Attached files

file filename
8-K - FORM 8-K - UNIT CORPform8k05032011.htm
 
News
UNIT CORPORATION
 
7130 South Lewis Avenue, Suite 1000, Tulsa, Oklahoma 74136
 
Telephone 918 493-7700, Fax 918 493-7714

 
Contact:
David T. Merrill
 
Chief Financial Officer
 
and Treasurer
 
(918) 493-7700
www.unitcorp.com
 
For Immediate Release…
May 3, 2011
 
 
UNIT CORPORATION REPORTS 2011 FIRST QUARTER RESULTS

Tulsa, Oklahoma . . . Unit Corporation (NYSE - UNT) reported net income of $41.0 million, or $0.86 per diluted share, for the three months ended March 31, 2011.  For the same period in 2010, net income was $36.2 million, or $0.76 per diluted share.  Total revenues for the first quarter of 2011 were $247.4 million (40% contract drilling, 44% oil and natural gas, and 16% mid-stream), compared to $206.6 million (30% contract drilling, 48% oil and natural gas, and 20% mid-stream) for the first quarter of 2010.



CONTRACT DRILLING SEGMENT INFORMATION

The average number of drilling rigs used in the first quarter of 2011 was 70.0, an increase of 38% over the first quarter of 2010, and a decrease of 1% from the fourth quarter of 2010.  Per day drilling rig rates for the first quarter of 2011 averaged $17,704, up 25% (or $3,577) from the first quarter of 2010, and up 7% (or $1,134) from the fourth quarter of 2010.  Average per day operating margin for the first quarter of 2011 was $8,077 (before elimination of intercompany drilling rig profit of $5.0 million).  This compares to $4,435 (before elimination of intercompany drilling rig profit of $0.4 million) for the first quarter of 2010, an increase of 82%, or $3,642.  As compared to the fourth quarter of 2010 ($7,559 before elimination of intercompany drilling rig profit of $4.4 million) first quarter 2011 operating margin increased 7% or $518 – in each case with regard to the elimination of intercompany drilling rig profit see Non-GAAP Financial Measures below.

        Larry Pinkston, Unit’s Chief Executive Officer and President, said: “We are pleased with the results from our contract drilling segment.  Our utilization rates have remained strong and we have obtained an increase in drilling rig day rates over the fourth quarter of 2010.  Our fleet went through a transition in 2010 to accommodate the growing industry focus on drilling horizontal or directional wells.  We refurbished and upgraded 30 drilling rigs in 2010 in order that they could undertake this type of drilling.  Approximately 80% of our drilling rigs working today are drilling for oil or natural gas liquids and approximately 99% are drilling horizontal or directional wells.  We had previously announced that during 2011 we will add five new drilling rigs to our fleet, all of which are 1,500 horsepower, diesel-electric drilling rigs under two-year term contracts.  To date, two of those five drilling rigs have begun operating bringing our current total fleet to 123 drilling rigs.  Currently, 76 of our 123 drilling rigs are under contract.  Term contracts (contracts with original terms ranging from six months to two years in length) are in place for 41 of the 76 contracted drilling rigs.  Of these contracts 13 are up for renewal during the second quarter of 2011, nine during the third quarter of 2011, ten during the fourth quarter of 2011, and nine after 2011.  These contracts do not include the term contracts for the three remaining new drilling rigs to be added to our fleet later this year.”
 
 
1
 
        The following table illustrates Unit’s drilling rig count at the end of each period and average utilization rate during the period:
 
  1st Qtr 11  4th Qtr 10  3rd Qtr 10 2nd Qtr 10 1st Qtr 10   4th Qtr 09  3rd Qtr 09
2nd Qtr 09
1st Qtr 09
Rigs
 122  121  123 123  125  130  130
131
131
Utilization
 58%  59%  54%  47%  40% 28% 26%
24%
40%
      
 
OIL AND NATURAL GAS SEGMENT INFORMATION

·  
Completed 34 gross wells in the first quarter of 2011 with a 91% success rate.
·  
38% of first quarter 2011 production was oil and natural gas liquids compared to 29% for the first quarter of 2010.
·  
Anticipated 2011 production of 11.0 to 11.3 MMBoe.

