Energen CEO Discusses Q3 2010 Results – Earnings Call Transcript
Energen Corporation (
)
Q3 2010 Earnings Call Transcript
October 28, 2010 10:00 am ET
Executives
Julie Ryland – VP, IR
James McManus – Chairman, President & CEO
Chuck Porter – VP, CFO & Treasurer
John Richardson – President & COO, Energen Resources
Analysts
Kristal Choy – Raymond James
Denevo [ph] – BMO Capital
Presentation
Operator
Compare to:
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Good morning. My name is Michelle, and I’ll be your conference operator today. At this time I would like to welcome everyone to the Energen Corporation’s third quarter 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator instructions)
Thank you. Ms. Julie Ryland, Vice President of Investor Relations, you may begin your conference.
Julie Ryland
Thank you, Michelle, and good morning. Today’s conference call is being held in conjunction with Energen Corporation’s announcement yesterday of the results of operations of the third quarter and year-to-date 2010.
Please note that our prepared remarks will include statements expressing expectations of future plans, objectives and performance that constitute forward-looking statements made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Except as otherwise disclosed, the company’s forward-looking statements do not reflect the impact of possible or pending acquisitions, divestitures or restructurings.
All statements based on future expectations rather than on historical facts are forward-looking statements that are dependent on certain events, risks and uncertainties that may be outside the company’s control and could cause actual results to differ materially from those anticipated.
A discussion of risks and uncertainties that could affect future results of Energen and its subsidiaries is included in the company’s periodic reports filed with the Securities and Exchange Commission.
At this time, I’ll turn the call over to Energen’s Chairman and CEO, James McManus. James?
James McManus
Thanks, Julie, and good morning to all of you joining us today. I have got lots to go over this morning. So let’s start with the third quarter. Net income totaled 38.3 million or $0.53 per diluted share. Adjusting for the 14.6 million non-cash write-off of the remainder of our Alabama shale’s acreage position, net income was $52.9 million or $0.73 per diluted share. This $0.73 is not what most of you expected but major missing link perhaps was the $6.2 million or $0.09 per diluted share dry hole expense associated with our unsuccessful Chattanooga shale well, the Westervelt well.
Our guidance for 2010 that we reaffirmed in July captured about two-thirds of this amount but we had it slotted to occur in December instead of the third quarter. Other key issues in the third quarter include the 13% increase in realized sales prices relative to last year.
This benefit was partially offset by increased LOE largely due to higher ad valorem taxes and higher commodity price driven production taxes, slightly lower production volumes caused primarily by drilling delays and higher DD&A.
Let’s go next to 2010 as a whole. This late in year, you have nine months of financial results and no October’s gas prices. In short, potential variances are limited. With that in mind, we’ve narrowed our 2010 earnings guidance range from $0.40 to $0.10. The new range is $4.30 to $4.40 per diluted share. Here are the main reasons we are at the low end of our previous guidance range.
First, the cumulative effect of commodity price is below our assumptions for much of the last six months has taken the top end of our prior guidance range off the table. Our assumed prices for unhedged volume had been $4.50 for gas, $85 for oil and $0.92 for NGLs.
In our new guidance, we have assumed strip pricing for our unhedged volumes for the remainder of the year specifically $3.72 per Mcf for gas, $80.81 per barrel for oil and $0.83 per gallon for natural gas liquids. Despite our outstanding hedge position, we obviously are not totally immune to price deficits.
The drilling delays we’ve experienced this year prompted us to lower our estimated production for the year by less than 1% to 113.3 Bcf equivalents. These delays run the gamut from weather related issues to unplanned shutdowns for side track to facilities and equipment issues.
I would also note that we are estimating a lower base LOE marketing and transportation expense of $1.65 per Mcf equivalent, as well as lower production taxes of $0.38 per unit for total LOE in 2010 of $2.03 per Mcf as compared to our prior estimate of $2.10 per Mcf. Other assumptions are included in yesterday’s release and I’ll refer you to those.
Next on our agenda is 2011 guidance, our initial guidance for 2011 earnings is $3.20 to $3.60 per diluted share. We also estimate our after tax cash flow will range from $608 million to $638 million.
Among the highlights of this 2011 look are a 6% increase in production to 120 Bcfe equivalent a strong hedge position with approximately 58% of our production hedged to the NYMEX equivalent price of $8.98 per Mcf equivalent and capital spending totaling $585 million, approximately $510 million at Energen Resources and $75 million at Alagasco.
We also are estimating flat per unit LOE and flat G&A expense. DD&A per Mcf is expected to rise largely due to higher development cost and we anticipate that Alagasco will earn at or near the low end of its allowed range of return on equity of $346 million.
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