Exploration & Production | Quarterly / Earnings Reports

DJ, Powder River Basin Drive Bill Barrett's Q2 Production

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Bill Barrett Corporation reported second quarter 2013 results and announced operational updates.

Highlights:

• Oil, natural gas and natural gas liquids (NGL) production of 21.4 Bcfe
• Oil production averaging 9,060 barrels per day, or 23% of production
• Average realized price of $6.56 per Mcfe, reflecting the benefit of growing oil volumes.  Oil sales accounted for 47% of pre-hedge sales revenues
• Discretionary cash flow of $65.7 million, or $1.38 per diluted common share
• Bigger wells in the Northeast Wattenberg. Three new Niobrara 'B' wells in the Denver-Julesburg Basin (DJ) averaged approximately 1,000 barrels of oil equivalent per day (Boe/d) peak 24-hour initial production (IP) rate and 517 Boe/d over 30-days, demonstrating increased rates with new completion and artificial lift technology
• More success in the Powder Deep Oil Program. Five new wells averaged 816 Boe/d peak 24-hour IP rate and 516 Boe/d over 30-days, while wells are temporarily restricted awaiting tie-in to natural gas facilities

Chief Executive Officer and President Scot Woodall commented: "We are encouraged with our strong and improving well results in the Northeast Wattenberg. Our most recent wells, in which we applied larger fracture stimulations and timely installed gas lift, are performing well. We are now increasing our rig count to four rigs and plan by year-end to delineate our 40,000 acre position, test 80-acre spacing in the Niobrara 'B', and drill the Niobrara 'C', Codell, and one extended reach lateral. We are excited about the upside potential of this area, and we are focused on realizing the associated value.

"Through the remainder of 2013, our operations focus will be redirected to the Northeast Wattenberg, with the planned Uinta Oil drilling program nearly completed for the year. Four rigs will be active in the Northeast Wattenberg later this month, slightly delayed from original expectations. As a result, our capital expenditure guidance for 2013 is reduced by $25 million at the mid-point. In conjunction with the timing of well completions in the Northeast Wattenberg as well as performance of certain wells in the Uinta Oil Program, we are also reducing our production forecast for 2013 by 4% at the mid-point. Of note, the production impact in the Uinta Oil Program stems from various causes, including testing new completion concepts in the area that did not meet expectations. The number of future drilling locations in the area is not affected, and the area continues to be a major oil resource. We remain committed to capital discipline and completing an asset divestiture as part of our portfolio management program. This activity is well underway, and we are confident that we are on track to complete a transaction by year-end.

"We expect the second half of 2013 to deliver positive, quantifiable results in the Northeast Wattenberg, completion of an asset divestiture and oil production exit rate of approximately 12 thousand barrels per day (MBbls/d), positioning our Company for solid year-end oil reserve growth and 2014 cash flow."

Operations Update

The company updated each of its E&P segments, which can be accessed below:

• Bill Barrett Averages 1,000 BOE/d IP in DJ Basin; Talks Powder River Deep Oil
• Bill Barrett Plans Lower Piceance/Uinta Activity; Cites Underperformance

The following table lists production, wells spud and total capital expenditures by basin for the three and six months ended June 30, 2013:

The Company anticipates drilling or participating in approximately 180 gross/100 net development wells in 2013, including participation in approximately 40 gross non-operated wells. The Company's development program will focus on growth in oil production and reserves at its established development programs.

2013 Guidance

The Company's updated 2013 guidance (please reference "Forward-Looking Statements" below) is as follows. The Company may update guidance as business conditions warrant:

• Capital expenditures of $465 million to $485 million, narrowed and lowered by $25 million at the mid-point.
• Oil, natural gas and NGL production of 83 to 86 Bcfe, narrowed and lowered at the mid-point from 88 Bcfe. Oil production is expected to increase approximately 30% to 35% in 2013 over 2012, lowered from 50%+ growth.
• Lease operating costs of $64 million to $67 million, narrowed from $62 million to $67 million and inclusive of one-time charges of $1.2 million associated with the West Tavaputs compressor fire.
• Gathering, transportation and processing costs of $65 million to $68 million, unchanged.
• General and administrative expenses before non-cash stock-based compensation cost of $50 million to 54 million, unchanged.