First quarter 2011 oil production was 556,000 barrels, in comparison to 303,000 barrels for the same period of 2010, up 84%.  Natural gas liquids (NGLs) production during the first quarter of 2011 was 478,000 barrels, an increase of 27% when compared to 377,000 barrels for the same period of 2010.  First quarter 2011 natural gas production increased 2% to 10.2 billion cubic feet (Bcf) compared to 10.0 Bcf for the comparable quarter of 2010.  First quarter 2011 production averaged 30,436 Boe per day, up 16% over the first quarter of 2010 and up 4% over the fourth quarter of 2010.  Total production for the first quarter of 2011 was 2.7 MMBoe.

Unit’s average natural gas price, including the effects of hedges, for the first quarter of 2011 decreased 28% to $4.28 per thousand cubic feet (Mcf) as compared to $5.95 per Mcf for the first quarter of 2010.  Unit’s average oil price, including the effects of hedges, for the first quarter of 2011 increased 25% to $84.33 per barrel compared to $67.33 per barrel for the first quarter of 2010.  Unit’s average NGLs price, including the effects of hedges, for the first quarter of 2011 was $39.61 per barrel compared to $42.76 per barrel for the first quarter of 2010, down 7%.

Currently for 2011, Unit has hedged 80,000 MMBtu per day of its natural gas production, 4,000 Bbls per day of its oil production and 504 Bbls per day of its NGLs production.  The natural gas production is hedged under swap contracts at a comparable average NYMEX price of $4.85.  The average basis differential for the swaps is ($0.19).  The oil production is hedged under swap contracts at an average price of $84.28 per barrel.  The NGLs production is hedged under swap contracts at an average price of $40.48 per barrel.

For 2012, Unit has to-date hedged 30,000 MMBtu per day of its natural gas production and 4,000 Bbls per day of its oil production.  The natural gas production is hedged under swap contracts at a comparable average NYMEX price of $5.48.  The average basis differential for the swaps is ($0.28).  The oil production is hedged under swap contracts at an average price of $95.01 per barrel. 

        For 2013, Unit has to-date hedged 1,500 Bbls per day of its oil production.  The oil production is hedged under swap contracts at an average price of $102.18 per barrel. 
 
        The following table illustrates Unit’s production and certain other results for the periods indicated:
 
   1st Qtr 11 4th Qtr 10 3rd Qtr 10  2nd Qtr 10 1st Qtr 10  4th Qtr 09  3rd Qtr 09
2nd Qtr 09
1st Qtr 09
Production, MBoe
 2,739 2,698  2,478  2,325 2,352  2,389  2,444
2,572
2,713
Production, MBoe/day  30.4 29.3 27.0 25.6  26.1  26.0 26.6 28.3 30.1
Realized Price, Boe (1)
 $40.00  $41.58  $38.16  $38.22  $40.92  $36.72  $35.52
$34.50
$32.88
Wells Drilled
 34  62  39  39  27  37  21
16
21
Success Rate
 91%  95%  85%  92%  96%  92%  90%
100%
90%
(1) Realized price includes oil, natural gas liquids, natural gas and associated hedges.
   
           
In the Marmaton horizontal oil play located in Beaver County, Oklahoma, Unit had first sales on nine wells during the first quarter, in which it has an average working interest of approximately 91%.  The 30-day average production rate for the nine wells was 238 Boe per day.  The average ultimate recovery for a Marmaton well is estimated at 130 MBoe comprised of 76% oil, 14% NGLs,
 
 
2
and 10% natural gas, with an average cost per well of $2.8 million.  Unit has scheduled three to four frac dates per month for 2011 which should cover its current two rig drilling program.  For 2011, Unit anticipates having first oil sales on 30 to 36 gross wells within this play at a total net cost of $52 million. Unit currently has leases on approximately 66,000 net acres in the play.

In the Granite Wash (GW) play located in the Texas Panhandle, Unit had first sales on five horizontal wells during the first quarter. Unit’s average working interest in these wells is 76%.  Of the five new wells, one well was completed in the GW “A”, two in the GW “B”, one in the GW “D” and one in the GW “F” zone.  The average 30 day rate of production for these five wells was 6.0 MMcfe per day, consisting of 16% oil, 33% NGLs and 51% natural gas.  Highlighting the first quarter wells was the first horizontal GW “D” zone completion. That completion resulted in a peak daily rate of 483 barrels of oil per day, 474 barrels of NGLs and 4.4 MMcf of natural gas or an equivalent rate of 10.1 MMcfe per day.  The 30 day average production rate for this well was 7.0 MMcfe per day.  Anticipated reserves for the GW formation production from the five horizontal wells is 4.0 Bcfe per well, comprised of 10% oil, 37% NGLs and 53% natural gas at a total net cost of $5.2 million.  In addition, Unit participated in three outside operated GW horizontal wells, with an average working interest of 11%.  Unit plans to work three to four Unit drilling rigs drilling Granite Wash horizontal wells in 2011 which should result in 20 to 22 operated GW wells drilled during the year with a projected total net cost of $82 million.
 
