-length and 23 extended reach lateral wells year-to-date in the Northeast Wattenberg area of the DJ Basin and placed 21 of those on line
• Reduced net debt by $526 million and increased liquidity to $644 million
• Generated discretionary cash flow of $70.1 million, or $1.46 per diluted common share

Chief Executive Officer and President Scot Woodall commented: "We have completed our transition to an oil focused company and are well positioned to drive profitable growth going forward. During the third quarter, we achieved significant milestones that position our Company extremely well in today's operating environment. We have materially reduced our net debt position, increased our liquidity, simplified our portfolio into two core, high growth programs and sizably increased our profitability per barrel. We are driving cash flow growth from two development programs that offer reduced risk of execution compared to our earlier assessment activities.  

"Regarding operations, I am very pleased with our team's operational execution in the Northeast Wattenberg. We have drilled 27 mid-length and extended reach lateral wells including nearly 250,000 feet of lateral drilling. We have completed 23 of these wells, including nearly 1,000 fracture stimulation stages that have been done timely and according to plan, with the four remaining wells waiting on completion operations. Further, positive initial results from our first four longer lateral wells continue to demonstrate the quality of our southern acreage position, which we increased by approximately 7,900 net acres during the quarter.  

"As we look to 2015, we are developing our operations plan for a lower oil price environment. Our cash flow base is supported by a majority of 2015 oil production hedged at approximately $90 per barrel. At today's strip prices, our key development programs in the DJ and Uinta generate returns well in excess of internal hurdle rates. We are running a variety of 2015 operating plan scenarios and considering a range of commodity prices and absolute expenditures. Our total expenditures will consider the right balance of value creation from our high quality asset base with maintaining balance sheet strength and liquidity."

Operating Results

The company has reported an update on its third quarter operations, which can be accessed below:

Bill Barrett Focusing on XRL Niobrara Wells; Details Completion Design

Bill Barrett's East Bluebell Project Pulls Ahead in the Uinta

Gibson Gulch, Piceance Basin Colorado

During the third quarter of 2014, the Gibson Gulch property was sold. The transaction closed September 30, 2014 with an effective date of July 1, 2014.

Powder Deep Oil Program, Wyoming

During the third quarter of 2014, the majority of Powder Deep acreage was sold or exchanged. At September 30, 2014, the Company held 18,700 net acres in the Powder Deep Oil Program.

Asset Sale Transaction

During the third quarter of 2014, the Company completed asset sale and exchange transactions with a stated value of $757 million. The transactions included the sale of the Gibson Gulch natural gas property in the Piceance Basin as well as various leasehold packages in the early stage Powder River Basin. The transactions included an acquisition in the Northeast Wattenberg that added:

• 7,856 net acres in the center of the Company's program, a 20% increase
• 390 Boe/d of production
• Revision of contractual terms in the area, providing the Company with more flexibility to maximize the value of its program

Completion of these transactions position the Company to have an asset portfolio that is approximately 70% oil and simplified into two core basins. It further served to significantly reduce net debt and increase liquidity in order to better position the Company to generate profitable growth from its two core programs.

The total stated value of the transactions included $568 million in cash proceeds (adjusted at closing to respective effective dates), $69 million estimated value for assets acquired in the Northeast Wattenberg that were exchanged for assets in the Powder River Basin, $36 million for the purchaser's assumption of a lease financing obligation and $84 million in future commitments assumed by the purchaser for firm gathering and transportation obligations.

All of the transactions closed in the third quarter and the adjusted cash proceeds received were $531 million. The Company applied the cash proceeds to pay off the outstanding balance under its revolving credit facility of $280 million and the remainder of the proceeds are retained in cash to be used for future investment into core drilling programs.

Operating Results

(Pro forma results remove the contribution from asset areas that have been sold over the past two years.)

