Exploration & Production | Drilling / Well Results | Top Story | Quarterly / Earnings Reports
Emerald IPs Wells, Enhances Bakken Frac Design in Q2
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Emerald Oil, Inc. has reported its results for the quarter ended June 30, 2013.
Highlights:
- Increased second quarter production to 126,783 BOE, an average of 1,393 BOEPD and an increase of 31% compared to the first quarter of 2013;
- Increased oil and natural gas sales to $10.6 million, up from $6.8 million in the second quarter of 2012 and $8.2 million in the first quarter of 2013, representing an increase of 56% and 29%, respectively;
- Ended the second quarter with a cash balance of $72.7 million, redeemed $15.0 million of the Series A Preferred Stock and recently entered into an amendment with Wells Fargo Bank which increased Emerald's borrowing base to $75.0 million;
- Adjusted EBITDA of $2.8 million or $0.09 per share (basic);
- Adjusted cash flow loss of $0.3 million or $(0.01) per share (basic); and
- Adjusted loss of $7.6 million or $0.23 per share (basic).
McAndrew Rudisill, Emerald's Chief Executive Officer, stated, "The results of Emerald's first round of operated wells continue to be very strong. Our team is enhancing the fracture stimulation design of each new well with a specific focus on fracture propogation and placement of a higher concentration of proppant in each stage of the well. We continue to methodically add acreage around our core operating position in McKenzie County, ND and will re-deploy proceeds from sales of our non-operated working interests into acquiring new operated Drilling Spacing Units in the Williston Basin. We've built strong operating momentum, and are focused on building Emerald's production while driving our capital costs down through more efficient drilling techniques, carefully engineered fracture stimulation designs and leveraging our growing field infrastructure. We reaffirm both our 2013 average and year end production guidance."
Production from Emerald Operated Wells
In May 2013, Emerald completed its second operated Bakken well, the Arsenal Federal 1-17-20H. The initial peak 24 hour rate for the well was 1,638 Boe/d. The Arsenal Federal 1-17-20H produced 23,043 barrels of oil equivalent (BOE) during the first 30 days of production or an average of 768 barrels of equivalent per day (Boe/d).
In June 2013, Emerald completed its third operated Bakken well, the Caper 1-15-22H. The initial peak 24 hour rate for the well was 2,063 Boe/d, which is the highest initial peak rate for an Emerald operated well to date. The Caper 1-15-22H produced 29,815 BOE during the first 30 days of production or an average of 994 Boe/d.
In June 2013, Emerald completed its fourth operated Bakken well, the Mongoose 1-8-5H well. The initial peak 24 hour rate for the well was 1,523 Boe/d. The Mongoose 1-8-5H well produced 26,773 BOE during the first 30 days of production or an average of 892 Boe/d.
Continued Operated Well Development Program
In July 2013, Emerald completed both the Talon 1-9-4H and Slugger 1-16-21H wells on the same pad location. Both wells were completed with 34 frac stages. Emerald is currently drilling out the plugs on both the Talon and the Slugger and will report the results of both wells with the next sequence of completed wells after 30 days of production data.
Emerald deployed its second rig in mid-June and is currently drilling the Hot Rod 1-27-26H and Excalibur 5-25-36H wells. After these two wells are drilled, Emerald intends to fracture stimulate the wells as soon as possible.
Acreage Acquisition
On April 29, 2013, Emerald entered into a purchase and sale agreement with a third party to acquire approximately 5,874 net acres of undeveloped leasehold in McKenzie County, North Dakota for approximately $6.5 million or approximately $1,100 per net acre. The acquired acreage is directly south and contiguous to Emerald's existing operated area in McKenzie County, North Dakota. The acquisition added six additional operated drilling spacing units in Emerald's Low Rider Prospect in McKenzie County, North Dakota.
On August 2, 2013, Emerald closed a transaction with a third party to acquire approximately 3,500 net acres of partially developed leasehold in McKenzie County, North Dakota for approximately $10.5 million or approximately $3,000 per net acre. The acquired acreage is directly southeast and contiguous to Emerald's existing Low Rider Prospect in McKenzie County, North Dakota. The acquisition added eight additional operated drilling spacing units in Emerald's Low Rider Prospect in McKenzie County, North Dakota, providing Emerald with a total of 23 operated drilling spacing units. The acreage is currently producing approximately 120 Boe/d from the Duperow, Bird Bear and Red River formations.
The Company's average working interest in its Low Rider operated area after the recent acquisition is approximately 67% and the Company continues to work toward increasing the average well working interest towards 75%. On a pro forma basis to reflect closed and pending acquisitions, the Company expects to have approximately 58,000 net acres in the Williston Basin, of which approximately 25,750 net acres are operable in McKenzie, Dunn and Williams County, North Dakota, and Richland County, Montana.
Sale of Non-Operated Leasehold
On April 17, 2013, the Company sold its interest in approximately 970 net mineral acres in the Williston Basin to a third party for a total sale price of approximately $7.1 million, including sales price adjustments for development costs, production revenue and operating expenses during the effective period. The acreage was associated with working interests in Williston Basin Bakken and Three Forks wells not operated by the Company.
Well Development Activity
During the second quarter 2013, Emerald invested approximately $26.7 million on well development in the Williston Basin.
