Petrohawk Swings to 4Q Loss, 'Looks Ahead' to 2011
Petrohawk announced its fourth quarter and full year 2010 financial results and provided guidance on its production and unit cost outlook for 2011. Additionally, the Company provided details on well results using the Hiway Frac solution from Schlumberger.
"Petrohawk is positioned well for outstanding performance in 2011 and 2012," said Floyd C. Wilson, the Company's Chairman and CEO. "Our year-end results reflect a cleaner, more concentrated and higher-performing company than at any other time in our history. We generated strong cash flows in 2010, and looking ahead, we expect our premium assets will offer years of economic project inventory to fuel future growth. We are in the early innings of the efficiencies and performance enhancements that we expect will accelerate returns in the Haynesville/Bossier and Eagle Ford Shales, where Petrohawk continues to innovate. Our financial health, liquidity, and divestiture opportunities support our ability to execute our business plan and deliver this value to shareholders."
Fourth Quarter and Full Year 2010 Financial Results
Petrohawk generated revenues of $402.0 million for the quarter ended December 31, 2010 and revenues of approximately $1.6 billion for the full year 2010. Cash flows from operations before changes in working capital (cash flow from operations, a non-GAAP measure) were $211.3 million, or $0.70 per fully diluted common share for the quarter, and $745.9 million, or $2.47 per fully diluted common share, for the full year.
Petrohawk reported a net loss for the quarter of $0.26 per fully diluted common share, or $79.6 million. After adjusting for selected items, the Company's quarterly net income was $31.4 million, or $0.11 per fully diluted common share (see Selected Item Review and Reconciliation table for additional information). The fourth quarter net loss was primarily affected by 1) an unrealized loss relating to future derivative contracts, primarily natural gas; 2) a loss from discontinued operations resulting from the writedown of the Fayetteville Shale midstream assets; 3) non-cash charges related to the write-off of debt issuance costs associated with Petrohawk's senior revolving credit facility; and, 4) Non-cash deferred income tax adjustments.
As stated in its press release dated February 1, 2011, the Company produced an average of 562 million cubic feet natural gas equivalent per day (Mmcfe/d) during 2010, pro forma for approximately 113 Mmcfe/d that was divested during the year. Total reported production for the fourth quarter was 70.1 billion cubic feet of natural gas equivalent (Bcfe), which includes 65.1 billion cubic feet (Bcf) of natural gas and 820 thousand barrels (MBbls) of oil and natural gas liquids. Production of oil and natural gas liquids increased 136% over fourth quarter 2009, when Petrohawk produced 348 MBbls.
Before the effect of derivatives, the Company realized an average price of $3.54 per Mcf of natural gas and $81.13 per barrel of oil during fourth quarter 2010. For the full year 2010, Petrohawk realized an average price of $4.18 per Mcf of natural gas, or 95% of NYMEX, and $76.98 per barrel of oil, or 97% of NYMEX. Realized prices for natural gas liquids were $40.91 per barrel for fourth quarter 2010 and $38.03 per barrel for the full year. Taking into account the effect of hedges, the Company realized $5.22 per Mcf of natural gas and $76.90 per barrel of oil for the full year. Petrohawk collected $243 million in realized hedges during 2010.
During the fourth quarter, per unit lease operating expense was $0.22 per thousand cubic feet of natural gas equivalent (Mcfe), or $15.2 million, a decrease of 34% compared to the fourth quarter 2009. Lease operating expense for the year was $64.7 million, or $0.26 per Mcfe, compared to $0.43 per Mcfe for 2009. Total per unit cash operating expenses (including lease operating, workover , taxes other than income, gathering and transportation, and general and administrative) were $1.49 per Mcfe for the fourth quarter of 2010, compared to $1.90 per Mcfe for the fourth quarter of 2009. Total per unit cash operating expense was $1.56 per Mcfe for 2010, compared to $1.73 per Mcfe for 2009.
Liquidity and Capitalization
As of December 31, 2010, Petrohawk had $146 million drawn on its revolving credit facility. Total available liquidity at the end of the year was approximately $1.4 billion on its oil and gas borrowing base of $1.55 billion with an additional $38 million of borrowing capacity based on the Company's midstream businesses. Liquidity was enhanced during 2010 by $2.1 billion of proceeds from a series of divestitures of non-core assets, including half of Petrohawk's midstream business in the Haynesville Shale and Petrohawk's oil and natural gas interests in the Fayetteville Shale, Terryille field, WEHLU field, and other miscellaneous properties in the Mid-Continent region. At year-end 2010, the Company's net debt-to-total book capitalization was approximately 43%, down from 44% at year-end 2009. Based on the Company's estimated proved reserves of 3.4 Tcfe at year end 2010, debt / proved reserves was $0.78/Mcfe, the lowest in Petrohawk's history.
In 2010 and earlier this year, Petrohawk refinanced its senior notes due in 2012 and 2013 with new senior notes due 2018 at lower interest rates, making 2014 its earliest maturity of long-term debt.
The midpoint of full year 2011 production guidance is 885 Mmcfe/d (781 Mmcf/d + 11.6 Mbo/d + 5.7 Mbngl/d), representing an estimated 31% year over year increase and a 57% year over year increase pro forma for 2010 divestitures. The midpoint of first quarter 2011 production guidance is 770 Mmcfe/d (703 Mmcf/d + 6.6 Mbo/d + 4.3 Mbngl/d), representing an estimated 15% pro forma growth over fourth quarter 2010.
Petrohawk has substantially hedged its expected future oil production with 2011 hedged volumes of 2,008 MBbls with an average floor of $78.00/Bbl and an average ceiling of $98.88/Bbl. Oil volumes hedged for 2012 were 82% higher than 2011, reflecting the Company's expected increase in production primarily from the Eagle Ford Shale. These 2012 volumes are hedged at an average floor of $77.00/Bbl and an average ceiling of $100.00/Bbl.
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