Unit Corporation (NYSE: UNT) reported net income of $41.0 million, or
$0.86 per diluted share, for the three months ended March 31, 2011. For
the same period in 2010, net income was $36.2 million, or $0.76 per
diluted share. Total revenues for the first quarter of 2011 were $247.4
million (40% contract drilling, 44% oil and natural gas, and 16%
mid-stream), compared to $206.6 million (30% contract drilling, 48% oil
and natural gas, and 20% mid-stream) for the first quarter of 2010.
CONTRACT DRILLING SEGMENT INFORMATION
The average number of drilling rigs used in the first quarter of 2011
was 70.0, an increase of 38% over the first quarter of 2010, and a
decrease of 1% from the fourth quarter of 2010. Per day drilling rig
rates for the first quarter of 2011 averaged $17,704, up 25% (or $3,577)
from the first quarter of 2010, and up 7% (or $1,134) from the fourth
quarter of 2010. Average per day operating margin for the first quarter
of 2011 was $8,077 (before elimination of intercompany drilling rig
profit of $5.0 million). This compares to $4,435 (before elimination of
intercompany drilling rig profit of $0.4 million) for the first quarter
of 2010, an increase of 82%, or $3,642. As compared to the fourth
quarter of 2010 ($7,559 before elimination of intercompany drilling rig
profit of $4.4 million) first quarter 2011 operating margin increased 7%
or $518 – in each case with regard to the elimination of intercompany
drilling rig profit see Non-GAAP Financial Measures below.
Larry Pinkston, Unit’s Chief Executive Officer and President, said: “We
are pleased with the results from our contract drilling segment. Our
utilization rates have remained strong and we have obtained an increase
in drilling rig day rates over the fourth quarter of 2010. Our fleet
went through a transition in 2010 to accommodate the growing industry
focus on drilling horizontal or directional wells. We refurbished and
upgraded 30 drilling rigs in 2010 in order that they could undertake
this type of drilling. Approximately 80% of our drilling rigs working
today are drilling for oil or natural gas liquids and approximately 99%
are drilling horizontal or directional wells. We had previously
announced that during 2011 we will add five new drilling rigs to our
fleet, all of which are 1,500 horsepower, diesel-electric drilling rigs
under two-year term contracts. To date, two of those five drilling rigs
have begun operating bringing our current total fleet to 123 drilling
rigs. Currently, 76 of our 123 drilling rigs are under contract. Term
contracts (contracts with original terms ranging from six months to two
years in length) are in place for 41 of the 76 contracted drilling rigs.
Of these contracts 13 are up for renewal during the second quarter of
2011, nine during the third quarter of 2011, ten during the fourth
quarter of 2011, and nine after 2011. These contracts do not include the
term contracts for the three remaining new drilling rigs to be added to
our fleet later this year.”
The following table illustrates Unit’s drilling rig count at the end of
each period and average utilization rate during the period:
| 1st Qtr 11 | 4th Qtr 10 | 3rd Qtr 10 | 2nd Qtr 10 | 1st Qtr 10 | 4th Qtr 09 | 3rd Qtr 09 | 2nd Qtr 09 | 1st Qtr 09 | ||||||||||
| Rigs | 122 | 121 | 123 | 123 | 125 | 130 | 130 | 131 | 131 | |||||||||
| Utilization | 58% | 59% | 54% | 47% | 40% | 28% | 26% | 24% | 40% | |||||||||
OIL AND NATURAL GAS SEGMENT INFORMATION
-
Completed 34 gross wells in the first quarter of 2011 with a 91%
success rate. -
38% of first quarter 2011 production was oil and natural gas liquids
compared to 29% for the first quarter of 2010. - Anticipated 2011 production of 11.0 to 11.3 MMBoe.