        Pinkston said:  “We are pleased with the results of our drilling activity for the quarter.  The first quarter of 2011 is the third consecutive quarter that production has increased.  Our strategy of focusing on oil or NGLs rich prospects is evident in our first quarter 2011 production results of which 38% was oil and NGLs as compared to 29% in the first quarter of 2010 and 34% in the fourth quarter of 2010.  For the quarter, we completed 34 gross wells with a success rate of 91% compared to 27 gross wells with a 96% success rate during the first quarter of 2010.  For the year, we plan to drill 180 gross wells with an anticipated annual production guidance of approximately 11.0 to 11.3 MMBoe, an increase of 11% to 15% over 2010.”


MID-STREAM SEGMENT INFORMATION

·  
Increased first quarter 2011 liquids sold per day volumes, processing volumes per day, and gathering volumes per day by 29%, 13% and 3%, respectively, over the first quarter of 2010.
·  
Construction of 16-mile pipeline and related compressor station in Preston County, West Virginia is on schedule to be operational by mid-2011.
·  
Signed contract to build a 12-mile pipeline system and compressor station in Tioga and Potter Counties, Pennsylvania.

        First quarter of 2011 per day processing volumes were 86,445 MMBtu while liquids sold volumes were 328,333 gallons per day, an increase of 13% and 29%, respectively, over first quarter of 2010.  First quarter 2011 per day gathering volumes were 185,730 MMBtu, up 3% over the first quarter of 2010.  Operating profit (as defined in the Selected Financial and Operational Highlights) for the first quarter was $10.7 million, an increase of 27% from the first quarter of 2010, primarily due to increased processing margins resulting from increased liquids prices and increased volumes.
 
           The following table illustrates certain results from this segment’s operations for the periods indicated:
 
   1st Qtr 11 4th Qtr 10   3rd Qtr 10  2nd Qtr 10  1st Qtr 10 4th Qtr 09   3rd Qtr 09
2nd Qtr 09
1st Qtr 09
Gas gathered
MMBtu/day
 185,730  188,252  183,161  183,858 180,117  177,145   179,047
187,666
192,320
Gas processed
MMBtu/day
 86,445  85,195  84,175  82,699 76,513   77,501  77,923
75,481
72,650
Liquids sold
Gallons/day
 328,333  291,186  260,519  279,736  253,707  263,668  251,830
239,121
218,762
 
 
Pinkston said: “Processing and liquids sold volumes continue to increase and gas gathered volumes remain strong.  As previously announced, we completed the installation and startup of a 50.0 MMcf per day turbo-expander natural gas processing plant at our Hemphill facility near Canadian, Texas, during the fourth quarter of 2010.  With the completion of this new plant, the total processing capacity at our Hemphill facility has increased to approximately 100.0 MMcf per day.  In connection with our Appalachian operations, we recently started construction of a 16-mile, 16" pipeline and a compressor station in Preston County, West Virginia, which will have a capacity of approximately 220.0 MMcf per day.  We anticipate this pipeline will be operational by mid-2011.  In addition to the Preston County pipeline, we recently signed a contract to build a 12-mile pipeline system and compressor station in Tioga and Potter Counties, Pennsylvania.  This system will deliver gas to Dominion Transmission pipeline and is scheduled to be completed in the fourth quarter of this year.”
 
 
3
 
FINANCIAL INFORMATION
Unit ended the first quarter of 2011 with working capital of $12.7 million, long-term debt of $185.0 million, and a debt to capitalization ratio of 10%.  Under its credit facility, the amount available to be borrowed is the lesser of the amount the company elects as the commitment amount (currently $325 million) or the value of the borrowing base as determined by the lenders (currently $600 million), but, in either event, not to exceed the maximum credit facility amount of $400 million.


MANAGEMENT COMMENT
Larry Pinkston said: “Our first quarter 2011 operating results were solid. We continue to focus our exploration efforts on our oil and natural gas liquids rich plays such as the Granite Wash and Marmaton.  On the drilling side, we plan to continue responding to the demand for horizontal drilling by our customers by refurbishing and upgrading our existing rigs and, where appropriate, adding new drilling rigs to our fleet.  Our mid-stream segment is also exploring for additional opportunities to grow its operations.  We are optimistic about 2011, and our balance sheet is well positioned to take advantage of growth opportunities that may arise in all three of our business segments during the year.”


