Venoco Sees 22% Increase in 3Q07 Production
Venoco, Inc. (NYSE: VQ) reported financial and operating results for the third quarter of 2007. The company reported net income of $0.5 million in the period, which was affected by unrealized mark-to-market commodity derivative losses (non-cash) of $8.6 million ($5.2 million after-tax) and unrealized mark-to-market interest rate derivative losses (non-cash) of $8.3 million ($5.0 million after-tax). Without the effects of these items, after-tax, adjusted net income was $10.7 million for the period. Venoco's Adjusted EBITDA for the quarter reached a company high of $62.1 million, up 8.6% from the second quarter and up 70% from the third quarter of 2006. Please see the end of this release for both a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, the most comparable GAAP financial measure.
Venoco's production for the third quarter of 2007 was 20,701 barrels of oil equivalent per day (BOE/d), a 22% increase over the third quarter of 2006. Third quarter production was a company-high of 1.90 million barrels of oil equivalent (BOE), up more than 100,000 BOE over the second quarter of 2007 - a 5.5% increase.
"We are pleased to see production continuing to increase this quarter, and to see the continued growth in Adjusted EBITDA," said Tim Marquez, Chairman and Chief Executive Officer.
In Coastal California, Venoco continues to focus on development activities in the West Montalvo field. The company drilled and completed a well from an onshore pad in the field to an offshore location. The well confirmed that the field boundary extends further offshore. Venoco continues to test and evaluate various zones in the well. The company is also pursuing a number of field performance improvement projects that include reactivating injection wells, expanding fluid processing capacity, returning idle wells to production, and working over existing wells.
On platform Grace in the Santa Clara field, Venoco has drilled and completed its first well, which will return the field to production after being idle for nearly a decade. The drilling rig has been moved onto the second well, which is expected to be spud shortly. First production from the field is expected in November.
In the South Ellwood field, the permitting process continues for the company's full-field development project, which includes an extension of an existing lease from the State of California. The draft Environmental Impact Report is expected by year-end with project startup anticipated in 2009.
Activity levels remain high in Texas in both the Hastings complex and in the nearby Manvel field, which Venoco acquired earlier this year. Fluid processing capacity in the Hastings complex has increased from approximately 150,000 barrels per day (bpd) at the time of acquisition to about 300,000 bpd currently with a target of 500,000 bpd by year-end. This expanded capacity will allow additional idle wells to be returned to production. The company is applying experience gained from operating in Hastings to design and execute its recompletion and workover plan for the Manvel field.
In the Sacramento Basin the company continued its active drilling and workover program. For the quarter, Venoco spud 33 wells for a nine-month total of 101 and worked-over 29 wells bringing the nine-month total to 71. The company is ahead of drilling projections and expects to drill more than 120 new wells and to recomplete at least 100 wells in the basin by year-end. The company has recently initiated a hydraulic fracturing program in the basin. Early results are very encouraging and the frac program is expected to continue throughout 2008.
"Wells in the Sacramento Basin have historically utilized conventional cased and perforated completions. With more than 300 active producers and more than 500 wellbores in our Sac Basin fields, the upside potential from fracturing could be significant," said Mr. Marquez.
Venoco's lease acquisition efforts in the Northern Sacramento Basin continue, with the company acquiring approximately 6,500 net acres in the third quarter for a company total of approximately 187,000 net acres (235,000 gross).
2007 Capital Budget
"For the full year 2007, we now expect our capital expenditures to be around $320 million, up from our earlier estimate of $270 million," said Mr. Marquez. "This is largely due to drilling more wells than we originally planned in the Sacramento Basin, ramped-up activity in our West Montalvo field -- including the drilling of the F-2 well offshore -- and higher than expected capital expenditures associated with increasing our total fluid processing capacity in the Hastings complex. We are continuing full speed on all of these projects and remain confident in their ultimate value creation," he added.
2007 Production Expenses and General & Administrative Costs
Production expenses averaged $14.90 per BOE in the third quarter of 2007 compared to $14.53 per BOE in the second quarter of 2007. Third quarter 2007 production expenses reflect a full quarter of West Montalvo and Manvel operations, where expenses increased as remedial efforts accelerated in both fields. These efforts, coupled with a production curtailment at West Montalvo for facility vessel inspections and repairs, resulted in an increase in production expenses per BOE. The company expects production expenses to decrease on a per BOE basis in 2008 as a result of reduced remedial activities in the Hastings complex and as it realizes production volume increases in the Sacramento Basin, the Santa Clara field (platform Grace), the Hastings complex, as well as in the West Montalvo and Manvel fields.
General and administrative expenses were $3.97 per BOE for the first nine months of 2007 excluding charges under SFAS 123R of $0.70 per BOE. Increased G&A expenses in the third quarter of 2007 were offset by production growth. Excluding SFAS 123R charges, the company expects G&A expenses in 2008 to be similar to full year 2007 on a per BOE basis.
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