First quarter 2011 oil production was 556,000 barrels, in comparison to
303,000 barrels for the same period of 2010, up 84%. Natural gas liquids
(NGLs) production during the first quarter of 2011 was 478,000 barrels,
an increase of 27% when compared to 377,000 barrels for the same period
of 2010. First quarter 2011 natural gas production increased 2% to 10.2
billion cubic feet (Bcf) compared to 10.0 Bcf for the comparable quarter
of 2010. First quarter 2011 production averaged 30,436 Boe per day, up
16% over the first quarter of 2010 and up 4% over the fourth quarter of
2010. Total production for the first quarter of 2011 was 2.7 MMBoe.
Unit’s average natural gas price, including the effects of hedges, for
the first quarter of 2011 decreased 28% to $4.28 per thousand cubic feet
(Mcf) as compared to $5.95 per Mcf for the first quarter of 2010. Unit’s
average oil price, including the effects of hedges, for the first
quarter of 2011 increased 25% to $84.33 per barrel compared to $67.33
per barrel for the first quarter of 2010. Unit’s average NGLs price,
including the effects of hedges, for the first quarter of 2011 was
$39.61 per barrel compared to $42.76 per barrel for the first quarter of
2010, down 7%.
Currently for 2011, Unit has hedged 80,000 MMBtu per day of its natural
gas production, 4,000 Bbls per day of its oil production and 504 Bbls
per day of its NGLs production. The natural gas production is hedged
under swap contracts at a comparable average NYMEX price of $4.85. The
average basis differential for the swaps is ($0.19). The oil production
is hedged under swap contracts at an average price of $84.28 per barrel.
The NGLs production is hedged under swap contracts at an average price
of $40.48 per barrel.
For 2012, Unit has to-date hedged 30,000 MMBtu per day of its natural
gas production and 4,000 Bbls per day of its oil production. The natural
gas production is hedged under swap contracts at a comparable average
NYMEX price of $5.48. The average basis differential for the swaps is
($0.28). The oil production is hedged under swap contracts at an average
price of $95.01 per barrel.
For 2013, Unit has to-date hedged 1,500 Bbls per day of its oil
production. The oil production is hedged under swap contracts at an
average price of $102.18 per barrel.
The following table illustrates Unit’s production and certain results
for the periods indicated:
| 1st Qtr 11 | 4th Qtr 10 | 3rd Qtr 10 | 2nd Qtr 10 | 1st Qtr 10 | 4th Qtr 09 | 3rd Qtr 09 | 2nd Qtr 09 | 1st Qtr 09 | ||||||||||
| Production, MBoe |
2,739 |
2,698 |
2,478 |
2,325 |
2,352 |
2,389 |
2,444 |
2,572 |
2,713 |
|||||||||
| Production, MBoe/day |
30.4 |
29.3 |
27.0 |
25.6 |
26.1 |
26.0 |
26.6 |
28.3 |
30.1 |
|||||||||
|
Realized price,
Boe (1) |
$40.00 |
$41.58 |
$38.16 |
$38.22 |
$40.92 |
$36.72 |
$35.52 |
$34.50 |
$32.88 |
|||||||||
| Wells Drilled |
34 |
62 |
39 |
39 |
27 |
37 |
21 |
16 |
21 |
|||||||||
| Success Rate |
91% |
95% |
85% |
92% |
96% |
92% |
90% |
100% |
90% |
|||||||||
(1) Realized price includes oil, natural gas liquids, natural gas and
associated hedges.
In the Marmaton horizontal oil play located in Beaver County, Oklahoma,
Unit had first sales on nine wells during the first quarter, in which it
has an average working interest of approximately 91%. The 30-day average
production rate for the nine wells was 238 Boe per day. The average
ultimate recovery for a Marmaton well is estimated at 130 MBoe comprised
of 76% oil, 14% NGLs, and 10% natural gas, with an average cost per well
of $2.8 million. Unit has scheduled three to four frac dates per month
for 2011 which should cover its current two rig drilling program. For
2011, Unit anticipates having first oil sales on 30 to 36 gross wells
within this play at a total net cost of $52 million. Unit currently has
leases on approximately 66,000 net acres in the play.