WEBCAST
Unit will webcast its first quarter earnings conference call live over the Internet on May 3, 2011 at 11:00 a.m. Eastern Time. To listen to the live call, please go to www.unitcorp.com at least fifteen minutes before the start of the call to download and install any necessary audio software. For those who are not available to listen to the live webcast, a replay will be available shortly after the call and will remain on the site for 90 days.
____________________________________________________
 
Unit Corporation is a Tulsa-based, publicly held energy company engaged through its subsidiaries in oil and gas exploration, production, contract drilling and gas gathering and processing. Unit’s Common Stock is listed on the New York Stock Exchange   under the symbol UNT. For more information about Unit Corporation, visit its website at http://www.unitcorp.com.
This news release contains forward-looking statements within the meaning of the private Securities Litigation Reform Act.  All statements, other than statements of historical facts, included in this release that address activities, events or developments that the Company expects or anticipates will or may occur in the future are forward-looking statements.  A number of risks and uncertainties could cause actual results to differ materially from these statements, including the impact that the current decline in wells being drilled will have on production and drilling rig utilization, productive capabilities of the Company’s wells, future demand for oil and natural gas, future drilling rig utilization and dayrates, projected growth of the Company’s oil and natural gas production, oil and gas reserve information, as well as its ability to meet its future reserve replacement goals, anticipated gas gathering and processing rates and throughput volumes, the prospective capabilities of the reserves associated with the Company’s inventory of future drilling sites, anticipated oil and natural gas prices, the number of wells to be drilled by the Company’s exploration segment, development, operational, implementation and opportunity risks, possible delays caused by limited availability of third party services needed in the course of its operations, possibility of future growth opportunities, and other factors described from time to time in the Company’s publicly available SEC reports.  The Company assumes no obligation to update publicly such forward-looking statements, whether as a result of new information, future events or otherwise.
 
 
4
Unit Corporation
Selected Financial and Operations Highlights
(In thousands except per share and operations data)

 
Three Months Ended
 
 
March 31,
 
 
2011
 
2010
 
Statement of Operations:
           
Revenues:
           
Contract drilling
$
97,988
 
$
60,854
 
Oil and natural gas
 
109,834
   
99,053
 
Gas gathering and processing
 
39,764
   
41,135
 
Other, net
 
(181
 
5,508
 
Total revenues
 
247,405
   
206,550
 
             
Expenses:
           
Contract drilling:
           
Operating costs
 
52,844
   
40,900
 
Depreciation
 
17,297
   
13,786
 
Oil and natural gas:
           
Operating costs
 
30,781
   
25,034
 
    Depreciation, depletion and amortization
 
40,268
   
25,336
 
Gas gathering and processing:
           
Operating costs
 
29,055
   
32,726
 
Depreciation and amortization
 
3,773
   
3,941
 
General and administrative
 
6,892
   
6,279
 
Interest, net
 
54
   
---
 
Total expenses
 
180,964
   
148,002
 
Income Before Income Taxes
 
66,441
   
58,548
 
             
Income Tax Expense:
           
Current
 
---
   
2,240
 
Deferred
 
25,414
   
20,155
 
Total income taxes
 
25,414
   
22,395
 
Net Income
$
41,027
 
$
36,153
 
             
Net Income per Common Share:
           
Basic
$
0.86
 
$
0.77
 
Diluted
$
0.86
 
$
0.76
 
             
            Weighted Average Common Shares Outstanding:
           
Basic
 
47,584
   
47,121
 
Diluted
 
47,905
   
47,686
 
 
 
 
 
 
 
 
 
5
 
   
March 31,
     
 December 31,
 
   
 2011
     
 2010
 
 Balance Sheet Data:
                 
 Current assets
 
$
189,015
     
 $
188,180
 
 Total assets
 
$
2,786,044
     
 $
2,669,240
 
 Current liabilities
 
$
176,274
     
 $
147,128
 
 Long-term debt
 
$
185,000
     
 $
163,000
 
 Other long-term liabilities
 
$
100,821
     
 $
92,389
 
 Deferred income taxes
 
$
579,085
     
 $
556,106
 
 Shareholders’ equity
 
$
1,744,864
     
 $
1,710,617
 

   
Three Months Ended March 31,
 
   
 2011
     
2010
 
Statement of Cash Flows Data:
                 
