Brigham Reports Record Revenues in 3Q10
Brigham announced record quarterly production volumes and reported record revenues and operating income, excluding the impact of unrealized hedging losses.
THIRD QUARTER 2010 RESULTS
Our average daily production volumes for the third quarter 2010 were a quarterly record 8,509 barrels of crude oil equivalent (Boe) per day, up 64% from the third quarter 2009 and up 10% from the second quarter 2010. Our previous record quarterly production volumes of 7,756 Boe per day were achieved in the second quarter 2010.
Benefiting from both our operated and non-operated drilling activity in the Williston Basin, our high value crude oil production volumes for the third quarter 2010 averaged 6,356 barrels of crude oil per day, which represents a 144% increase from that in the third quarter 2009 and a 14% sequential increase from that in the second quarter 2010. Our high value crude oil production volumes represented 75% of our total production volumes in the third quarter 2010, as compared to 50% in the third quarter 2009 and 72% in the second quarter 2010.
Our production volumes in the Williston Basin for the third quarter 2010 were 6,466 Boe per day, which represents a 202% increase from that in the third quarter 2009 and a 17% sequential increase from that in the second quarter 2010.
Our third quarter production volumes included approximately 7,395 barrels of crude oil produced during the third quarter 2010 and added to inventory. Adjusting our production volumes for amounts included in inventory resulted in third quarter 2010 daily sales volumes of 8,427 Boe per day.
Revenues from the sale of crude oil and natural gas, including cash hedge settlements for the third quarter 2010, were up 134% to $44.4 million as compared to that in the third quarter 2009. Higher crude oil sales volumes and crude oil prices increased revenues by $19.7 million and $4.1 million, respectively. Higher natural gas prices increased revenues by $1.9 million, while lower natural gas sales volumes decreased revenues by $0.8 million. Finally, higher cash hedge settlements increased revenues by $0.5 million.
During the third quarter 2010, our average realized price for crude oil was $67.07 per barrel, which included no gain or loss from the cash settlement of our crude oil derivative contracts. This compares to an average realized price in the third quarter 2009 of $57.45 per barrel, which included a $2.29 per barrel cash loss due to the settlement of our crude oil derivative contracts. Our average realized price for natural gas in the third quarter 2010 was $5.63 per Mcf, which included a $0.65 per Mcf cash gain due to the settlement of our natural gas derivative contracts. This compares to an average realized price in the third quarter 2009 of $3.95 per Mcf, which included a $0.57 per Mcf cash gain due to the settlement of our natural gas derivative contracts.
Our third quarter 2010 production costs, which include costs for operating and maintaining (O&M expense) our producing wells, expensed workovers, ad valorem taxes and production taxes, were up $0.52 per Boe when compared to the third quarter 2009. The increase was driven by a $2.30 per Boe increase in production taxes, which was driven by higher commodity prices and higher levels of production in North Dakota, which are subject to an 11.5% tax rate. The increases in production taxes were partially offset by a $1.01 per Boe decrease in O&M expense due primarily to our higher production volumes and a $0.43 per Boe decrease in expensed workovers due to fewer workovers associated with our conventional Gulf Coast and Anadarko Basin natural gas wells.
Our general and administrative (G&A) expenses for the third quarter 2010 decreased by $0.16 per Boe as compared to the prior year's quarter due to our higher production volumes. The gains associated with our higher production volumes were partially offset by an increase in employee compensation costs, which were partially associated with increased levels of employee bonuses and bonus accruals as we re-instated our performance bonus plan in 2010 after suspending the plan in 2009.
Our depletion expense for the third quarter 2010 was $15.3 million ($20.20 per Boe) compared to $7.8 million ($16.74 per Boe) in the third quarter 2009. Our higher sales volumes increased depletion expense by $4.9 million and our higher depletion rate increased depletion expense by $2.6 million.
Our net interest expense for the third quarter 2010 decreased $2.5 million from the third quarter 2009. This decrease was primarily due to the repayment of our Senior Credit Facility as a result of our October 2009 equity offering and an increase in our capitalized interest associated with our higher level of drilling activity in the Williston Basin.
We recorded no federal income tax expense in either the third quarter 2010 or the third quarter 2009, as we continue to have a net deferred tax asset, which is offset by a valuation allowance. In the third quarter 2009, we recorded $0.3 million in deferred state income tax expense.
Our reported net income (loss) for the third quarter 2010 was ($0.7) million (($0.01) per diluted share) versus net income of $0.5 million ($0.01 per diluted share) for the same period last year. Our after-tax earnings in the third quarter 2010 excluding the loss on the early redemption of our Senior Notes due 2014 and unrealized mark-to-market hedging losses were $18.1 million ($0.15 per diluted share) as compared to our after-tax earnings (loss) in the third quarter 2009 excluding our unrealized mark-to-market hedging gains and the non-cash write-down of the carrying value of our inventory were ($0.3) million (($0.00) per diluted share). After-tax earnings excluding the above items is a non-GAAP measure and a reconciliation of GAAP net income to after-tax earnings excluding the above items is included in our accompanying financial tables found later in this release.
FOURTH QUARTER 2010 FORECASTS
The following forecasts and estimates for the fourth quarter 2010 are forward-looking statements subject to the risks and uncertainties identified in the "Forward-Looking Statements Disclosure" at the end of this release.
We are forecasting that our fourth quarter 2010 total production volumes to average between 10,200 Boe per day and 10,800 Boe per day and that our crude oil volumes will comprise approximately 77% of our total fourth quarter production volumes.
For the fourth quarter 2010, lease operating expenses are projected to be $5.50 per Boe based on the mid-point of our production guidance, production taxes are projected to be approximately 10.0 to 10.5% of pre-hedge crude oil and natural gas revenues, and general and administrative expenses are projected to be $3.6 million ($3.81 per Boe).
UPDATED 2010 EXPLORATION AND DEVELOPMENT BUDGET
Our updated 2010 exploration and development capital budget totals $466.1 million, which represents a 15% increase from the budget that we had announced in August 2010. The updated 2010 budget will fund approximately 44.8 net Williston Basin wells, two net Vicksburg wells in South Texas and 2.8 net wells primarily in the West Texas Wolfberry oil resource play. The $62.1 million increase in our 2010 budget is comprised of $40.3 million of additional drilling cap-ex related to approximately 7 additional net Williston Basin wells and $18.6 million of additional land and acreage acquisition cap-ex.
Gene Shepherd, Brigham's Chief Financial Officer, commented, "During the third quarter, the continued strong performance of our horizontal Bakken and Three Forks drilling program led to record production volumes and, excluding unrealized hedge settlements, record revenues and operating income. Furthermore, with the proceeds of our September senior notes offering, we ended the third quarter with $315 million of cash, cash equivalents and investments on the balance sheet and an undrawn credit facility. When combined with our growing cash flow and expanded hedging program, this level of liquidity ensures the company's ability to fully fund our drilling program for 2011 and beyond."
Gene Shepherd continued, "The expectation that we will average 10,500 Boe per day in the fourth quarter should ensure another record quarter for Brigham in terms of production and financial performance. Further, the growth in production that we have achieved as we have moved through 2010 provides some insight into the 2010 proved reserve growth that we expect to be able to announce in February 2011."
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