In the Granite Wash (GW) play located in the Texas Panhandle, Unit had
first sales on five horizontal wells during the first quarter. Unit’s
average working interest in these wells is 76%. Of the five new wells,
one well was completed in the GW “A”, two in the GW “B”, one in the GW
“D” and one in the GW “F” zone. The average 30 day rate of production
for these five wells was 6.0 MMcfe per day, consisting of 16% oil, 33%
NGLs and 51% natural gas. Highlighting the first quarter wells was the
first horizontal GW “D” zone completion. That completion resulted in a
peak daily rate of 483 barrels of oil per day, 474 barrels of NGLs and
4.4 MMcf of natural gas or an equivalent rate of 10.1 MMcfe per day. The
30 day average production rate for this well was 7.0 MMcfe per day.
Anticipated reserves for the GW formation production from the five
horizontal wells is 4.0 Bcfe per well, comprised of 10% oil, 37% NGLs
and 53% natural gas at a total net cost of $5.2 million. In addition,
Unit participated in three outside operated GW horizontal wells, with an
average working interest of 11%. Unit plans to work three to four Unit
drilling rigs drilling Granite Wash horizontal wells in 2011 which
should result in 20 to 22 operated GW wells drilled during the year with
a projected total net cost of $82 million.
Pinkston said: “We are pleased with the results of our drilling activity
for the quarter. The first quarter of 2011 is the third consecutive
quarter that production has increased. Our strategy of focusing on oil
or NGLs rich prospects is evident in our first quarter 2011 production
results of which 38% was oil and NGLs as compared to 29% in the first
quarter of 2010 and 34% in the fourth quarter of 2010. For the quarter,
we completed 34 gross wells with a success rate of 91% compared to 27
gross wells with a 96% success rate during the first quarter of 2010.
For the year, we plan to drill 180 gross wells with an anticipated
annual production guidance of approximately 11.0 to 11.3 MMBoe, an
increase of 11% to 15% over 2010.”
MID-STREAM SEGMENT INFORMATION
-
Increased first quarter 2011 liquids sold per day volumes, processing
volumes per day, and gathering volumes per day by 29%, 13% and 3%,
respectively, over the first quarter of 2010. -
Construction of 16-mile pipeline and related compressor station in
Preston County, West Virginia is on schedule to be operational by
mid-2011. -
Signed contract to build a 12-mile pipeline system and compressor
station in Tioga and Potter Counties, Pennsylvania.
First quarter of 2011 per day processing volumes were 86,445 MMBtu while
liquids sold volumes were 328,333 gallons per day, an increase of 13%
and 29%, respectively, over first quarter of 2010. First quarter 2011
per day gathering volumes were 185,730 MMBtu, up 3% over the first
quarter of 2010. Operating profit (as defined in the Selected Financial
and Operational Highlights) for the first quarter was $10.7 million, an
increase of 27% from the first quarter of 2010, primarily due to
increased processing margins resulting from increased liquids prices and
increased volumes.
The following table illustrates certain results from this segment’s
operations for the periods indicated:
| 1st Qtr 11 | 4th Qtr 10 | 3rd Qtr 10 | 2nd Qtr 10 | 1st Qtr 10 | 4th Qtr 09 | 3rd Qtr 09 | 2nd Qtr 09 | 1st Qtr 09 | ||||||||||
|
Gas gathered MMBtu/day |
185,730 |
188,252 |
183,161 |
183,858 |
180,117 |
177,145 |
179,047 |
187,666 |
192,320 |
|||||||||
|
Gas processed MMBtu/day |
86,445 |
85,195 |
84,175 |
82,699 |
76,513 |
77,501 |
77,923 |
75,481 |
72,650 |
|||||||||
|
Liquids sold
Gallons/day |
328,333 |
291,186 |
260,519 |
279,736 |
253,707 |
263,668 |
251,830 |
239,121 |
218,762 |
Pinkston said: “Processing and liquids sold volumes continue to increase
and gas gathered volumes remain strong. As previously announced, we
completed the installation and startup of a 50.0 MMcf per day
turbo-expander natural gas processing plant at our Hemphill facility
near Canadian, Texas, during the fourth quarter of 2010. With the
completion of this new plant, the total processing capacity at our
Hemphill facility has increased to approximately 100.0 MMcf per day. In
connection with our Appalachian operations, we recently started
construction of a 16-mile, 16″ pipeline and a compressor
station in Preston County, West Virginia, which will have a capacity of
approximately 220.0 MMcf per day. We anticipate this pipeline will
be operational by mid-2011. In addition to the Preston County pipeline,
we recently signed a contract to build a 12-mile pipeline system and
compressor station in Tioga and Potter Counties, Pennsylvania. This
system will deliver gas to Dominion Transmission pipeline and is
scheduled to be completed in the fourth quarter of this year.”
