Venoco Reports Second Quarter 2007 Results
Venoco, Inc. (NYSE: VQ) reported financial and operating results for the second quarter of 2007. For the quarter Venoco produced a company high of 1.79 million barrels of oil equivalent (BOE), up nearly 200,000 BOE over the first quarter of 2007. The second quarter average daily production was 19,628 BOE per day (BOE/d) up 11% versus 17,670 BOE/d in the first quarter of 2007.
The company reported a net loss of $3.1 million in the period, including the effect of $3.6 million (after related income taxes) in unrealized mark-to-market derivative losses (non-cash) and a $7.4 million (after related income taxes) loss on extinguishment of debt recorded in connection with the refinancing of the company's second lien term loan facility.
Venoco also reported production expenses of $14.53 per BOE in the second quarter -- a decrease of nearly 8% compared to the first quarter of 2007 and a decrease of 2.5% compared to the second quarter of 2006.
Venoco further reported EBITDA (defined as earnings before interest expense, loss on extinguishment of debt, income taxes, and depreciation, depletion and amortization expense) of $47.4 million in the second quarter of 2007, up 160% from first quarter 2007 EBITDA of $18.2 million. Adjusted EBITDA, which adds back the non-cash amortization of derivative premiums, the effect of unrealized commodity hedging losses and non-cash share based compensation expense, set a company high of $57.1 million in the period, up 49% from first quarter 2007 Adjusted EBITDA of $38.2 million. Please see the end of this release Venoco 2Q 2007 Results Page 2 of 9 for a reconciliation of these non-GAAP financial measures to net income (loss), the most comparable GAAP financial measure.
Mr. Tim Marquez, Chairman and Chief Executive Officer, said, "We are pleased to see the ramp-up in production this quarter, particularly coupled with an overall decrease in per-unit production costs. We expect production to continue to rise thanks to several ongoing projects. We are excited about the workover and replacement well program at our Hastings and Manvel properties in Texas and our activities in California, including the continued drilling and recompletions in the Sacramento Basin and new wells in the recently acquired West Montalvo field. As a result of these projects, we expect to see production continue to climb through the balance of 2007 and expect to average 20,500 to 22,500 BOE/d during 2007, as we have previously indicated."
Montalvo and Manvel Acquisitions
Venoco completed two acquisitions in the second quarter -- on April 25th it closed on the acquisition of several Texas Gulf Coast fields, including the Manvel field in Brazoria County, for $46.1 million, and on May 11th it completed the purchase of the West Montalvo field located in Ventura County, California for $61.3 million.
Late in the second quarter, Venoco reached total depth on an extended reach well in the West Montalvo field. The well, which is intended to better define the offshore portion of the field, is currently being completed for production testing. "The West Montalvo field was discovered in 1951, but the areal extent and full potential of the field have not been fully defined," Mr. Marquez observed. "Besides returning idle wells to production on the onshore portion of the field, we see the offshore portion as very promising. We are in the process of planning and permitting additional wells to further delineate the offshore portion of the field."
Mr. Marquez continued, "In the Manvel field, we are benefiting from our experience in Hastings in the design and execution of our recompletion and workover plan."
2007 Capital Budget
"We increased our 2007 capital expenditures budget from $230 million to $270 million during the quarter. The incremental capital is earmarked to drill replacement wells in our Hastings field and to pursue the exploitation of our recently acquired Manvel and Montalvo properties," Mr. Marquez said.
During the second quarter Venoco closed a new $500 million term loan facility to replace its prior $350 million term loan facility. In addition, Venoco completed a public offering of common stock in early July and received proceeds of $116 million (net of commissions, fees and discounts). Mr. Marquez commented, "These transactions allowed us to finance the Manvel and Montalvo acquisitions, expand our capital budget, and strengthen our balance sheet. We have the financial strength to continue to actively pursue acquisitions and aggressively develop our assets."
2007 Production Expenses and General & Administrative Costs
Production expenses decreased to $14.53 per BOE in the second quarter of 2007 from $15.78 per BOE in the first quarter 2007, due primarily to a reduction in remedial work conducted in the Hastings complex and the increase in second quarter production. The amount of remedial work conducted in the Hastings complex during the second half of 2007 is expected to be substantially less than in the first half. Also, the company continues to add volume from lower production cost gas wells in the Sacramento Basin. These factors, combined with expected production increases, are expected to result in 2007 production expenses continuing to trend downward on a per BOE basis.
General and administrative expenses decreased to $4.05 per BOE in the second quarter of 2007 from $6.16 per BOE in the first quarter of 2007, due primarily to the increase in production quarter over quarter and an increase in the proportion of general and administrative expenses capitalized in connection with the company's 2007 development, exploitation, exploration and acquisition activities. While outlays for general and administrative costs are expected to be higher in 2007 than 2006, on a per BOE basis, the expensed portion is expected to decline in 2007 relative to 2006.
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