Venoco Underscores Proved Reserves, Production Operations
Venoco's total proved oil and gas reserves as of December 31, 2008 were 97.5 million barrels of oil equivalent (MMBOE) at SEC pricing. The company's production in 2008 was approximately 7.9 MMBOE or 21,674 BOE/d.
"We were successful this year in adding reserves in our California business units and are pleased with our double-digit, pro forma reserve growth," said Tim Marquez, Venoco's Chairman and CEO. "Reserves in our long-lived, low-decline rate oil assets in Southern California and our gas assets in the Sacramento Basin were only modestly impacted by commodity prices."
Net of production in 2008, the company added 5.7 MMBOE of proved reserves in its Southern California assets with the majority of the additions coming from the West Montalvo field. In the Sacramento Basin the company added 7.8 MMBOE to proved reserves. In Texas, where pricing had a significant negative impact, reserves declined a total of 8.0 MMBOE net of production, primarily as a result of a decrease in reserves from the Hastings Complex of 5.8 MMBOE net of production.
Pro forma for the February 2, 2009 sale of the Hastings Complex, Venoco's December 31, 2008 total proved reserves are 89.8 MMBOE, which, net of production, represents a 13% increase from pro forma December 31, 2007 reserves of 85.5 MMBOE and replacement of 161% of production. Production in 2008, pro forma for the Hastings sale, was 7.0 MMBOE. Pro forma for the Hastings sale, the company expects 2008 all-in finding and development costs will be approximately $25.75 per BOE. The pre-tax PV-10 value of the company's reserves using year-end SEC pricing of $44.60 per barrel for oil and $5.62 per MMBTU for gas is $616.7 million. The company's estimate of reserves using a NYMEX 5-year strip pricing is 108.2 MMBOE. The pre-tax PV-10 value using the NYMEX 5-year strip pricing is $1.614 billion.
Full Cost Ceiling Write-down
Based on year-end 2008 commodity prices, the company expects to record a non-cash, full-cost ceiling write-down of approximately $645 million in the fourth quarter of 2008. As a result of the write-down, the company's 2009 guidance on DD&A will fall to $12.00 per BOE. The company has hedged 101% of its forecast 2009 production, more than 90% of its anticipated 2010 production, and more than 60% of its anticipated 2011 production. Because Venoco does not utilize cash flow hedge accounting for its derivative instruments, the value of these contracts (which approximated $90 million at December 31, 2008) was not included in the ceiling test calculation.
The company announced that production in the fourth quarter of 2008 was an all-time high of 22,674 BOE/d, an increase of 3.3% over the 21,949 BOE/d in the third quarter of 2008 and a 13% increase over the fourth quarter of 2007 production of 20,100 BOE/d. Production for the full-year of 2008 was 21,674 BOE/d, up 11% over production in 2007 of 19,535 BOE/d.
Production from the Sacramento Basin continued to climb in the fourth quarter. However, the company's 2009 capital expenditure plan calls for a 3-rig drilling program in the Basin (a reduction from the 5-rig program run throughout most of 2008). As a result, average daily production in the Basin is expected to decline by year-end 2009.
In Southern California, production climbed at the offshore Sockeye field as a result of a solid response to the company's waterflood and several well re-works completed late in the second quarter of 2008. Production also continued to increase at the West Montalvo field. The company expects to see modest production increases from its Southern California properties during 2009.
Pro forma for the sale of the Hastings Complex, the company expects to see modest production increases from its remaining Texas properties during 2009.
Expectations with respect to future production rates, reserves and capital projects are subject to a number of uncertainties.
2009 Capital Budget
The company announced on January 12, 2009 that its revised capital expenditures forecast for 2009 is $150 million. Approximately $74 million (49%) is budgeted for the Sacramento Basin, $35 million (23%) for Southern California, $17 million (12%) for Exploration, $5 million (3%) for Texas with the balance of $19 million (13%) for capitalized G&A. As to spending by category, approximately $90 million (60%) will be for development wells and wellwork, $23 million (15%) will be spent on facilities/other, with the balance, as noted above, for Exploration and capitalized G&A.
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