Operating & Financial Results

Oil, natural gas and NGL production totaled 21.4 billion cubic feet equivalent ("Bcfe") in the second quarter of 2013, based on three-stream reporting adopted as of January 1, 2013. (Second quarter of 2013 production on a comparable two-stream basis would have been 20.5 Bcfe.) Production is down from 29.9 Bcfe reported in the second quarter of 2012 (reported on a two-stream basis) primarily due to asset sales closed in the fourth quarter of 2012 and up slightly  from 21.2 Bcfe reported in the first quarter of 2013.  Oil production of 9,060 Bbls/d in the second quarter of 2013 was up 30% compared with the second quarter of 2012, including a 40% increase at the Uinta Oil Program and a 55% increase in the DJ Basin, partially offset by the oil production (condensate) sold in the fourth quarter of 2012 asset sale.

Realized pricing in the second quarter of 2013 was $6.56 per thousand cubic feet equivalent (Mcfe), up 10% from the second quarter of 2012, reflecting the significant growth in oil volumes year-over-year and benefited by $0.08 per Mcfe from realized hedges. The average realized prices by commodity for the second quarter of 2013 were $82.11 per barrel (Bbl) of oil, $3.92 per Mcfe of natural gas and $46.38 per Bbl of NGLs (reflecting the Company's election to reject ethane on the majority of its NGLs during the second quarter.) 

Discretionary cash flow in the second quarter of 2013 was $65.7 million, or $1.38 per diluted common share, down from $94.7 million in the second quarter of 2012. The decline in discretionary cash flow in the second quarter of 2013 compared with the second quarter of 2012 was primarily due to lower production. Cash operating costs (lease operating expense, gathering transportation and processing expense and production tax expense) per unit were higher in the second quarter of 2013 at $2.00 compared with the second quarter of 2012 at $1.73. Higher costs were partially offset by higher realized prices, per Mcfe.  For the first six months of 2013, discretionary cash flow was $129.4 million compared with $193.6 million for the first six months of 2012.

Net income in the second quarter of 2013 was $14.3 million, or $0.30 per diluted common share, compared with net income of $3.3 million in the second quarter of 2012. Net income in the quarter was affected by the same items that affected discretionary cash flow (described above) and higher per unit depreciation and depletion expense. Lower net income in the prior year quarter was negatively affected by impairment and exploration charges.  Adjusted net income for the second quarter of 2013 (a non-GAAP measure, see "Adjusted Net Income Reconciliation" below) was a loss of $9.1 million, or ($0.19) per diluted common share, compared with a loss of $2.4 million, or ($0.05) per diluted common share, in the second quarter of 2012. Adjusted net income (loss) removes the effect of non-recurring charges such as unrealized derivative gains and losses, impairment expenses, property sales and certain one-time items. For the first six months of 2013, adjusted net income was a loss of $21.3 million compared with income of $7.3 million for the first six months of 2012.

Debt & Liquidity

At June 30, 2013, the Company had total debt outstanding (principal balance) of $1,248.4 million including $80.0 million drawn on its $825.0 million revolving credit facility due 2016.  Subsequent to June 30, 2013, the Company redeemed its $250.0 million 9.875% Senior Notes and funded the redemption with borrowings under the revolving credit facility, substantially reducing the interest rate on this debt. Pro forma for this transaction (including the redemption premium) and after deducting an outstanding letter of credit for $26.0 million, borrowing capacity on the Company's revolving credit facility at quarter-end was $456.7 million, and the Company has no term debt due before 2019.