FINANCIAL INFORMATION
Unit ended the first quarter of 2011 with working capital of $12.7
million, long-term debt of $185.0 million, and a debt to capitalization
ratio of 10%. Under its credit facility, the amount available to be
borrowed is the lesser of the amount the company elects as the
commitment amount (currently $325 million) or the value of the borrowing
base as determined by the lenders (currently $600 million), but, in
either event, not to exceed the maximum credit facility amount of $400
million.
MANAGEMENT COMMENT
Larry Pinkston said: “Our first quarter 2011 operating results were
solid. We continue to focus our exploration efforts on our oil and
natural gas liquids rich plays such as the Granite Wash and Marmaton. On
the drilling side, we plan to continue responding to the demand for
horizontal drilling by our customers by refurbishing and upgrading our
existing rigs and, where appropriate, adding new drilling rigs to our
fleet. Our mid-stream segment is also exploring for additional
opportunities to grow its operations. We are optimistic about 2011, and
our balance sheet is well positioned to take advantage of growth
opportunities that may arise in all three of our business segments
during the year.”
WEBCAST
Unit will webcast its first quarter earnings conference call live over
the Internet on May 3, 2011 at 11:00 a.m. Eastern Time. To listen to the
live call, please go to www.unitcorp.com
at least fifteen minutes before the start of the call to download and
install any necessary audio software. For those who are not available to
listen to the live webcast, a replay will be available shortly after the
call and will remain on the site for 90 days.
Unit Corporation is a Tulsa-based, publicly held energy company engaged
through its subsidiaries in oil and gas exploration, production,
contract drilling and gas gathering and processing. Unit’s Common Stock
is listed on the New York Stock Exchange under the symbol UNT. For more
information about Unit Corporation, visit its website at http://www.unitcorp.com.
This news release contains forward-looking statements within the meaning
of the private Securities Litigation Reform Act. All statements, other
than statements of historical facts, included in this release that
address activities, events or developments that the Company expects or
anticipates will or may occur in the future are forward-looking
statements. A number of risks and uncertainties could cause actual
results to differ materially from these statements, including the impact
that the current decline in wells being drilled will have on production
and drilling rig utilization, productive capabilities of the Company’s
wells, future demand for oil and natural gas, future drilling rig
utilization and dayrates, projected growth of the Company’s oil and
natural gas production, oil and gas reserve information, as well as its
ability to meet its future reserve replacement goals, anticipated gas
gathering and processing rates and throughput volumes, the prospective
capabilities of the reserves associated with the Company’s inventory of
future drilling sites, anticipated oil and natural gas prices, the
number of wells to be drilled by the Company’s exploration segment,
development, operational, implementation and opportunity risks, possible
delays caused by limited availability of third party services needed in
the course of its operations, possibility of future growth
opportunities, and other factors described from time to time in the
Company’s publicly available SEC reports. The Company assumes no
obligation to update publicly such forward-looking statements, whether
as a result of new information, future events or otherwise.
