Exploration & Production | General | Quarterly / Earnings Reports
Unit Details Gathering Increase, E&P Progress in Q2
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Unit Corporation reported its financial and operational results for the second quarter of 2013.
Highlights include:
- Adjusted non-GAAP net income for the quarter was $48.8 million, or $1.01 per diluted share.
- Total production for the quarter was 4.1 million barrels of oil equivalent (MMBoe), an increase of 23% over the second quarter of 2012.
- Production guidance for 2013 is being increased to between 16.4 and 16.9 MMBoe.
- Total liquids (oil and natural gas liquids) production for the quarter increased 23% over the comparable quarter of 2012.
- Sold two idle 2,000 horsepower drilling rigs.
- Mid-stream segment’s liquids volumes per day and gathered volumes per day increased by 21% and 20%, respectively, over the first quarter of 2013.
- Mid-stream operating profit for the quarter was $11.1 million, an increase of 39% over the first quarter of 2013.
Operational Updates by Region
Unit Corp. Looks to Up Rig Count in Granite Wash, Wilcox Plays
Unit Corp. Details Plans for Mississippian, Marmaton Wells
Financials
Net income for the quarter was $59.0 million, or $1.22 per diluted share, compared to a loss of $19.3 million, or $0.40 per diluted share, for the second quarter of 2012. Net income included the effect of a $16.5 million ($10.2 million after tax) increase in earnings from the unrealized value of commodity derivatives. Without this increase, net income would have been $48.8 million, or $1.01 per diluted share. Total revenues for the quarter were $340.4 million (48% oil and natural gas, 31% contract drilling, and 21% mid-stream), compared to $327.8 million (40% oil and natural gas, 45% contract drilling, and 15% mid-stream) for the second quarter of 2012.
Net income for the six months ended June 30, 2013 was $99.2 million, or $2.05 per diluted share, compared to $33.1 million, or $0.69 per diluted share, for the first six months of 2012. Net income for the first six months of 2013 included the effect of a $9.6 million ($5.9 million after tax) increase in earnings from the unrealized value of commodity derivatives. Without this increase, net income for the first six months of 2013 would have been $93.3 million, or $1.93 per diluted share (see Non-GAAP Financial Measures below). Total revenues for the first six months of 2013 were $659.0 million (48% oil and natural gas, 32% contract drilling, and 20% mid-stream), compared to $661.8 million (40% oil and natural gas, 44% contract drilling, and 16% mid-stream) for the first six months of 2012.
Oil & Natural Gas Segment Information
Unit’s production results reflect its focus on drilling oil or natural gas liquids (NGLs) rich wells. Liquids production represented 44% of total equivalent production for the quarter. Total equivalent production for the quarter increased 23% over the second quarter of 2012 to 4.1 MMBoe, while total liquids production increased 23% over the comparable quarter of 2012. Liquids production has increased 144% since the first quarter of 2009 when Unit began focusing on increasing its liquids production. Second quarter 2013 oil production was 859,000 barrels, compared to 786,000 barrels for the same period of 2012, an increase of 9%. NGLs production for the quarter was 935,000 barrels, an increase of 39% when compared to 674,000 barrels for the same period of 2012. Natural gas production increased 23% to 13.9 billion cubic feet (Bcf) compared to 11.3 Bcf for the comparable quarter of 2012. Total production for the first six months of 2013 was 8.1 MMBoe.
Unit’s average natural gas price for the quarter increased 20% to $3.65 per thousand cubic feet (Mcf) compared to $3.03 per Mcf for the second quarter of 2012. Unit’s average oil price for the quarter increased 3% to $94.89 per barrel compared to $92.43 per barrel for the second quarter of 2012. Unit’s average NGLs price for the quarter was $30.32 per barrel compared to $32.34 per barrel for the second quarter of 2012, a decrease of 6%. For the first six months of 2013, Unit’s average natural gas price increased 9% to $3.47 per Mcf as compared to $3.19 per Mcf for the first six months of 2012. Unit’s average oil price for the first six months of 2013 was $95.05 per barrel compared to $94.04 per barrel during the first six months of 2012, a 1% increase. Unit’s average NGLs price for the first six months of 2013 was $32.47 per barrel compared to $35.53 per barrel during the first six months of 2012, a 9% decrease. All prices reflected in this paragraph include the effects of hedges.
For 2013, Unit has hedged 8,330 Bbls per day of its oil production and 100,000 MMBtu per day of natural gas production. The oil production is hedged under swap contracts at an average price of $97.94 per barrel. Of the natural gas production, 80,000 MMBtu per day is hedged with swaps and 20,000 MMBtu per day is hedged with a collar. The swap transactions were at a comparable average NYMEX price of $3.65. The collar transaction was at a comparable average NYMEX floor price of $3.25 and ceiling price of $3.72.
For 2014, Unit has hedged 7,000 Bbls per day of its oil production and 50,000 MMBtu per day of natural gas production. Of the oil production, 3,000 Bbls per day is hedged with swaps and 4,000 Bbls per day is hedged with collars. The swap transactions were at an average price of $91.77. The collar transactions were at an average floor price of $90.00 and ceiling price of $96.08. The natural gas production is hedged under swap contracts at a comparable average NYMEX price of $4.24 per MMBtu.
