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Unit Corp. (UNT)

UBS Global Energy & Gas Conference Call

May 24, 2012 01:30 am ET


Larry Pinkston - CEO


Angie Sedita - UBS


Angie Sedita - UBS

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Alright. We are very pleased to have Unit Corporation as our final presenter of the day and speaking here will first be Larry Pinkston CEO of Unit Corporation. Larry joined the company in 1981. He held a number of senior positions over the years and was named Vice President and CFO in 1989.

In 2004, he was elected to the position of COO and became Chief Executive Officer in 2005. We’re also pleased to have David Merrill here who is also the CFO, a position to he was named to in 2004.

Larry Pinkston

Thanks Angie. We really appreciate you all staying around to hear our story. We think we have a very exciting story. It’s unique and we’re involved into three different segments of the energy industry. All segments and all of them we’ve been involved in since 2004, of course we got our start as a drilling company back in 1963, really got in to the exploration business in the late 70s and in the midstream business in 2004. They’ve all three shown very consistent growth over the years, very consistent economic growth. We finished the year of 2011 with 127 drilling rigs, 116 medium barrels of oil equivalent and a midstream company that had little over 900 miles of pipeline and 11 processing plants now.

We’ve always considered one of our major strengths is our corporate structure. What it does is it enables us to direct our investments in to whichever segment in the industry that we feel like has the best rate of return for our shareholders and those cycles are very seldom ever the same. We went through a very aggressive rig building cycle for three or four years. This year has dropped off about nearly as aggressive, but we’re seeing pickup this year has been the opportunities in the midstream segment.

There are bigger opportunity, larger opportunities right now in that segment that we’ve ever seen since we've been in the midstream segment and certainly bigger and even bigger than all of the group that runs our midstream company has ever seen in their lifetime with all the processing infrastructure that’s going in right now.

Our more consistent year in year out growth has always been our E&P segment, that’s been the segment that we can somewhat control our growth, we create our own opportunities in that segment. Whereas the other two segments are driven by opportunities by drilling oils that those two segments can’t control. But the three mix, the three work very well together, we’ve directed investments from one subsidiary to other subsidiaries very aggressively over the last 10 years, over the last 20 years, but all three segments they’ve show very good, very consistent, very nice growth over the time period that we’ve been involved with in our drilling segment, our rig fleet in the last 10 years has increased to about 69% and our E&P segment we’ve averaged replacing a 195% of our annual production with new reserves over that 10-year span and since 2004 since we brought 100% of the midstream company. We've seen over 260% increase in the amount of natural gas that they process, over 600% increase on the amount of the natural gas liquids that they've sold, a very dramatic growth in that segment.

In our E&P segment, as I mentioned, we finished the year at 116 million barrels of oil equivalent reserves, that was up 12% over 2010, 81% of our reserves are prove developed. It's not that we don’t have more [PUDs] or you definitely have more PUDs. It’s always been our philosophy our strategy to always keep our PUDs we have booked pretty consistent year to year as a percentage of our total reserves. So basically whatever PUDs we drill each year, we replace with new PUDs and our relationship has been about 80% as long as I could remember.

We are -- currently about 36% of our reserves are liquids, so dramatically over the last two or three years in 2009, we made a decision early in 2009 to change our strategy from being previously almost entirely driven by the natural gas opportunities to looking for liquids. Our three key areas that we are aggressively drilling in today, one of them is Granite Wash in the Texas Panhandle which has been a legacy acreage position that we had for 20 plus years. The Marmaton which is a old play in the Oklahoma Panhandle in Beaver county and the Wilcox play in Southeast Texas which is a conventional play driven by 3D seismic different type play than the other two. But the economic year in and year out have competed very favorably with our other two plates.

Our goals as I mentioned or I think mentioned each and every year is to replace at least a 150% of our annual production with new reserves. We have done that every year for the last 28 years. I don’t know that there is another company that has presented at this conference or probably any other conference, but you can say that they have had that kind of consistent track record over that longer period of time. Our average production replacement over those 28 years has been 218%. Last year we replaced 202% of our production with new reserves. The way we have been able to do that consistently over the years is we don’t depend on acquisitions for our growth.

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