Unit Corporation Reports 2Q07 Results
Unit Corporation (NYSE: UNT) reports its financial and operational results for the three and six months ended June 30, 2007. Total revenues for the second quarter were $286.6 million (54% contract drilling, 34% oil and natural gas, and 12% gathering and processing) compared to total revenues of $280.3 million (63% contract drilling, 29% oil and natural gas, and 8% gathering and processing). Net income for the second quarter of 2007 was $65.6 million, or $1.41 per diluted share. Second quarter 2006 net income was $74.8 million, or $1.61 per diluted share.
During the first half of 2007, Unit's total revenue was $563.9 million (56% contract drilling, 32% oil and natural gas, and 12% gathering and processing), up from $563.2 million (60% contract drilling, 31% oil and natural gas, and 9% gathering and processing) posted during the same period in 2006. Net income was $130.0 million, a decrease of 13% compared to year-ago 2006 net income of $149.7 million.
"We believe the production constraints experienced by our oil and natural gas segment during the first six months of the year have been addressed," said Larry D. Pinkston, President and Chief Executive Officer. "At the end of the second quarter our average daily rate of production was 154.3 million cubic feet equivalent (MMcfe), a rate that is 8% and 6% higher than the average daily rate for the first and second quarter of 2007, respectively. For the first six months, we successfully drilled and completed 121 wells with an 84% success rate. I'm pleased how our employees positively responded to the challenges presented by a number of factors beyond our control. Our drilling pace is quickening; we anticipate this segment will drill approximately 150 more wells over the last half of 2007, setting a new operating milestone."
Pinkston said: "In our drilling segment, profit margins and utilization remained strong and within our expectations. Our average dayrate for the second quarter of 2007, when compared to our fourth quarter of 2006 average dayrate which was our historical high, only realized a 5% decrease."
CONTRACT DRILLING RESULTS * Closed acquisition of nine new rigs and other equipment from a private company in June. * Rig utilization and profit margins are strong. * 107 drilling rigs currently under contract (84% of drilling rig fleet). * 74% of drilling rigs currently under contract are with public companies and major private independents.
Second quarter 2007 drilling utilization of 81% was a slight decrease of 2% from the previous quarter and a 16% decrease from the second quarter of 2006. Contract drilling rig rates for the second quarter averaged $18,710 per day, an increase of 1% from the second quarter of 2006 and a decrease of 4% from the first quarter of 2007. Average operating margins for the second quarter were $9,544 per day (before elimination of intercompany drilling rig profit of $5.4 million) as compared to $10,182 per day during the second quarter of 2006 (before elimination of intercompany drilling rig profit of $5.4 million), a decrease of 6%.
For the first six months of 2007, utilization decreased 16% to 82% as compared to 98% during the first six months of 2006. Average operating margins for the first six months of 2007 were $9,849 per day (before elimination of intercompany drilling rig profit of $9.9 million) as compared to $9,414 per day (before elimination of intercompany drilling rig profit of $8.6 million for the same period in 2006), an increase of 5%.
Currently, Unit has 128 drilling rigs of which 107 are under contract. The following table illustrates Unit's drilling rig count at the end of each period and its average utilization rate during the period:
2nd 1st 4th 3rd 2nd 1st 4th 3rd 2nd Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr 07 07 06 06 06 06 05 05 05 Rigs 128 118 117 116 115 111 112 111 103 Utilization 81% 83% 92% 96% 97% 98% 96% 98% 98%
The decline in drilling rig utilization was primarily due to rigs mobilizing to new drilling locations and drilling activity not fully rebounding to last year's record pace as a result of weakened commodity prices that began in mid-2006. Of the nine drilling rigs acquired in the second quarter of 2007, five are currently drilling under contract. One of the drilling rigs is being refurbished and is expected to be ready for work in the third quarter.
EXPLORATION AND PRODUCTION RESULTS * Completed 67 gross wells (121 total year to date out of 270 planned for 2007) at an 82% success rate. * Restored production previously constrained by a fire at the Valero refinery, pipeline and compression restrictions as well as inclement weather. * Exited second quarter with a daily average production rate of 154.3 MMcfe. * Increased production over second quarter 2006 and sequentially over the first quarter of 2007.
Second quarter production for Unit's oil and natural gas operations was 433,000 barrels of oil and 10.6 billion cubic feet (Bcf) of natural gas, or 13.2 billion cubic feet equivalent (Bcfe), representing sequential growth of 3% over the previous quarter and an increase of 5% over the second quarter of 2006. Revenues for the second quarter were $96.3 million, or 18% higher than 2006's second quarter. During the second quarter of 2007, oil production, including liquids, composed 20% of total production compared to 17% in the second quarter of 2006. Total production for the first six months of 2007 was 26.0 Bcfe, an increase of 3% over the 25.3 Bcfe produced in the first six months of 2006.
