Vintage Reports 2004 Results and Updates Plans for 2005
Vintage Petroleum, Inc.(NYSE:VPI) announced the results and status of its 2004 operational activities and plans for 2005. In 2004, the company made oil and gas capital expenditures in its continuing operations totaling $347.6 million, with $237.0 million allocated to exploitation and exploration projects. During 2004, $179.8 million, or 76 percent of the company's total 2004 non-acquisition capital spending of $237.0 million, was spent on a variety of lower-risk exploitation projects. The remaining 24 percent was allocated to potentially higher-impact exploration programs in the U.S. and Yemen. In addition, Vintage acquired producing properties in the U.S. and Argentina in close proximity to existing company operations for $110.5 million during the second half of the year, effectively rekindling the contribution to growth from acquisitions.
"We executed our game plan to revitalize and increase internally generated production, achieving contributions from all of our producing areas aggregating to five percent. In addition, we are well positioned to demonstrate production growth in 2005, benefiting from a continuation of internally generated growth as well as a full year's contribution to production from acquisitions made during the second half of 2004," said Charles C. Stephenson, Jr., CEO.
United States - Exploitation
During 2004, the company participated in the drilling of 25 net exploitation wells with an 80 percent success rate and completed 80 net workovers. In the Luling, Darst Creek and West Ranch fields of South Central Texas, continued vigorous exploitation activity has resulted in the daily production rate more than doubling over the last two years. Also, drilling and workover activity at the company's Main Pass 116 complex resulted in an increase in daily net production to 13.3 MMcfe from 1.2 MMcfe during 2004. Production from these fields was a significant contributor to the revitalization of domestic production volumes in 2004.
For 2005, a capital budget of $40 million has been allocated to U.S. exploitation activities. A total of 20 net exploitation wells are initially planned to be drilled and workovers are also planned on approximately 45 wells during the year, principally in California, Louisiana and Texas. Activity in 2005 targets the continuation of an infill drilling program at the Gilmer South field in East Texas, expanded drilling programs and workover activity in the Luling, Darst Creek and West Ranch fields in South Central Texas and workover activity at our South Pass and Main Pass complexes in South Louisiana and the federal waters in the Gulf of Mexico, respectively.
To date in the first quarter of 2005, the company has returned to production 3,300 net BOE per day of the total 6,100 net BOE per day of production which was temporarily shut-in due to the mudslides in California during January. The company currently estimates that it will complete the remaining repair of mudslide damage for a total cost of approximately $8.5 million early in the second quarter of this year.
United States - Exploration
During 2004, the company drilled 10 exploration wells and recorded a success rate of 40 percent. Vintage began 2005 with an inventory of 13 domestic exploration prospects and a capital budget of $64 million. The focus of domestic exploration activity is split between conventional exploration targeting the Texas Gulf Coast and onshore unconventional gas resource plays. Twenty-six million dollars has been allocated to the unconventional gas resource exploration program to drill 10 wells during 2005 to test a minimum of four play concepts identified during 2004. In one of these plays, located in the Palo Duro basin of Texas, the company has secured a substantial leased and optioned position in excess of 128,000 acres. The first of two planned exploratory wells to evaluate the commercial potential of the play has been drilled and is being evaluated. Vintage owns working interests in this venture which range between 65 and 75 percent.
An additional $38 million has been allocated to conventional exploration activities primarily targeting natural gas that can be brought to production quickly. This endeavor anticipates drilling 11 exploration wells to test prospects primarily located in the onshore and offshore Texas Gulf Coast. These projects are similar geologically to plays in which the company was successful during 2004. Production commenced in the second half from the drilling of four successful wells targeting Miocene gas sands in two offshore Texas blocks (High Island 55-L and High Island 56-L). Vintage is the operator and has a 65 percent working interest in these prospects.
Two Miocene prospects were drilled at Matagorda Island 639 and 640 during the second half of 2004 with both encountering apparent pay sands. Vintage holds a 25 percent working interest in this offshore Texas prospect and expects these wells to be brought online with the installation of production facilities anticipated in mid-2005. Vintage also controls a 53 percent working interest in an opportunity to re-develop a Frio gas field with exploration upside in the onshore Texas Gulf Coast. A 3-D seismic survey of the area is scheduled to be completed during the second quarter with drilling anticipated to commence in the third quarter of 2005.
During 2004, the company continued its successful growth program in Argentina. A total of 81 exploitation wells were drilled and 92 workovers were performed during the year with expanded capital spending totaling $93.2 million. A fifth drilling rig was added during the fourth quarter, reflecting the highest number of drilling rigs working since the company began operations in Argentina. As a result of the revitalized drilling campaign and the acquisition in September of nearby properties which produce 1,900 net BOPD, daily net oil production now exceeds 31,000 barrels. This is an all-time high level of oil production by the company in Argentina.
Vintage rekindled its acquisition efforts in 2004 commencing with the purchase of a producing concession on the northern flank of the San Jorge basin during the third quarter. Vintage estimates that it acquired approximately 7.4 million barrels of proved oil reserves in the transaction which has additional upside potential. The recently activated rig is currently being mobilized to the concession and sufficient prospects have been identified to keep the rig active there throughout most of 2005.
Additional 3-D seismic activity was performed on 150,000 acres covering the Cerro Overo, Canadon Leon, Tres Picos and Cerro Wenceslao concessions during 2004. The 3-D seismic activity planned for the 2005 budget will add approximately 87,000 acres, or about seven percent additional coverage, bringing the total 3-D coverage to 58 percent of the company's 1.2 million gross operated acreage in Argentina. Addition of 3-D seismic coverage has historically provided future drilling and production visibility. The company plans additional production growth in 2005 supported by an increase in Argentina capital spending of 21 percent to $113 million and targets drilling 110 wells. Further, a portion of 2005 capital spending is budgeted for the implementation of four waterflood projects which are targeted to contribute to production in 2005 and beyond. In addition, in spite of the company's highest drilling activity level ever in the country, Vintage added more proved undeveloped locations than it drilled, ending the 2004 year with well in excess of 400 proved undeveloped well locations and over 400 probable and possible well locations providing multi-year drilling opportunities and improving production visibility.
During 2004, Vintage successfully drilled and completed 8 consecutive development and appraisal wells in its An Nagyah field contributing to its high 89 percent overall success rate in the country. Productive capacity from the An Nagyah wells is now approximately 12,000 barrels (6,250 net) of oil per day. Work began in late 2004 on the construction of a permanent pipeline and central processing facility that is slated to have initial daily capacity of 10,000 barrels of oil and is expected to be completed mid-2005. Several additional wells are planned for An Nagyah in 2005 in order to complete the development of the field.
The company is continuing to pursue its exploration program in Block S-1 in Yemen. Approximately $8 million has been allocated to international exploration in 2005, with approximately 76 percent dedicated to the effort in Yemen. One exploration well on the company's Malaki prospect in Yemen has been drilled and is currently being evaluated. Also in Yemen, the company anticipates the drilling of one additional exploration well and the continued assessment of the economic feasibility for further development of the reservoir at our Harmel discovery.
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