2013 Capital Budget
Emerald is maintaining its previously announced 2013 capital budget of $127.6 million. The Company has been drilling operated wells in less than 30 days at a total cost of approximately $10.0 million, which is in line with its previous estimate. Reduced drilling times should allow the Company to drill a total of approximately 12.0 net operated wells during 2013. Emerald plans to spend $120.2 million to drill operated wells and approximately $7.4 million to participate in 0.8 net non-operated wells. In addition, the Company has allocated $20 million for potential acreage acquisitions in its core areas.
The following table summarizes Emerald's Williston Basin acreage position pro forma for closed and pending acquisitions along with planned 2013 capital expenditures:
Production Guidance
The Company expects third quarter production to average 2,050 Boe/d. Given positive results from its initial operated wells, Emerald re-affirms its December 2013 exit rate production guidance of 2,850 Boe/d.
Second Quarter 2013 Results
Revenues from oil and natural gas sales increased 56% for the three months ended June 30, 2013 compared to the three months ended June 30, 2012, driven primarily by a 49% increase in production volumes. Production primarily increased due to the addition of 2.84 net productive operated wells and 3.12 net productive non-operated wells in the Williston Basin from July 1, 2012 to June 30, 2013. During the three months ended June 30, 2013, Emerald realized an $85.09 average price per barrel of oil (including realized derivatives) compared to an $83.43 average price per barrel of oil during the three months ended June 30, 2012. The oil price differential during the three months ended June 30, 2013 was $6.49 per barrel, as compared to $9.11 per barrel in the three months ended June 30, 2012.
The table below summarizes Emerald's gross and net productive operated and non-operated oil wells by state at June 30, 2013 and June 30, 2012. The below table does not include 23 gross (.33 net) non-operated Bakken and Three Forks wells and 4 gross (2.62 net) operated Bakken wells that were in the process of being drilled, awaiting completion, in the process of completion or awaiting flow back subsequent to fracture stimulation as of June 30, 2013 and 30 gross (1.10 net) non-operated Bakken and Three Forks wells as of June 30, 2012.
Liquidity and Shares Outstanding
On May 22, 2013, the Company completed a public offering of 12,000,000 shares of common stock at a price of $6.10 per share for total net proceeds of approximately $69.3 million. The Company incurred costs of approximately $4.3 million related to this transaction, which were netted against the proceeds of the transaction through additional paid-in capital. The underwriters elected to exercise the over-allotment option to sell an additional 1,800,000 shares of common stock at $6.10 per share. The net proceeds from the over-allotment exercise were approximately $10.5 million after deducting underwriting discounts and commissions.
On June 4, 2013 the Company completed a private placement of 2,758,600 shares of common stock at a price of $5.93 per share for net proceeds of approximately $16.2 million after deducting placement agent fees of approximately $0.2 million. The issuance of the common stock was made in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4 thereof, which exempts transactions by an issuer not involving a public offering.
Emerald intends to use the net proceeds from these offerings, along with cash on hand, cash flow from operations, proceeds from the sale of assets and additional borrowings under the revolving credit facility, to fund its capital budget for the remainder of 2013. Any remaining net proceeds will be used for general corporate purposes, including working capital.
On June 20, 2013, Emerald redeemed 150,000 shares of the Series A Perpetual Preferred Stock for $17,203,767 including $1,875,000 of redemption premium and $328,767 in accrued dividends on the redeemed shares. The redemption premium is treated as a dividend and recorded as a return of equity to the investor through a charge to additional paid-in capital.
In August 2013, Emerald completed the semi-annual borrowing base redetermination of its revolving credit facility. As a result, Emerald entered into an amendment with Wells Fargo Bank, which increased its borrowing base to $75.0 million from the previous $27.5 million. Currently the credit facility is undrawn.
Emerald had approximately 42.5 million shares of common stock outstanding on August 6, 2013.
Unrealized Loss on Warrants
During the quarter, the Company recognized an unrealized loss on its warrant liability of $0.6 million. This mark-to-market charge relates to the warrants attached to the preferred stock issued to White Deer Energy in February 2013. Each quarter the Company will mark-to-market the warrants and adjust for the change in the statement of operations as a non-cash charge.
Gain (Loss) on Commodity Derivatives
Realized commodity derivative gains (losses) were $(183,573) for the three months ended June 30, 2013 compared to $88,568 for the three months ended June 30, 2012. Unrealized commodity derivative gains were $848,910 for the three months ended June 30, 2013 compared to $2,162,975 for the three months ended June 30, 2012. Emerald's derivatives are not designated for hedge accounting and are accounted for using the mark-to-market accounting method whereby gains and losses from changes in the fair value of derivative instruments are recognized immediately into earnings. Mark-to-market accounting treatment creates volatility in Emerald's revenues as unrealized gains and losses from derivatives are included in total revenues and are not included in accumulated other comprehensive income in the accompanying balance sheets. As commodity prices increase or decrease, such changes will have an opposite effect on the mark-to-market value of Emerald's derivatives. Future derivatives gains will be offset by lower future wellhead revenues. Conversely, future derivatives losses will be offset by higher future wellhead revenues based on the value at the settlement date. At June 30, 2013, all of Emerald's derivative contracts are recorded at their fair value, which was a net asset of $49,331.
