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Resolute Energy Staying The Permian Drilling Course

Share Print Bookmark    |    Monday,May 09,2016

Resolute Energy Corporation reported financial and operating results for the quarter ended March 31, 2016.

Key Points:

• Permian - During the quarter, we spud three wells, completed two wells and had one drilling over quarter end. Since the end of the quarter, we have completed two more Permian Basin wells. The rig is currently drilling the sixth well and we plan to drill three more Appaloosa 10,000 foot laterals sequentially

• Well Results - Early indications on each of these wells show production results meaningfully above our type curve. In Mustang, the Jolly 1201BH had a three-stream thirty-day peak IP rate of 1,552 barrels of oil equivalent per day and the Flying Dog 1401BH had a 24-hour peak IP rate to date of 1,551 Boe per day. In Appaloosa, our first 10,000 foot lateral, the North Goat 02 2201H has had a 24-hour peak IP rate to date of 2,464 Boe per day. Our most recently completed Appaloosa well is now flowing back.

• As previously disclosed, we are actively pursuing a monetization of our Delaware Basin midstream assets.

Highlights:

• Quarterly production averaged 9,016 Boe per day
• Quarterly LOE of $16.70 per Boe
• Reduced year over year debt by more than $261 million
• Permian Basin horizontal wells drilled and completed under budget
• Early production rates above type curve

Nicholas J. Sutton, Resolute's Chief Executive Officer, said: "We are pleased to discuss the financial results for the quarter ended March 31, 2016, and to update you on the status of our horizontal drilling program in Reeves County, Texas.

"Since December 2015 we have drilled five horizontal wells to TD in Reeves County. Four of these wells have been completed and are either producing or flowing back. The fifth well has not yet been completed. We are very happy with our results to date. The first two wells are 7,500 foot horizontal Wolfcamp A laterals in our Mustang project area. The subsequent three wells are 10,000 foot horizontal Wolfcamp A laterals in the Appaloosa project area. Based on our current estimates of actual costs, the average drilling and completion cost of the 7,500 foot laterals in Mustang, including production facilities, was approximately $8.5 million and in Appaloosa the cost of a 10,000 foot lateral was approximately $9.5 million. These completed well costs represent a savings of approximately fifteen percent compared to AFE. The rig is currently drilling the sixth well and we plan to drill three more Appaloosa 10,000 foot laterals sequentially.

"Early indications on each of these wells show production results meaningfully above our type curve. In Mustang, the Jolly 1201BH had a three-stream thirty-day peak IP rate of 1,552 barrels of oil equivalent ("Boe") per day and the Flying Dog 1401BH had a 24-hour peak IP rate to date of 1,551 Boe per day. In Appaloosa, our first 10,000 foot lateral, the North Goat 02 2201H has had a 24-hour peak IP rate to date of 2,464 Boe per day. Our most recently completed Appaloosa well is now flowing back.

"We will reevaluate our type curves between now and mid-year, and these strong results suggest an upward revision in our 'type' production profiles and expectations for ultimate recovery. Additionally, the value of our Reeves County wells is significantly enhanced by the cost savings that we have achieved. Our drilling program is ahead of schedule and under budget and we will bring production on line earlier than we had planned.

"As previously disclosed, we are actively pursuing a monetization of our Delaware Basin midstream assets. After the completion of a thorough process, we have identified our preferred counterparty and are in discussions with the objective of completing a transaction in the second quarter. 

"Our base business remains strong. Production to date in 2016 is above planned levels. We continue to outperform our lease operating expense ("LOE") plan, both in Aneth Field and in the Permian Basin. Costs for the first quarter of 2016 on a Boe basis were actually lower than costs realized in 2015, and recently we have amended our oil sales contract in Aneth Field to provide a price uplift of approximately 65¢ per barrel. We ended the quarter with zero drawn and more than $100 million of availability on our revolving credit facility. Overall, our operational activities have been very successful, due in large measure to the hard work and dedication of Resolute's staff."

Operations Update

Permian Basin

During the quarter, we spud three wells, completed two wells and had one drilling over quarter end. Since the end of the quarter, we have completed two more Permian Basin wells, as discussed above. In addition to drilling, we completed work on certain infrastructure within our Appaloosa area including the drilling of a new salt water disposal well. Total capital expenditures for Permian Basin operations were $23 million in the quarter. Based on results to date, we are on track to spend less and produce more than our original 2016 budget.

