Bill Barrett Positions for 2010 with Increased Borrowing Base
Bill Barrett Corporation has reported third quarter 2009 operating results highlighted by:
- Production of 22.8 Bcfe, up 16% from the prior year period and up 3% sequentially
- Discretionary cash flow of $107.7 million, or $2.39 per diluted common share and $4.73 per Mcfe
- Net income of $0.7 million, or $0.02 per diluted share, and adjusted net income of $7.9 million, or $0.18 per diluted share
- Increased borrowing base on credit facility to $630 million following October bank redetermination
- Encouraging results to date at Yellow Jacket prospect from larger fracture stimulations
Chairman and Chief Executive Officer Fred Barrett commented, "Our team has met the challenges of a difficult market head-on throughout 2009. Third quarter and year-to-date results reflect increased production as well as growth in discretionary cash flows. Exploration and development expenditures will be well within discretionary cash flows for the year and will deliver production growth of 13% to 15%. As a result, we have further increased production guidance for 2009 to 88.0 to 89.0 billion cubic feet equivalent.
"Year-to-date, we have been busy evaluating multiple projects on the exploration front and, not surprisingly, we have had both encouraging and disappointing results. At Yellow Jacket, we are encouraged with the performance to date from our two latest horizontal well completions. Our exploration strategy is to target large scale, repeatable resource plays like Yellow Jacket. However, in the Circus and Pine Ridge prospects, results to date do not appear to meet these criteria, and we have expensed our exploration wells in these areas. Into the fourth quarter, we continue to benefit from operating and drilling efficiencies in core areas, favorable hedge positions and a very strong balance sheet.
"As 2009 nears a close, we are positioning ourselves for 2010. In October 2009, our borrowing base was increased and our lender commitments returned to the levels prior to our July debt offering, providing a solid $573 million in liquidity. To date, we have 55.9 Bcfe hedged for 2010 at an average floor price of $7.43 per thousand cubic feet equivalent (Mcfe) and will opportunistically add to these positions. While we are currently preparing our 2010 plan, we expect to align our capital program with cash flows while delivering continued production growth. Our exceptional financial strength will allow us to be flexible over the coming months as we continue to monitor market conditions. In addition, we are working hard to deliver key growth catalysts such as the EIS process at West Tavaputs and resolution with stakeholders in our Cottonwood Gulch area."
Third quarter 2009 natural gas and oil production totaled 22.8 Bcfe, up 16% from 19.6 Bcfe in the third quarter of 2008 and up 3% from 22.1 Bcfe in the second quarter of 2009. For the first nine months of 2009, production totaled 67.0 Bcfe, an increase of 17% compared with the first nine months of 2008. Despite a significant decline in natural gas and oil market prices in the third quarter of 2009 compared with the third quarter of 2008, the Company was able to realize strong production revenue through its effective hedging program. The Company's commodity hedging program increased its third quarter 2009 natural gas and oil revenues by $69.8 million, or more than $3.00 per Mcfe. Including the effects of hedging activities, the average sales price realized in the third quarter of 2009 was $7.03 per Mcfe, down from $7.86 per Mcfe in the third quarter of 2008 yet up from $6.64 per Mcfe in the second quarter of 2009.
Discretionary cash flow (a non-GAAP measure) in the third quarter of 2009 was $107.7 million, or $2.39 per diluted common share, up 2% from $105.6 million, or $2.34 per diluted common share, in the third quarter of 2008. Higher production, a $0.07 per Mcfe decline in lease operating expense and a $0.40 per Mcfe decline in production taxes drove the increased discretionary cash flow. These benefits more than offset an $0.83 per Mcfe decline in the average realized price from $7.86 to $7.03 and a $0.19 per Mcfe increase in gathering and transportation expenses. The decline in lease operating expense is primarily due to lower water handling costs at West Tavaputs, and the lower production tax expense is primarily a result of significantly lower wellhead prices. Higher gathering and transportation expenses relate to natural gas processing charges and increased firm transportation charges with expansion of the Rockies Express Pipeline system. During the third quarter of 2009, the Company elected to process and sell natural gas liquids from the Piceance Basin, and the higher processing fees were more than offset by proceeds from the sale of resulting natural gas liquids. Discretionary cash flow for the first nine months of 2009 was $345.2 million, or $7.69 per diluted common share, up 5% compared with $327.3 million, or $7.24 per diluted common share, in the first nine months of 2008.
Net income in the third quarter of 2009 was $0.7 million, or $0.02 per diluted common share, compared with $35.3 million, or $0.78 per diluted common share, in the prior year period. Net income included a $12.3 million unrealized commodity derivative loss and a nominal gain on property sales. Adjusting for these items, tax effected, adjusted net income (a non-GAAP measure, see page 12) was $7.9 million, or $0.18 per diluted common share, compared with $29.3 million, or $0.65 per diluted share, in the prior year period. For the first nine months of 2009, net income was $37.7 million, down from $99.1 million in the first nine months of 2008, and adjusted net income was $63.0 million, down from $95.5 million in the first nine months of 2008. Net income includes dry hole costs of $17.7 million for the third quarter of 2009 and $27.1 million for the first nine months of 2009, or $10.4 million and $16.5 million after tax, respectively.
Debt and Liquidity
The Company ended the third quarter of 2009 with $33.0 million drawn on its revolving credit facility and had outstanding 5% Convertible Senior Notes in the principal amount of $172.5 million and 9.875% Senior Notes due 2016 in the principal amount of $250.0 million. In October 2009, the Company's borrowing base under its bank credit facility increased to $630.0 million from $537.5 million with commitments of $592.8 million. Currently, $20 million is drawn on the credit facility, providing $572.8 million in available borrowing capacity. The Company has significant liquidity available from cash flows from operations and the credit facility to fund its planned capital programs.
Commodity Hedges Update
During the third quarter of 2009, the Company had hedges in place for 72% of its natural gas production volumes and 56% of its oil production volumes, which resulted in a net increase in natural gas revenues of $68.6 million and an increase in oil revenues of $1.2 million. The net effect increased the average price received per Mcfe to $7.03 from $3.97.
It is the Company's strategy to typically hedge 50% to 70% of production through basis to regional sales points for the next 12 months on a rolling basis. Natural gas and oil hedging is intended to reduce the risks associated with unpredictable future natural gas and oil prices and to provide predictability for a portion of cash flows to support the Company's capital expenditure program.
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