Warren Resources reported reserves and production results for year-end 2010 and provided an operational update and guidance for 2011.
The Company announced today that production for the year ended December 31, 2010 was an estimated 1.7 million barrels of oil equivalent ("MMboe"), a 9% increase from the previous year. In 2010, Warren produced 969 thousand barrels of oil and 4.7 billion cubic feet ("Bcf") of natural gas, compared to 953 thousand barrels of oil and 3.9 Bcf of natural gas in 2009. Warren's average full year 2010 realized crude oil prices increased to $71.47 per barrel from $53.93 per barrel in 2009, and average full year 2010 realized natural gas prices increased to $4.09 per thousand cubic feet ("Mcf") from $3.09 per Mcf in 2009. Total production in the fourth quarter of 2010 was an estimated 0.4 MMboe, a 7% increase over the fourth quarter of 2009.
The Company's estimated proved reserves at December 31, 2010 were 21.6 MMboe, a 4% increase from the previous year end. At December 31, 2010, 47% of Warren's proved reserves were oil reserves and 53% of its proved reserves were natural gas reserves. Approximately 85% of total PV- 10 is categorized as proved developed producing and 15% is proved undeveloped.
These year-end 2010 proved reserves represent total production replacement of 152%. Warren is looking forward to executing the 2011 California drilling program to further validate its development plans and to further define the potential of its 150 to 200 horizontal well development inventory.
The present value of the Company's reserves at December 31, 2010, discounted at 10% per annum and before the impact of income taxes, was $288 million using the 12-month average of the first day of the month commodity prices for each month of 2010. This 12-month calculation resulted in an average price of $73.30 per barrel of crude oil and $4.13 per Mcf of natural gas for 2010, compared to 2009 12-month average prices of $54.33 per barrel of oil and $3.22 per Mcf of natural gas. Using futures strip prices as of December 31, 2010, the pre-tax PV-10 value of Warren's proved reserves would have been $407.7 million.
Warren's reported reserve estimates do not include, at this time, any probable or possible reserves.
Preliminary, unaudited capital expenditures for 2010 were $38.5 million. The capital expenditures were allocated: $19.9 million to drilling and development operations in the Wilmington Field oil properties in California, $7 million for a new drilling rig to be used in the WTU in California, $2.6 million of rig mobilization and site assembly costs, $7.4 million relating to stimulating wells and development operations in our coalbed methane ("CBM") natural gas properties in Wyoming and $1.6 million for additional property acquisitions in Wyoming.
2010 YEAR-END DEBT AND LIQUIDITY
The Company paid down $13 million of debt under its senior credit facility during the fourth quarter of 2010. This reduced the principal amount borrowed under the facility to $69.5 million at December 31, 2010. The Company's senior credit facility, which is due in November 2012, has a borrowing base of $120 million, with $50.5 million of borrowing capacity available at December 31, 2010. At December 31, 2010, Warren was, and currently is, in full compliance with all covenants under its senior credit facility.
Capital Spending Plan for 2011
The Company intends to fund 2011 capital expenditures primarily with cash flow from operations. Based on the 2011 commodity price outlook and hedge positions, and subject to Board approval, the Company forecasts a 2011 capital expenditure budget of approximately $59.4 million, consisting of $41.4 million in California and $18 million in Wyoming, which amount represents a 54% increase from 2010. The specific capital expenditure budgets, including assumptions and limitations, for Warren's major properties are discussed in the operational updates below. The amount and allocation of actual capital expenditures will depend on a number of factors, including oil and gas prices, regulatory and environmental approvals, agreements among various working interest owners in the Atlantic Rim Project in Wyoming to form one, single, large unit area, drilling and service costs, timing of drilling wells, variances in forecasted production and acquisition opportunities.
Wilmington Oil Field in the Los Angeles Basin in California
During 2010, the Company drilled 8 gross (7.9 net) Tar wells (7 producers and one water injector) and 2 Upper Terminal formation sinusoidal horizontal producing wells in the Wilmington Townlot Unit ("WTU"). The thirty day initial producing rate for the 7 new Tar producing wells averaged 152 barrels of oil per day ("BOPD") per well. The newly drilled Tar wells are currently averaging approximately 73 BOPD each. Additionally, the sinusoidal horizontal well in the J sand of the Upper Terminal formation was drilled and placed on production in June 2010. The first Upper Terminal well exhibited thirty day initial producing rates of approximately 225 BOPD and was producing 170 BOPD at year end 2010. The second Upper Terminal formation sinusoidal horizontal well was drilled in the Hx sand in July 2010. That well encountered water in the last half of the 2,000 feet completion section and has been plugged back to shut off excessive water production. The plug back was only moderately successful, and, after the Company drills the first 4 wells of 2011, it will evaluate re-drilling and completing this Upper Terminal Hx sand sinusoidal well.
For 2011, the Wyoming capital budget is $18 million, which includes $10.0 million to drill approximately 25 gross (10.3 net) new Atlantic Rim CBM wells. The Company also intends to participate in the drilling of 47 gross (3.8 net) wells in the Catalina Unit of the Atlantic Rim for $3.0 million and incur other infrastructure costs of $2.0 million. Lastly, in 2011, the Company expects to drill an exploratory horizontal oil well in the Niobrara Shale formation at an estimated cost of $3.0 million.
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