Energen Corporation CEO Discusses Q3 2011 Results - Earnings Call Transcript

Energen Corporation ( EGN)

Q3 2011 Earnings Conference Call

October 27, 2011 11:00 AM ET

Executives

Julie Ryland – VP, IR

James McManus – Chairman & CEO

Chuck Porter – VP, CFO and Treasurer

John Richardson – President and COO, Energen Resources Corporation

Analysts

Gabriele Sorbara – Caris & Company

Becca Followill – U.S. Capital

Tim Schneider – Citigroup

Duane Grubert – Susquehanna Financial

Greg Share [ph] – Tree Brothers [ph]

Presentation

Operator

Good morning. My name is Andrea, and I will be your conference operator today. At this time, I would like to welcome everyone to the Energen’s third quarter 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. I would now like to turn the call over to Julie Ryland, Vice President of Investor Relations. You may begin your conference.

Julie Ryland

Thank you, Andrea. 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 months ended September 30 th, 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 Energen and its subsidiaries.

At this time, I will turn the call over to Energen’s Chairman and CEO, James McManus. James?

James McManus

Thanks Julie and good morning to you all. The dominant takeaway from yesterday’s quarterly news release is really this

We are delivering on our strategic shift to oil and natural gas liquid production. We made this shift in 2009 to capitalize on the superior value provided by oil and natural gas prices relative to natural gas.

Beginning with the acquisition of Range Resources Fuhrman-Mascho interest in 2009 and including the two Wolfberry acquisitions we announced yesterday and plan to close by year-end, we have invested almost 800 million to acquire largely undeveloped assets in the Permian Basin. We have been drilling and developing our liquids-rich assets for almost two years and now the results are very positive, with oil and natural gas liquids production jumping 30% year-over-year in the just completed third quarter.

In 2012, we not only plan to invest approximately $680 million in the Wolfberry play and in the 3rd Bone Spring and other Delaware Basin trends, and we estimate that, that oil and natural gas production will rise 33% from 2011 levels. By the end of 2013, given our current outlook for capital investment, we expect to realize an 86% to 100% rise in our oil and liquids production from 2010 levels. The Wolfberry play is currently moved to the development stage, much of our planned capital investment in 2012 is going into the Wolfberry and this play is a major driver of our estimated production growth in 2012.

Moving up the learning curve, with respect to drilling in the 3rd Bone Spring sands division, the geologically complex Delaware Basin offers us Avalon shale, Wolfcamp shale horizontally and vertical Wolfbone opportunities. In 2012, we are looking to the Delaware Basin to contribute almost 10% of the company’s total estimated production.

And really like our Wolfberry play in the Midland Basin, and as we said, we will be open to other opportunities there, and are pleased to be adding to our assets. We signed a purchase and sale agreement to buy two Wolfberry packages from private sellers for a total of 212 million plus standard closing adjustments. The properties are in Martin, Howard and Glasscock Counties. Associated 3P reserves total 25.4 million barrel of oil equivalent. The two packages include 31 producing wells at an estimated 194 undeveloped drill locations. We expect the acquisitions to close by the end of the year. They will not have a material impact on 2011 production.

During the first nine months of 2011, we drilled 123 net Wolfberry wells and 84 wells are producing and 39 are waiting on completion. We plan to drill another 40 net wells by year-end, bringing our 2011 total to 163 net wells. 30 Wolfberry wells were brought online during the third quarter at IP rates averaging 63 barrels of oil a day and 170 Mcf per day of wet gas. Our risk IP rate is 55 barrels of oil per day and 110 Mcf per day of wet gas.

Including the new acquisitions, we now have some 32,000 net undeveloped acres in the Wolfberry play giving us 800 potential drilling locations based on 40-acre spacing. Our estimated cost to drill and complete a Wolfberry well is 2.2 million.

Moving next to the Delaware Basin, we have completed 13 net wells in the 3rd Bone Spring sands during the first nine months of 2011. A 14 th wells is testing and another is waiting on completion. We expect to drill 12 more net wells by year-end, bringing the total number to 25 net wells in 2011.

We have brought four wells online during the third quarter of 2011 at initial stabilized rates of approximately 525 barrels of oil per day and 1.285 Mcf per day of wet gas. These rates reflect consistent flow after the cleanout of stimulation fluid. The initial stabilized rate for all 14 net wells brought online in the first nine months of the year averaged approximately 360 barrels of oil per day and 1,000 Mcf per day of wet gas. Our risked, weighted average, 3rd Bone Spring model initial stabilized rate is 260 barrels of oil per day and 735 Mcf per day of wet gas.

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