Bill Barrett Corp. Cites Higher Net Income in First Quarter
Bill Barrett Corporation today reported first quarter 2009 operating results highlighted by:
- Production growth, up 21% from the prior year period and up 7% sequentially to 22.1 Bcfe
- Discretionary cash flow growth, up 24% from the prior year period and up 32% sequentially to $134.8 million, or $3.01 per diluted share
- Net income of $26.4 million and adjusted net income of $39.6 million, or $0.89 per diluted share, up 26% from the prior year period on an adjusted basis
- Received reaffirmation of the credit facility borrowing base of $600 million
Chairman and Chief Executive Officer Fred Barrett commented, "Achieving record high production and discretionary cash flow in the first quarter of 2009 is testament to the Company's ability to successfully operate under challenging market conditions. The 21% increase in production, combined with favorable hedge positions and continued strong operating efficiencies, supported our particularly strong performance.
"We are financially well positioned for the remainder of 2009 to operate under a difficult macro-economic environment. We are on track to keep our 2009 capital expenditure program for exploration and development aligned with discretionary cash flow. The Company expects to deliver 8% to 12% production growth from our key development assets, while continuing to drill our exciting exploration portfolio during a time when we can take advantage of lower costs. We currently have more than $345 million available on our bank line of credit, we have hedges in place at regional sales points for approximately 70% of remaining 2009 production that have an average floor price of $7.74 per thousand cubic feet equivalent (Mcfe), and we will continue to drive operating efficiencies. We are well-situated to execute our operations strategy and will maintain an opportunistic posture as the year unfolds."
First quarter 2009 natural gas and oil production totaled 22.1 billion cubic feet equivalent (Bcfe), up 21% from 18.2 Bcfe in the first quarter of 2008 and up 7% sequentially from 20.6 Bcfe. Including the effects of the Company's hedging activities, the average sales price realized in the first quarter of 2009 was $7.70 per Mcfe compared with $8.19 per Mcfe in the first quarter of 2008. The Company's commodity hedging program increased its first quarter 2009 natural gas and oil revenues by $87.1 million, more than doubling the average price received.
Discretionary cash flow in the first quarter of 2009 was $134.8 million, or $3.01 per diluted common share, up 24% from $108.3 million, or $2.40 per diluted common share, in the first quarter of 2008 and up 32% sequentially from $101.8 million. The year-over-year increase was primarily a result of higher oil and gas production revenue, generated by a 21% increase in production, partially offset by a 6% decline in the average realized price received. In addition, first quarter 2009 cash operating income benefitted from lower production tax expense, which was a result of significantly lower wellhead prices and a one-time benefit of $4.4 million to reduce and re-estimate prior period tax expenses following a March 2009 agreement with the State of Colorado regarding certain calculations of severance taxes.
Net income in the first quarter of 2009 was $26.4 million, or $0.59 per diluted common share, compared with $30.6 million, or $0.68 per diluted common share, in the prior year period. Net income included a $26.0 million unrealized commodity derivative loss (principally related to basis only hedges), a one-time $4.4 million production tax benefit (discussed above) and a nominal loss on property sales. Adjusting for these items, tax effected, adjusted net income was $39.6 million or $0.89 per diluted common share.
As required, effective January 1, 2009 the Company adopted financial reporting rule FSP ABP 14-1 to account for convertible debt instruments that may be settled in cash upon conversion (see the Company's 10-Q filed with the Securities and Exchange Commission for more detail). The new pronouncement requires the Company to record the value of the equity conversion at issuance, which resulted in a $23.1 million discount in value for the Company's convertible senior notes. This discount is amortized as additional non-cash interest expense over the period the debt is expected to be outstanding, in this case four years through March 2012. As a result, first quarter 2008 financial statements have been adjusted to reflect the changed accounting treatment.
DEBT AND LIQUIDITY
The Company ended the first quarter of 2009 with $276.0 million drawn on its revolving credit facility and has subsequently repaid $30.0 million since March 31, 2009. In April 2009, the Company's bank group reaffirmed the borrowing base of $600.0 million with commitments of $592.8 million, currently providing $346.8 million in available borrowing capacity. The Company also had outstanding 5% convertible senior notes in the principal amount of $172.5 million. The Company believes it has significant liquidity available from cash flows from operations and the credit facility to fund its planned capital program.
First quarter 2009 capital expenditures totaled $111.0 million. The Company plans to spend up to $350 million for capital expenditures before acquisitions in 2009, intending to align full-year expenditures with discretionary cash flow. The Company will allocate approximately 80% to 85% of expenditures to development projects at its key assets in the Piceance, Uinta and Powder River basins and approximately 15% to 20% to delineation of prior discoveries and new exploration. The Company has three rigs currently drilling, with plans to add a fourth rig in early May, and anticipates participating in the drilling of 145 to 155 wells for the full year 2009, including approximately 50 to 55 coal bed methane (CBM) wells, down from 430 wells in 2008.