Completed wells in our Mustang area are the Jolly 1201BH and the Flying Dog 1401BH, both Wolfcamp A 7,500 foot laterals. Both reached TD at the end of 2015 and were completed during the first quarter, and each delivered initial results above type curve. The Jolly 1201BH had a three-stream thirty-day peak IP rate of 1,552 Boe per day and the Flying Dog 1401BH had a 24-hour peak IP rate of 1,551 Boe per day. The average completed well cost for the Jolly 1201BH and the Flying Dog 1401BH was approximately $8.5 million.

Completed wells in our Appaloosa area are the North Goat 02 2201H and the North Mitre 02 2101H, both Wolfcamp A 10,000 foot laterals. The North Goat 02 2201H well was spud on January 9, drilled to TD in 29 days and completed on April 4. The well achieved a 24-hour peak IP rate of 2,464 Boe per day. The North Mitre 02 2101H well was spud on February 15, drilled to TD in 23 days and completed on May 2. That well is currently flowing back. The average completed well cost for the North Goat 02 2201H and the North Mitre 02 2101H is estimated to be approximately $9.5 million. After drilling the North Mitre 02 2101H, the drilling rig moved to the South Elephant 02 1004H well, which has reached TD and has not yet been completed. Our next planned well is the North Elephant 02 1004H, which we spud on May 7.

Production in the Permian Basin for the first quarter was 2,961 Boe per day (55 percent oil), an eight percent increase over fourth quarter 2015, pro forma for the divestiture of the Gardendale properties. As of May 1, Permian Basin production had increased to approximately 4,500 Boe per day as a result of our successful horizontal drilling program. Our Permian Basin operating team has continued to improve efficiencies in lease operations. LOE for the first quarter was $9.79 per Boe, a fifteen percent decrease from the fourth quarter 2015, pro forma for the Gardendale property divestiture. These lower operating costs on a Boe basis are a result of lower cash expenses combined with higher production achieved from our horizontal Wolfcamp wells.

Aneth Field

Despite a constrained capital program, Aneth Field continued to deliver strong results. Extremely cold weather in January and February and some equipment issues during the quarter caused a modest drop in Aneth Field production during the first quarter. The equipment issues have been addressed and production is now above plan. Production for the quarter was 6,056 Boe per day, or three percent below the prior quarter. 

The business unit continued to reduce costs in the first quarter. Despite the slight production decrease described above, we reduced LOE per Boe by fourteen percent to $20.15 as compared to the fourth quarter of 2015. Improvements in LOE were the result of continuing reduction of workover costs, reduced use of rental equipment and prioritization of work.

Capital spending for the quarter was $2.3 million. CO₂ purchases accounted for $1.6 million of the total spending and the majority of the remainder was spent to continue upgrades on the field-wide electrical system.

Furthermore, Resolute has reached an agreement with our crude oil purchaser, Western Refining Southwest, LLC, effective May 1, 2016, that should increase Resolute's average realized wellhead price by approximately $0.65 per Bbl by reducing the average NYMEX differential to approximately $6.85 per Bbl from $7.50 per Bbl. 

First Quarter Comparative Results

Resolute recorded a net loss of $85.3 million, or $1.13 per share, on revenue, exclusive of commodity derivative settlements, of $19.0 million during the three months ended March 31, 2016. The loss included a non-cash impairment charge of $58 million. This compares to a net loss of $208.2 million, or $2.80 per share, on revenue, exclusive of commodity derivative settlements, of $41.1 million during the three months ended March 31, 2015. The 2015 loss included a non-cash impairment charge of $220.0 million.

Adjusted EBITDA (a non-GAAP measure): During the first quarter of 2016, Resolute generated $22.4 million of Adjusted EBITDA, or $27.25 per Boe, a 36 percent decrease from the prior year period during which Resolute generated $34.8 million of Adjusted EBITDA, or $28.65 per Boe. The decrease in Adjusted EBITDA resulted primarily from decreases in revenue associated with property sales, increases in general and administrative expenses and increases in the portion of interest expensed rather than capitalized.

Production: Production for the quarter ended March 31, 2016, decreased 32 percent to 820 MBoe, or 9,016 Boe per day, as compared to 1,215 MBoe, or 13,500 Boe per day, during the first quarter of 2015. 

First quarter 2016 production from the Company's Aneth Field properties decreased five percent to 6,056 Boe per day as compared to the 6,395 Boe per day produced in the first quarter of 2015, and decreased three percent from the 6,229 Boe per day produced during the fourth quarter of 2015. 

Production from the Company's Permian Basin properties decreased 45 percent to 2,961 Boe per day, as compared to the 5,380 Boe per day produced in the first quarter of 2015, and decreased 25 percent from the 3,961 Boe per day produced during the fourth quarter of 2015. Approximately 92 percent of these decreases were attributable to 2015 property sales.