Energen Corporation (
Q2 2011 Earnings Call
July 28, 2011 11:00 am ET
Julie Ryland – VP, IR
James McManus – Chairman and CEO
John Richardson – President
Chuck Porter – CFO
Gabriele Sorbara – Keybanc Capital Markets
Tim Schneider – Citigroup
Carl Kirst – BMO Capital
Becca Followill – US Capital Advisor
Craig Sheer [ph] – Tony Brothers [ph]
Collin [ph] – Harvard [ph]
Dwayne Griffith [ph] – Susquehanna [ph]
Good morning. My name is Mitchell and I will be your conference operator today. At this time, I would like to welcome everyone to the Energen Corporation 2011 second quarter 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. Vice President of Investor Relations, Ms. Julie Ryland, you may begin your conference.
Thank you, Mitchell and good morning. Today’s conference call is being held in conjunction with Energen Corporation’s announcement yesterday afternoon of the results of operations of the three, six and 12 months ended June 30, 2011.
Our comments today 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 Security Litigation Reform Act of 1995.
All statements based on future expectations are forward-looking statements that are dependent on certain events with some uncertainties that may be outside the company’s control and could cause actual results to differ materially from those anticipated.
Please refer to the company’s periodic reports filed with the SEC for a more complete discussion of the risks and uncertainties that could affect the future results of the Energen and its subsidiaries.
At this time, I will turn the call over to Energen’s Chairman and CEO, James McManus. James?
Thanks, Julie. A lot of really excellent things to talk about today; good second quarter numbers; increased earnings and cash flow guidance for 2011; a big jump in Energen Resources’ 3P reserves that still does not include Avalon shale potential. A first look at capital and drilling plans for 2012 and 2013 and how they translate into double-digit production growth. Let’s go in reverse order.
Energen Resources’ preliminary and development plans for the Permian Basin support capital investment of approximately $800 million in 2012, $765 million in 2013. In our other areas, the San Juan, Black Warrior Basin, and North Louisiana, all of which are predominantly natural gas producing regions, we are looking at capital investment in the neighborhood of $115 million in 2012 and $125 million in 2013.
In the Permian, our preliminary plans for 2012, include drilling a 155 net Wolfberry wells, 30 net Bone Springs wells, six to seven net Avalon shale test wells. In 2013, the drilling plans look very similar for these plays at this point in time, 160 net Wolfberry wells, 30 net Bone Springs wells and six to seven net Avalon wells.
In the Delaware Basin, we anticipate going from our four-rig program to running an eight-rig program beginning early next year. We likely will continue using seven, maybe eight rigs in the Wolfberry Trend. Obviously, this increase in rigs in the Bone Springs is due to our increasing confidence in this particular play.
Based on these preliminary capital and drilling plans, we could see our 2013 oil and natural gas production total 12 to 13 million barrel of oil equivalents. That would be a 70% to 85% increase from 2010 levels. I would point out that previously we were estimating a 60% increase. So, again, with our increased confidence in the Wolfberry performance and Bone Springs, we are now increasing that to 70% to 85% increase from 2010 levels.
In terms of total production, we are currently estimating double digit organic increases in 2012 and 2013. Our estimated 2012 production is 23 to 25 million barrel of oil equivalents and our estimated 2013 production is estimated to grow to 25 to 27 million barrel of oil equivalents; there is table in the news release that breaks down our preliminary 2012 and 2013 production estimates by commodity.
The model then for our major areas of focus Wolfberry and 3
Bone Spring are detailed in our news release and the data is based on our results today, our internal engineering analysis, our preliminary drilling plans in 2012 and 2013 is sort of a go-forward model.
We treat reserves and well cost and product mix a little bit as you and we expect that to continue to change as get more data. Let’s go ahead at this point and look at our results in 2011. In the Wolfberry, we drilled 75 net wells so far this year; 67 have been completed; eight awaiting on completion; 54 producing; 80 net wells remain to be drilled this year. These wells are very producers, very predictable. Initial rates from the 54 producing wells drilled and completed in 2011 have exceeded our model IP risk rate of 55 barrels of oil per day and a 110 Mcf per day of wet gas. They’ve exceeded our model by 25% to 30% so far.
We have completed, in the Bone Spring, we completed 10 net Bone Spring wells so far this year; two were drilled in late 2010 and eight in 2011. Two more wells are awaiting on completion and we plan to drill those wells, net wells by year-end. The only stabilized rate of the 10 producing wells completed in 2011 is approximately 300 barrels of oil per day and 900 Mcf per day of wet gas. This exceeds our model by 10%, 15%. And we will talk a little bit more about this in the Q&A detail, but our last four wells have exceeded that 300 barrels per day of production.
In the Avalon, as you know, we drilled a step-out well in Winkler County to test the far-east portion of our leasehold. This is acreage that we don’t expect to be held by the Bone Spring production and really is in the far eastern edge where people think the Avalon could be productive.