Energen Corp.(EGN)

Q2 2010 Earnings Call

July 29, 2010 10:30 pm ET

Executives

Julie Ryland - VP, IR

James McManus - Chairman and CEO Energen

Chuck Porter - VP, CFO and Treasurer

Analysts

Jonathan Lanfear - Wells Fargo

Holly Stewart - Howard Weil

Kevin Kavala - Raymond James

Justin Tuohy - Tuohy Brothers

Presentation

Operator

Name is Amanda and I'll be your conference operator today. At this time, I would like to welcome everyone the Energen Corporation Second Quarter Earning Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be question and answer session. (Operator Instructions)

I would now like to turn the call over to Julie Ryland, Vice President of Investor Relation.

Julie Ryland

Thank you Amanda and good morning. Today's conference call is being held in conjunction with Energen Corporation's announcement yesterday of the results of operation for the second quarter and year-to-date 2010. Results were provided on a consolidated basis as well as for Energen Resources, our oil and gas exploration and production company and for Alagasco, our single state natural gas utility. Please note that our prepared remarks will include statements expressing expectation 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.

 

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 all 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 Chief Executive Officer, James McManus. James?

James McManus

Thanks Julie and good morning to all of you joining us today. As you know, we announced last week that we are writing off our unproved capitalized lease on associated with the deep Conasauga shale acreage in Alabama. That chart was non cash and totaled 10 million after tax or $0.14 per deluded share. We entered the Marchant well earlier this year and performed three asset etching and two CO2 stimulations in five zones spanning some 4000 feet at depth of about 7500 to 115. We were able to establish a flow rate of 3 to 400 Mcf per day at pressures 120 to180 Psi.

Given the associated capital cost and the outlook for natural gas prices, we were not encouraged at this deep formation would be economically violable. So where does that leave our Alabama Shale efforts? At the end of this month, we plan to complete a thick up hole interval in the Marchant well. This zone is found in depths of 3000 to 4000 feet and is a non deformed Conasauga interval. The future, they lower structural dip rate and has higher shale content than the deeper carbonate intervals.

We also plan to complete our Westervelt well in Tuscaloosa County over the next couple of weeks to determine if the Devonian age Chattanooga shale has economic viability. Our remaining capitalized unproved lease hold associated with the Chattanooga shale and the shallow Conasauga shale is 14.4 million after tax or $0.20 per diluted share. The Chattanooga shale anchorage is $8 million after tax, $0.11 per diluted share and the shallow Conasauga anchorage is $6.4 million or $0.09 per diluted share.

We consider non cash write offs associated with our shale lease hold in Alabama to be outside the parameters of our normal ongoing operations. Therefore, I'm going to talk about financial results today excluding the write off. The numbers however provided both was in our news release of yesterday. Energen's net income totaled $65.5 million or $0.91 per diluted share in the second quarter of 2010.

This compared with $55 million or $0.76 per diluted share in the same period a year ago. Higher realized sales prices and increased production was the big drivers of this 20% increase in second quarter earnings. The year-over-year average realized sales price for the company's natural gas, oil and natural gas liquids products increased 17% in the second quarter and production increased 2% to 27.9 billion cubic feet equivalent. Our current capital focus is in our oil producing properties in the Permian Basin where production increased 14% over the same period a year ago. Before I turn the call over to Chuck Porter, our CFO for a more detailed review of Energen's financial results for the quarter and year-to-date, I want to re-affirm our 2010 earning guidance range of 430 to 470 per diluted share excluding the non-cash write off.

The guidance assume the commodity prices applicable to our unhedged production for the remainder of the year that averaged 450 per Mcf for natural gas, $85 for barrel for oil and $0.92 per gallon for liquids. Approximately 70% of our production for the remainder of the year is hedged at an averaged non-mix equivalent NYMEX price of $9.69 per Mcf equivalent. I would refer to yesterday's new release for other key assumptions driving our earnings guidance as well for details about the very limited sensitivity our earning to changes in commodity prices. Our cash flow outlook remains strong. We estimate that energy resources are oil and gas exploration and production company which generate after tax cash flows in 2010 of 560 to 590 million.

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