Third quarter of 2014 oil, natural gas and natural gas liquids ("NGLs") production, adjusted pro forma for sold assets, was 1.4 MMBoe, up 32% compared with the third quarter of 2013.  Oil production from these assets was 941 MBbls, or 10,228 barrels per day ("Bbls/d"), up 26% compared with the third quarter of 2013.

Pro forma, pre-hedge revenue per unit from continuing operations was $63.67 per Boe in the third quarter of 2014, reflecting nearly 70% oil as a percent of total production. 

Pro forma, cash operating costs (lease operating expense, gathering, transportation and processing costs and production tax expense) for the transitioned portfolio were $13.54 per Boe in the third quarter of 2014.

Adjusting cash flow pro forma for sold assets, field level cash flow increased 20% in the third quarter of 2014 compared with the third quarter of 2013. Field level cash flow is defined as production revenue less cash operating costs for lease operating expenses, gathering, transportation and processing expenses, and production tax expenses.

Operating Results - Total Company

Total oil, natural gas and NGL production was 2.7 MMBoe (or 15.9 billion cubic feet equivalent of natural gas), or 28,848 Boe/d, in the third quarter of 2014.  Oil production accounted for 42% of total production in the third quarter of 2014 compared with 25% in the third quarter of 2013.

In 2014, the Company anticipates participating in approximately 195 gross/98 net development wells, of which approximately 116 gross are to be operated by the Company.

Product pricing, pre-hedge, was up 22% per Boe compared with the third quarter of 2013, despite lower oil prices, as a higher proportion of sales came from oil production. The Company settled net $2.7 million in cash commodity hedge losses for the third quarter of 2014.

Cash operating costs per unit were higher in the third quarter of 2014 at $14.15 per Boe compared with the third quarter of 2013 at $11.98 per Boe, due to the higher proportion of oil production, as oil is more costly to produce per unit than natural gas. General and administrative expenses of $7.6 million in the third quarter of 2014 were down $3.5 million compared with the prior year period due primarily to a $3 million true-up of accrued expenses and reduced corporate headcount related to the transactions.

Discretionary cash flow in the third quarter of 2014 was $70.1 million, or $1.46 per diluted common share, down slightly from $74.9 million in the third quarter of 2013. Higher revenue per unit and lower general and administrative expenses were offset by lower natural gas production and higher per unit costs.

2014 Operating Guidance

The Company's 2014 operating guidance is updated as follows. The Company may update the following guidance as business conditions warrant:

• Capital expenditures of $560 million-$570 million, increased by $27.5 million at the mid-point. This does not include the non-cash value of assets acquired through exchanges. The revised capital expenditure forecast adjusts for:
• Subsequent to the September 2014 acquisition of additional acreage in the Northeast Wattenberg, the Company modified its drilling schedule in the Northeast Wattenberg to increase activity in higher working interest areas; and
• Increased drilling and completion costs associated with testing new techniques, including plug-and-perf technology and increased sand volumes, which are being actively applied during the third and fourth quarters.
• Production of 9.0 million-9.4 million Boe, decreased by 4% at the midpoint.
• The revised production forecast relates to the duration of flowback periods for the XRL wells, which has ranged up to 45 days. The Company has 21 wells in various stages of flowback and initial production. These wells are the primary drivers of fourth quarter incremental production growth. Given variability in the flowback period before first hydrocarbon production, the actual production contribution from these wells in the fourth quarter of 2014 can fall within a fairly wide range. All of these wells are expected to be on production in the first quarter of 2015.
• Lease operating costs of $58 million-$62 million, unchanged.
• Gathering, transportation and processing costs of $36 million-$37 million, unchanged.
• Starting in the fourth quarter of 2014, approximately $4.5 million per quarter in cash costs associated with natural gas firm transportation obligations will be classified in a separate line item.
• General and administrative expenses, before non-cash stock-based compensation costs, of $43- million-$45 million, reduced to reflect lower third quarter actual expenses and lower run rate.