|
Unit Corporation Selected Financial and Operations Highlights (In thousands except per share and operations data) |
|||||||
| Three Months Ended | |||||||
| March 31, | |||||||
| 2011 | 2010 | ||||||
| Statement of Operations: | |||||||
| Revenues: | |||||||
| Contract drilling | $ | 97,988 | $ | 60,854 | |||
| Oil and natural gas | 109,834 | 99,053 | |||||
| Gas gathering and processing | 39,764 | 41,135 | |||||
| Other, net | (181 | ) | 5,508 | ||||
| Total revenues | 247,405 | 206,550 | |||||
| Expenses: | |||||||
| Contract drilling: | |||||||
| Operating costs | 52,844 | 40,900 | |||||
| Depreciation | 17,297 | 13,786 | |||||
| Oil and natural gas: | |||||||
| Operating costs | 30,781 | 25,034 | |||||
| Depreciation, depletion and amortization | 40,268 | 25,336 | |||||
| Gas gathering and processing: | |||||||
| Operating costs | 29,055 | 32,726 | |||||
| Depreciation and amortization | 3,773 | 3,941 | |||||
| General and administrative | 6,892 | 6,279 | |||||
| Interest, net | 54 | — | |||||
| Total expenses | 180,964 | 148,002 | |||||
| Income Before Income Taxes | 66,441 | 58,548 | |||||
| Income Tax Expense: | |||||||
| Current | — | 2,240 | |||||
| Deferred | 25,414 | 20,155 | |||||
| Total income taxes | 25,414 | 22,395 | |||||
| Net Income | $ | 41,027 | $ | 36,153 | |||
| Net Income per Common Share: | |||||||
| Basic | $ | 0.86 | $ | 0.77 | |||
| Diluted | $ | 0.86 | $ | 0.76 | |||
| Weighted Average Common Shares Outstanding: | |||||||
| Basic | 47,584 | 47,121 | |||||
| Diluted | 47,905 | 47,686 | |||||
| March 31, | December 31, | ||||||
| 2011 | 2010 | ||||||
| Balance Sheet Data: | |||||||
| Current assets | $ | 189,015 | $ | 188,180 | |||
| Total assets | $ | 2,786,044 | $ | 2,669,240 | |||
| Current liabilities | $ | 176,274 | $ | 147,128 | |||
| Long-term debt | $ | 185,000 | $ | 163,000 | |||
| Other long-term liabilities | $ | 100,821 | $ | 92,389 | |||
| Deferred income taxes | $ | 579,085 | $ | 556,106 | |||
| Shareholders’ equity | $ | 1,744,864 | $ | 1,710,617 | |||
| Three Months Ended March 31, | |||||||||
| 2011 | 2010 | ||||||||
| Statement of Cash Flows Data: | |||||||||
|
Cash Flow From Operations before Changes in Operating Assets and |
$ | 134,697 | $ | 97,030 | |||||
| Net Change in Operating Assets and Liabilities | (13,492 | ) | (17,363 | ) | |||||
| Net Cash Provided by Operating Activities | $ | 121,205 | $ | 79,667 | |||||
| Net Cash Used in Investing Activities | $ | (169,212 | ) | $ | (86,926 | ) | |||
| Net Cash Provided by Financing Activities | $ | 47,884 | $ | 7,158 | |||||
| Three Months Ended March 31, | ||||||
| 2011 | 2010 | |||||
| Contract Drilling Operations Data: | ||||||
| Rigs Utilized | 70.0 | 50.9 | ||||
| Operating Margins (2) | 46% | 33% | ||||
|
Operating Profit Before Depreciation (2) ($MM) |
$ | 45.1 | $ | 20.0 | ||
| Oil and Natural Gas Operations Data: | ||||||
| Production: | ||||||
| Oil – MBbls | 556 | 303 | ||||
| Natural Gas Liquids – MBbls | 478 | 377 | ||||
| Natural Gas – MMcf | 10,231 | 10,034 | ||||
| Average Prices: | ||||||
| Oil price per barrel received | $ | 84.33 | $ | 67.33 | ||
| Oil price per barrel received, excluding hedges | $ | 90.78 | $ | 75.70 | ||
| NGLs price per barrel received | $ | 39.61 | $ | 42.76 | ||
| NGLs price per barrel received, excluding hedges | $ | 40.36 | $ | 42.76 | ||
| Natural Gas price per Mcf received | $ | 4.28 | $ | 5.95 | ||
| Natural Gas price per Mcf received, excluding hedges | $ | 3.85 | $ | 5.14 | ||
| Operating Profit Before DD&A (2) ($MM) | $ | 79.1 | $ | 74.0 | ||
| Mid-Stream Operations Data: | ||||||
| Gas Gathering – MMBtu/day | 185,730 | 180,117 | ||||
| Gas Processing – MMBtu/day | 86,445 | 76,513 | ||||
| Liquids Sold – Gallons/day | 328,333 | 253,707 | ||||
|
Operating Profit Before Depreciation and Amortization (2) ($MM) |
$ | 10.7 | $ | 8.4 | ||
(1) The company considers its cash flow from operations before changes
in operating assets and liabilities an important measure in meeting the
performance goals of the company (see Non-GAAP Financial Measures below).
