Venoco's reserve additions from all sources added 46.3 MMBOE during the year, replacing 799% of production with an "all-in" reserve replacement cost of approximately $14.25 per barrel of oil equivalent (BOE). Excluding acquisitions, Venoco replaced 235% of production at an approximate finding and development cost of $13.75 per BOE. Acquisitions added approximately 32.7 MMBOE of reserves in 2006 at an approximate cost of $14.50 per BOE. All reserve replacement costs are approximate based on preliminary estimates.
"We replaced more than 200% of production via the drillbit in 2006, in addition to the reserve adds attributable to the TexCal acquisition (31.4 MMBOE) in the second quarter," Tim Marquez, Chairman and CEO, explained.
Venoco's year-end reserves were prepared by independent reservoir engineering firms Netherland, Sewell & Associates, Inc. and DeGolyer & MacNaughton.
Proved Reserves and Analysis
During 2006, Venoco added 46.3 MMBOE of proved reserves and produced approximately 5.8 MMBOE. Accordingly, the reserve additions replaced 799% of 2006 production. Acquisitions accounted for approximately 70% of the reserve additions while the remaining 30% came from organic additions and extensions (including revisions). The acquisition of TexCal on March 31, 2006 was the most significant addition to reserves -- adding 31.4 MMBOE of reserves in the Sacramento Basin in California and coastal Texas.
Of the 87.9 MMBOE of total proved reserves at year-end 2006, 50.8 MMBOE or 58% were proved developed and 56% of the total reserves were oil.
The two largest areas of organic reserve additions were the Sacramento Basin in northern California, especially in Venoco's core Greater Grimes area, and in the Hastings field in Texas.
In the Sacramento Basin, Venoco added 11.9 MMBOE of reserves during 2006 (excluding acquisitions), and drilled 60 gross wells. Venoco is planning an expanded drilling program in the Sacramento Basin in 2007 with 110 -- 120 gross wells.
In the Hastings field, Venoco added 2.9 MMBOE of reserves while increasing production from approximately 1,850 BOE per day at acquisition to 2,450 BOE per day at year-end 2006. Venoco's principal efforts in the Hastings field have consisted of well workovers to return wells to production and increase lift efficiency.
TexCal Acquisition Review
Venoco acquired TexCal on March 31, 2006 for $456 million. TexCal's reserves were estimated to be 31.4 MMBOE as of December 31, 2005, implying an acquisition cost of $14.52 per BOE. TexCal's assets included approximately 296 gross producing wells and an extensive acreage position in the Sacramento Basin as well as the Hastings field.
At December 31, 2006, as a result of various drilling and wellwork programs in both Texas and California, reserves associated with the TexCal assets were estimated to be 42.3 MMBOE, an increase over year-end 2005 of approximately 35%.
"We still see a number of opportunities to expand reserves on the TexCal assets. In the Sacramento Basin, we are looking at various frac and downspacing opportunities, and in the Hastings field, our agreement with Denbury Resources has the potential to add significant reserves should the CO2 flood in the Hastings field be successful," said Mr. Marquez.
Capital Budgets 2006 & 2007
Venoco's capital expenditures were approximately $185 million during 2006, for drilling, workovers and facilities. The 2007 capital budget has been set at $200 million, with approximately 57% allocated to the Sacramento Basin, 20% to coastal California and 23% to Texas. Venoco expects to drill approximately 110 to 120 gross wells in the Sacramento Basin, two gross wells in coastal California, and six gross wells in Texas. In addition to these development wells, Venoco's exploration program plans to drill 10 gross wells in 2007.
Preliminary 4th Quarter 2006 Production
Venoco drilled 15 gross wells in the 4th quarter of 2006 -- 14 in the Sacramento Basin, and one offshore. The company estimates that production for the quarter was approximately 18,100 BOE per day.
"We remain on track to meet an end-of-year average of 22,000 -- 24,000 BOE per day for 2007," noted Mr. Marquez. "Development efforts are going well in the Sacramento Basin and in Texas. Our plan for 2007 is to increase drilling in the Sacramento Basin -- we currently have six drilling rigs operating, up from three in the fourth quarter of 2006 -- and to continue the workover program that has been so successful in the Hastings field in Texas. Offshore, we are drilling our third horizontal well on platform Gail, and we have a rig running in the Giddings field in Texas."
Venoco is an independent energy company primarily engaged in the acquisition, exploitation and development of oil and natural gas properties in California and Texas. It has headquarters in Denver, Colorado and regional offices in Carpinteria, California and Houston, Texas. Venoco operates three offshore platforms in the Santa Barbara Channel, has non-operated interests in three other platforms, operates two onshore properties in Southern California, has extensive operations in Northern California's Sacramento Basin and operates twelve fields in the Texas Gulf Coast and South Texas.
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