Unit's average natural gas price for the second quarter of 2007 increased 18% to $6.78 per thousand cubic feet (Mcf) as compared to $5.76 per Mcf for the second quarter of 2006. Unit's average oil price for the second quarter of 2007 was $53.18 per barrel compared to $57.11 per barrel for the second quarter of 2006, a 7% decrease. For the first six months of 2007, Unit's natural gas prices increased 3% to $6.58 per Mcf as compared to $6.41 per Mcf during the first six months of 2006. Unit's average oil price for the first six months of 2007 was $50.66 per barrel compared to $55.88 per barrel during the first six months of 2006, a 9% decrease.
The following table illustrates Unit's production and certain results for the periods indicated:
2nd 1st 4th 3rd 2nd 1st 4th 3rd 2nd Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr 07 07 06 06 06 06 05 05 05 Production, Bcfe 13.2 12.8 14.2 13.5 12.6 12.7 11.8 10.0 9.4 Realized Price, Mcfe $7.19 $6.63 $6.26 $6.68 $6.41 $7.36 $9.71 $8.28 $6.49 Wells Drilled 67 54 66 75 62 41 57 52 57 Success Rate 82% 87% 89% 88% 85% 88% 100% 90% 89%
During the second quarter of 2007, Unit began drilling operations on 69 wells of which 22 were still in progress at the end of the quarter. Sixty- seven wells were completed for a success rate of 82%.
Unit's 2007 production expectation of 56 to 58 Bcfe remains unchanged from previous guidance and is an increase of 6% to 10% from 2006 production.
MID-STREAM RESULTS * Unit's gas gathering and processing business delivered 12% gross margin. * Operating profits (not including depreciation) of $4.4 million in the second quarter, a 34% sequential quarterly increase and a 46% increase over the second quarter of 2006.
Second quarter of 2007 processing volumes of 42,465 MMBtu per day and liquids sold volumes of 113,829 gallons per day increased 38% and 127%, respectively, from the second quarter of 2006. Second quarter 2007 gathering volumes were 218,290 MMBtu per day, a 10% decrease from the second quarter of 2006. Operating profit (as defined below in the financial tables) for the second quarter was $4.4 million or 46% higher than 2006's second quarter, driven primarily by the increase in liquids sold. Liquid recoveries at several of Unit's processing facilities have improved as the result of recent upgrades to the facilities.
For the first six months of 2007, processing volumes of 42,984 MMBtu per day and liquids sold volumes of 104,946 gallons per day increased 39% and 107%, respectively, from the first six months of 2006. Gathering volumes for the first six months of 2007 were 222,164 MMBtu per day, a 3% decrease from the first six months of 2006.
The following table illustrates certain results from Unit's mid-stream operations at the end of each period:
2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 07 07 06 06 06 06 Gas gathered MMBtu/day 218,290 226,081 253,776 276,888 243,399 215,341 Gas processed MMBtu/day 42,645 43,327 44,781 35,124 31,000 30,668 Liquids sold Gallons/day 113,829 95,964 93,792 71,790 50,169 51,337 4th Qtr 05 3rd Qtr 05 2nd Qtr 05 Gas gathered MMBtu/day 180,098 159,821 121,611 Gas processed MMBtu/day 24,391 36,061 31,670 Liquids sold Gallons/day 53,269 54,609 71,693
Unit's mid-stream segment operates four natural gas treatment plants, owns seven processing plants, 37 active gathering systems and 641 miles of pipeline.
STRONG BALANCE SHEET AND RESOURCES TO FUND CAPITAL PLAN * Debt to capitalization of 14%, as of June 30, 2007. * Ample cash flow and credit availability to fund capital expenditures for drilling an estimated 270 new gross wells for the year, placing two new drilling rigs into service and growing capacity of mid-stream business.
Unit ended the quarter with working capital of $87.3 million, long-term debt of $209.8 million and a debt-to-capitalization ratio of 14%. During the second quarter, Unit entered into a $400.0 million Amended and Restated Senior Credit Agreement. At June 30, 2007, Unit had $190.2 million of borrowing capacity under the credit agreement. Unit has adequate cash flow and credit to fully fund its capital plan.
Larry Pinkston, President and Chief Executive Officer, said: "We are pleased with the outcome of our 2007 second quarter results. Our oil and natural gas segment has overcome the issues leading to its production constraints in time to focus on what we believe will be an active latter half of the year. Our contract drilling segment has quickly assimilated its newly acquired Texas Panhandle drilling rigs and equipment into its existing fleet and we're pleased with the efficiency of these new operations. And, our mid- stream segment performed well, particularly with the impact of the increase in liquids sold."
- Noble Divests Mid-Continent Assets with $617M Sale to Unit (Jul 11)
- Teton, Unit Ink E&P Deal for Big Horn Basin (Jun 20)
- Unit Corporation Reports 2Q07 Results (Aug 02)