Operating and Drilling Update
Piceance Basin, Colorado
Gibson Gulch - Current net production is approximately 100 million cubic feet equivalent per day (MMcfe/d). The Company plans to operate one to two rigs in the area throughout 2009 and has all permits in place to drill a planned 75 to 80 well program. All current year drilling is on 10-acre density. In mid-April 2009, 24 MMcf/d of compression capacity was added in the area, increasing gross capacity to 165 MMcf/d. The Piceance program continues to be a key, low-risk, high growth development area for the Company and offers flexibility to adjust the number of active rigs dependent upon the Company's capital strategy.
At the end of the first quarter 2009, the Company had an approximate 94% working interest in production from 448 gross wells in its Gibson Gulch program.
Uinta Basin, Utah
West Tavaputs - Current net production is approximately 90 MMcfe/d. The Company has one rig in the area and has drilled eight of the 14 shallow wells planned for 2009, all of which have been permitted.
The Company continues to work towards completion of the Record of Decision on the Environmental Impact Statement for full-field development at West Tavaputs. In the transition to the new administration, appointments and nominees are in the process of being named to critical posts within the Bureau of Land Management and Department of Interior. This leads the Company to believe that authorization could take months to obtain, and we are currently seeking a definitive timeline.
To date in the shallow drilling program (Wasatch/Mesaverde), the Company has increased the density of well spacing to include 42 wells successfully drilled on 40-acre density and early indications from the most recent 20-acre pilot tests are positive. In addition, the Company has continued to drive improvements in operating costs in the West Tavaputs program by reducing water handling charges.
The West Tavaputs program continues to offer low-risk growth in the shallow Mesaverde and Wasatch zones as well as upside opportunity through the deep potential of the east and west structures and in the Mancos shale.
At the end of the first quarter 2009, the Company had an approximate 96% working interest in production from 138 gross wells in its West Tavaputs shallow and deep programs.
Blacktail Ridge/Lake Canyon - Currently in the combined area, there are 17 operated and producing wells with gross production capacity of approximately 3,200 barrels of oil per day (Bopd). The Company has shut-in most of its wells due to gas gathering, marketing and refining constraints, which limited first quarter production to an average of approximately 1,000 Bopd gross, or approximately 500 Bopd net. The working interests in this area range from 19% to 100%.
Hook - In the deep Hook prospect (50% working interest), the Company is targeting the Manning Canyon shale at a depth of approximately 8,000 feet. The initial vertical well drilled in 2008 indicated good gas shows and high gas contents from core samples, and the Company has spud a horizontal offset well and expects results by mid-summer. The Company also drilled two vertical test wells in the shallower Juana Lopez shale (100% working interest), at approximately 4,000 feet, and plans to complete testing of these wells in 2010.
Powder River Basin, Wyoming
Coal Bed Methane (CBM) - Current CBM net production is approximately 30 MMcf/d, slightly constrained in the Cat Creek area due to insufficient compression capacity. Currently, there is no drilling activity in the region due to seasonal wildlife stipulations that are in effect through July. The Company plans to participate in approximately 50 to 55 CBM wells during 2009. Development of this area requires dewatering of wells, which takes an average of six to 12 months. During 2009, the Company will continue to dewater wells with production expected to increase to approximately 35 MMcf/d in the fourth quarter.
At the end of the first quarter 2009, the Company had an approximate 74% working interest in production from 737 gross CBM wells.
Wind River Basin, Wyoming
Cave Gulch/Bullfrog - The Bullfrog 14-18 recompletion well (94% working interest) continues to be a strong producer, currently averaging approximately 15 MMcf/d gross. Recompletion of the Bullfrog 33-19 well (94% working interest), located along the same fault block, remains postponed due to low natural gas prices.
In the Cave Gulch deep program, the Company spud two wells during 2008, the Cave Gulch 31-32 well (46% working interest) and the East Bullfrog 23-6 well (50% working interest), each targeting the Frontier, Muddy and Lakota formations at 17,000 to 19,000 feet. While the 23-6 continues to produce from the Muddy and Lakota formations, the Company has postponed any further completion activity at these wells until natural gas prices improve.
Paradox Basin, Colorado
Yellow Jacket - At the Yellow Jacket shale gas discovery (55% working interest), the Company has drilled eight horizontal wells in the Gothic shale, is in the process of making its fifth completion and has three wells on production totaling approximately 3 MMcf/d gross. The Company continues to adjust completion and pumping techniques in an effort to mitigate salt migration into the wellbore, including utilization of cemented casing and micro-seismic monitoring during fracture stimulations. The Company and its partner plan to drill approximately ten wells in the prospect during 2009 to help delineate the scope and scale of this discovery. The Company has approximately 307,000 gross and 140,000 net undeveloped acres in the prospect.
Green Jacket - At the Green Jacket prospect (100% working interest), targeting the Hovenweep shale, the Company began completion of its first horizontal well during the second quarter 2009 with results anticipated in the third quarter of 2009. The Company has approximately 150,000 gross and 110,000 net undeveloped acres in the prospect.
Montana Overthrust, Montana
Circus - The Company plans to resume completion work and testing in June 2009 on four vertical wells drilled during 2008 targeting the Cody shale. Depending upon test results, the Company may drill a horizontal well in the third quarter of 2009. The Company has a 50% working interest in this prospect.
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