Encore Acquisition Co. Announces Better Than Expected Q1 Results
Encore Acquisition Co. has reported unaudited first quarter 2009 results.
Average daily production volumes for the first quarter of 2009 increased 10 percent over the first quarter of 2008, increasing from 38,196 barrels of oil equivalent per day (“BOE/D”) to 41,900 BOE/D, beating the mid-point of previously released guidance by over 1,900 BOE/D. Net profits interest reduced wellhead volumes by 1,406 BOE/D in the first quarter of 2009, 144 BOE/D better than previously released guidance, as compared to 1,822 BOE/D in the first quarter of 2008.
Encore reported net income excluding certain items of $117.2 million ($2.23 per diluted share) for the first quarter of 2009 as compared to $58.3 million ($1.08 per diluted share) for the first quarter of 2008. Excluding the derivative gain related to future periods that was realized as a result of the hedge monetization discussed below, net income excluding certain items was $12.2 million ($0.23 per diluted share). Encore reported a net loss of $7.6 million ($0.15 per diluted share) for the first quarter of 2009 as compared to net income of $31.2 million ($0.58 per diluted share) for the first quarter of 2008. Net income excluding certain items is defined and reconciled to its most directly comparable GAAP measure in the attached financial schedules.
Adjusted EBITDAX was $302.4 million for the first quarter of 2009 as compared to $180.5 million for the first quarter of 2008. Adjusted EBITDAX is defined and reconciled to its most directly comparable GAAP measures in the attached financial schedules. Adjusted EBITDAX for the first quarter of 2009 was aided by the monetization of $190.4 million of certain March – December 2009 commodity derivative positions. Excluding the monetization of commodity derivative contracts related to future periods, Adjusted EBITDAX for the first quarter of 2009 was $133.9 million.
The Company produced 27,645 Bbls of oil per day in the first quarter of 2009 compared to 27,516 Bbls per day in the first quarter of 2008. Natural gas volumes increased 33 percent from 64,081 Mcf per day in the first quarter of 2008 to 85,528 Mcf per day in the first quarter of 2009.
Jon S. Brumley, Encore's Chief Executive Officer and President, stated, "We are pleased with our first quarter results. We beat guidance by 1,900 barrels of oil equivalent per day and were under budget on capital expenditures. The main reasons for the production beat were better performance from our largest field, the Cedar Creek Anticline, and the drill wells coming in higher than expectations. We are focused on reducing debt in 2009 and our shallow declining properties allow us to approximately match our capital expenditures to cash flow for the remainder of the year. In this market, having an oil weighted property base gives us an advantage over our gas weighted peers. Oil is higher margin and longer lived than gas. Encore’s resilient properties and quality is starting to shine through."
The Company reported oil and natural gas revenues of $113.5 million in the first quarter of 2009 as compared to $268.8 million reported in the first quarter of 2008, as the lower commodity price environment overshadowed the Company's increased production volumes. The average NYMEX oil price fell 56 percent to $43.31 per Bbl versus $97.74 per Bbl in the first quarter of 2008. The Company's NYMEX oil differential tightened slightly to $7.83 per Bbl in the first quarter of 2009 from $9.09 per Bbl in the first quarter of 2008, although in percentage terms the differential widened. The combined effect of lower oil commodity prices and a slight narrowing of the differential was a decrease in the Company's average wellhead oil price, which represents the net price the Company receives for its oil production. The net price fell to $35.48 per Bbl for the first quarter of 2009 from $88.65 per Bbl in the first quarter of 2008. Encore expects the second quarter 2009 oil differential to be a negative 12 percent, which is an improvement over the price differential of negative 18 percent in the first quarter of 2009.
The Company's realized natural gas price declined from $8.28 per Mcf in the first quarter of 2008 to $3.28 in the first quarter of 2009. The first quarter 2009 NYMEX price was $4.92 per Mcf versus $8.02 in the first quarter of 2008. Because of a negative natural gas price revision related to the fourth quarter of 2008 resulting from the rapid decline in natural gas liquids pricing, the natural gas price for the first quarter of 2009 was reduced from its actual wellhead price of $3.81 per Mcf by an additional $0.53 to result in the $3.28 per Mcf price. Encore expects the second quarter 2009 natural gas differential to be a negative 15 percent which is slightly better than the actual price differential of negative 20 percent in the first quarter of 2009.
Lease operating expenses were $44.2 million for the first quarter of 2009 ($11.73 per BOE), below the low end of previously released guidance due to higher production volumes for the quarter, versus $40.4 million for the first quarter of 2008 ($11.61 per BOE).
General and administrative expenses for the first quarter of 2009 were $13.7 million ($3.63 per BOE) versus $9.7 million ($2.79 per BOE) for the first quarter of 2008.
Exploration expense for the first quarter of 2009 was $11.2 million as compared to $5.5 million for the first quarter of 2008. The increase is attributable to an increase in dry hole costs of $4.4 million, as the Company expensed one dry hole for $5.0 million in the first quarter of 2009, and an increase in unproved leasehold impairment of $1.8 million as the Company's unproved property base has increased.
Encore completed 58 gross wells (26.4 net) during the first quarter of 2009, 57 of which (25.4 net) were successful.
At March 31, 2009, the Company's long-term debt, net of discount, was $1.1 billion, including $150 million of 6.25% senior subordinated notes due April 15, 2014, $300 million of 6.0% senior subordinated notes due July 15, 2015, $150 million of 7.25% senior subordinated notes due December 1, 2017, and $353 million and $185 million of outstanding borrowings under Encore's and Encore Energy Partners LP's ("ENP") revolving credit facilities, respectively. The Company also had $23.5 million of cash and cash equivalents at March 31, 2009.
The amount outstanding on Encore's revolving credit facilities decreased $187 million during the first quarter of 2009. This was due primarily to the monetization of certain of the Company's 2009 oil derivative contracts during the quarter, which resulted in net proceeds of approximately $190.4 million that was used to reduce outstanding indebtedness.
As previously announced, Encore's borrowing base was reaffirmed at $1.1 billion before an adjustment of $200 million solely as a result of the commodity derivative monetization. Therefore, the revised borrowing base of $900 million, together with the debt repayment from the commodity derivative monetization, allows the Company the same amount of borrowing capacity after the redetermination as before.
Concurrent with the Encore redetermination, the syndicate of lenders underwriting ENP's revolving credit facility reaffirmed ENP's $240 million borrowing base. The next borrowing base redetermination for both Encore and ENP is scheduled for October 2009.
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