Larry Pinkston, Unit’s Chief Executive Officer and President, said: "We are pleased with the results from our exploration operations, and we are excited about our opportunities for growth. Production has grown during the second quarter of 2013 from the first quarter of 2013 due principally to our gradual ramp up in company operated drilling rigs. We are operating 11 drilling rigs and plan to add additional drilling rigs throughout 2013 depending on market conditions. Unit’s annual production guidance for 2013 is being increased to between 16.4 to 16.9 MMBoe, an increase of 15% to 19% over 2012."
Contract Drilling Segment Information
The average number of drilling rigs used in the second quarter of 2013 was 65.2, a decrease of 15% from the second quarter of 2012, and a decrease of 2% from the first quarter of 2013. Per day drilling rig rates for the second quarter of 2013 averaged $19,601, a decrease of 3%, or $527, from the second quarter of 2012, and essentially unchanged from the first quarter of 2013. Average per day operating margin for the second quarter of 2013 was $7,597 (before elimination of intercompany drilling rig profit of $3.7 million). This compares to $11,130 (before elimination of intercompany drilling rig profit of $4.7 million) for the second quarter of 2012, a decrease of 32%, or $3,533. As compared to the first quarter of 2013 ($7,534 before elimination of intercompany drilling rig profit of $3.4 million), second quarter 2013 operating margin increased 1% or $63. For the second quarter of 2012 average operating margins included early termination fees of approximately $2,188 per day from the cancellation of certain long-term contracts.
For the first six months of 2013, Unit averaged 65.8 drilling rigs working, a decrease of 17% from 79.1 drilling rigs working during the first six months of 2012. Average per day operating margin for the first six months of 2013 was $7,565 (before elimination of intercompany drilling rig profit of $7.1 million) as compared to $10,246 (before elimination of intercompany drilling rig profit of $9.0 million) for the first six months of 2012, a decrease of 26% (in each case regarding eliminating intercompany drilling rig profit see Non-GAAP Financial Measures below). For the first six months of 2012 average operating margins included early termination fees of approximately $1,109 per day from the cancellation of certain long-term contracts.
Larry Pinkston said: "Drilling rig demand has been fairly flat during the first six months of 2013. Operators are continuing to focus on shallower oil plays and liquids rich plays which provide the opportunity to put more of our 750 to 1,000 horsepower drilling rigs to work. Almost all of our drilling rigs working today are drilling for oil or NGLs. Recently, we sold two 2,000 horsepower drilling rigs, bringing our fleet’s total to 125. Of the 125 drilling rigs, we have 65 under contract. Long-term contracts (contracts with original terms ranging from six months to two years in length) are in place for 27 of those 65 drilling rigs. Of these contracts, 13 are up for renewal during the third quarter of 2013, three during the fourth quarter of 2013, and 11 in 2014 and beyond. We are constructing a new prototype 1,500 horsepower AC electric drilling rig of proprietary design. The drilling rig is expected to be operational in the fourth quarter of 2013 and will operate initially for our oil and natural gas segment."
Midstream Segment
Second quarter of 2013 per day gathered volumes were 326,039 Mcf, an increase of 24% over the second quarter of 2012. Per day liquids sold and processed volumes decreased 19% and 4%, respectively, as compared to the second quarter of 2012. Compared to the first quarter of 2013, gathered volumes per day, liquids sold volumes per day, and processed volumes per day increased 20%, 21% and 6%, respectively. Operating profit (as defined in the Selected Financial and Operational Highlights) for the second quarter of 2013 was $11.1 million, an increase of 50% over the second quarter of 2012 and an increase of 39% over the first quarter of 2013.
Pinkston added: "In the Mississippian play in north central Oklahoma, our Bellmon system consists of approximately 136 miles of pipe. In the first quarter of 2013, we completed the installation of a second processing plant at the Bellmon facility, a 30 MMcf per day cryogenic plant. Due to increasing volumes, we are installing an additional 60 MMcf per day processing plant at our Bellmon facility expected to be operational in the fourth quarter of 2013. At our Hemphill facility in Hemphill County, Texas, we now can process 135 MMcf per day of our own and third party Granite Wash natural gas production after relocating two processing plants from Hemphill to the new Reno facility. We are also completing two pipeline extension projects for a total cost of approximately $5.7 million, which will allow us to connect additional production from our oil and natural gas segment to this system. In Reno County, Kansas, we are constructing a new gathering system and processing facility. This system will comprise 35 miles of gathering pipeline and two processing plants which were relocated from our Hemphill facility, a 5 MMcf per day refrigeration plant and a 20 MMcf per day turbo expander plant. At this facility, we are currently only gathering gas but are in the process of installing two processing plants that are expected to be operational in the third quarter of 2013.
"In the Appalachian area, we are continuing to develop our Pittsburgh Mills gathering system in Allegheny County, Pennsylvania. We have completed the 1st phase of this project which comprises approximately 14 miles of gathering pipeline and related compressor station in which we have installed three compressors. We have 19 wells connected to this system with gathered volume of approximately 68 MMcf per day."
Additional Financial Information
Unit ended the second quarter with long-term debt of $715.5 million ($645.5 million of senior subordinated notes and $70.0 million under its credit agreement), and a debt to capitalization ratio of 26%. Under its credit agreement, the amount available for Unit to borrow is the lesser of the amount Unit elects as the commitment amount ($500 million) or the value of its borrowing base as determined by the lenders ($800 million), but in either event not to exceed $900 million.
Pinkston concluded: "We are pleased with the performance of all three segments and we are excited about continued growth opportunities for 2013. Each segment is moving forward on key initiatives which should create additional shareholder value for years to come. We continue to maintain a conservative financial profile. We are well positioned for continued growth and to take advantage of new opportunities that may arise."