(2) Operating profit before depreciation is calculated by taking
operating revenues by segment less operating expenses excluding
depreciation, depletion, amortization, general and administrative and
interest expense. Operating margins are calculated by dividing operating
profit by segment revenue.
Non-GAAP Financial Measures
We report our financial results in accordance with generally accepted
accounting principles (“GAAP”). We believe certain non-GAAP performance
measures provide users of our financial information and our management
additional meaningful information to evaluate the performance of our
company.
This press release includes cash flow from operations before changes in
operating assets and liabilities and our drilling segment’s average
daily operating margin before elimination of intercompany drilling rig
profit.
Below is a reconciliation of GAAP financial measures to non-GAAP
financial measures for the three months ended March 31, 2011 and 2010
and December 31, 2010. Non-GAAP financial measures should not be
considered by themselves or a substitute for our results reported in
accordance with GAAP.
|
Unit Corporation Reconciliation of Cash Flow From Operations Before Changes in |
||||||||
| March 31, | ||||||||
| 2011 | 2010 | |||||||
| (In thousands) | ||||||||
| Net cash provided by operating activities | $ | 121,205 | $ | 79,667 | ||||
| Subtract: | ||||||||
| Net change in operating assets and liabilities | (13,492 | ) | (17,363 | ) | ||||
|
Cash flow from operations before changes in operating assets and |
$ | 134,697 | $ | 97,030 | ||||
We have included the cash flow from operations before changes in
operating assets and liabilities because:
-
It is an accepted financial indicator used by our management and
companies in our industry to measure the company’s ability to generate
cash which is used to internally fund our business activities. -
It is used by investors and financial analysts to evaluate the
performance of our company.
|
Unit Corporation Reconciliation of Average Daily Operating Margin Before |
|||||||||
|
Three Months Ended |
|||||||||
| March 31, | December 31, | ||||||||
| 2011 | 2010 | 2010 | |||||||
| (In thousands) | |||||||||
| Contract drilling revenue | $ | 97,988 | $ | 60,854 | $ | 98,465 | |||
| Contract drilling operating cost | 52,844 | 40,900 | 53,966 | ||||||
| Operating profit from contract drilling | 45,144 | 19,954 | 44,499 | ||||||
| Add: | |||||||||
| Elimination of intercompany rig profit | 5,044 | 376 | 4,440 | ||||||
|
Operating profit from contract drilling before elimination of |
50,188 | 20,330 | 48,939 | ||||||
| Contract drilling operating days | 6,214 | 4,584 | 6,474 | ||||||
|
Average daily operating margin before elimination of intercompany |
$ | 8,077 | $ | 4,435 | $ | 7,559 | |||
We have included the average daily operating margin before elimination
of intercompany rig profit because:
-
Our management uses the measurement to evaluate the cash flow
performance or our contract drilling segment and to evaluate the
performance of contract drilling management. -
It is used by investors and financial analysts to evaluate the
performance of our company.
Unit Corporation
David T. Merrill, 918-493-7700
Chief
Financial Officer and Treasurer
www.unitcorp.com
Recent Comments