Cash Flow From Operations before Changes
                 
 in Operating Assets and Liabilities (1)
 
$
134,697
     
$
97,030
 
Net Change in Operating Assets and Liabilities
   
(13,492
)
     
(17,363
)
Net Cash Provided by Operating Activities
 
$
121,205
     
$
79,667
 
Net Cash Used in Investing Activities
 
$
(169,212
)
   
$
 (86,926
)
Net Cash Provided by Financing Activities
 
$
47,884
     
$
7,158
 

 
Three Months Ended March 31,
 
 
2011
 
2010
 
Contract Drilling Operations Data:
           
Rigs Utilized
 
70.0
   
50.9
 
Operating Margins (2)
 
46%
   
33%
 
Operating Profit Before
           
Depreciation (2) ($MM)
$
45.1
 
$
20.0
 
Oil and Natural Gas Operations Data:
           
Production:
           
Oil - MBbls
 
556
   
303
 
Natural Gas Liquids - MBbls
 
478
   
377
 
Natural Gas - MMcf
 
10,231
   
10,034
 
Average Prices:
           
Oil price per barrel received
$
84.33
 
$
67.33
 
Oil price per barrel received, excluding hedges
$
90.78
 
$
75.70
 
NGLs price per barrel received
$
39.61
 
$
42.76
 
NGLs price per barrel received, excluding hedges
$
40.36
 
$
42.76
 
Natural Gas price per Mcf received
$
4.28
 
$
5.95
 
Natural Gas price per Mcf received, excluding hedges
$
3.85
 
$
5.14
 
Operating Profit Before DD&A (2) ($MM)
                 79.1
 
$
                74.0
 
Mid-Stream Operations Data:
           
Gas Gathering - MMBtu/day
 
185,730
   
180,117
 
Gas Processing - MMBtu/day
 
86,445
   
76,513
 
Liquids Sold – Gallons/day
 
328,333
   
253,707
 
Operating Profit Before Depreciation
           
   and Amortization (2) ($MM)
$
10.7
 
$
8.4
 

(1) The company considers its cash flow from operations before changes in operating assets and liabilities an important measure in meeting the performance goals of the company (see Non-GAAP Financial Measures below).
(2) Operating profit before depreciation is calculated by taking operating revenues by segment less operating expenses excluding depreciation, depletion, amortization, general and administrative and interest expense. Operating margins are calculated by dividing operating profit by segment revenue.
 
6
Non-GAAP Financial Measures

We report our financial results in accordance with generally accepted accounting principles (“GAAP”).  We believe certain non-GAAP performance measures provide users of our financial information and our management additional meaningful information to evaluate the performance of our company.

This press release includes cash flow from operations before changes in operating assets and liabilities and our drilling segment’s average daily operating margin before elimination of intercompany drilling rig profit.

Below is a reconciliation of GAAP financial measures to non-GAAP financial measures for the three months ended March 31, 2011 and 2010 and December 31, 2010.  Non-GAAP financial measures should not be considered by themselves or a substitute for our results reported in accordance with GAAP.


Unit Corporation
Reconciliation of Cash Flow From Operations Before Changes in Operating Assets and Liabilities

 
   
March 31,
       
     
2011
   
2010
       
   
(In thousands)
         
    Net cash provided by operating activities
 
$
121,205
 
$
79,667
       
    Subtract:
                   
        Net change in operating assets and liabilities
   
(13,492
)
 
(17,363
)
     
    Cash flow from operations before changes
                   
      in operating assets and liabilities
 
$
134,697
 
$
97,030
       
 ________________ 

We have included the cash flow from operations before changes in operating assets and liabilities because:
·  
It is an accepted financial indicator used by our management and companies in our industry to measure the company’s ability to generate cash which is used to internally fund our business activities.
·  
It is used by investors and financial analysts to evaluate the performance of our company.


Unit Corporation
Reconciliation of Average Daily Operating Margin Before Elimination of Intercompany Rig Profit

                                                                                                                                                   
     Three Months Ended  
   
March 31,
   
  December 31,
 
     
2011
   
2010
   
 2010
   
   
(In thousands)
               
    Contract drilling revenue
 
$
97,988
 
$
60,854
 
$
98,465
 
    Contract drilling operating cost
   
52,844
   
40,900
   
53,966
 
        Operating profit from contract drilling
   
45,144
   
19,954
   
44,499
 
    Add:
    Elimination of intercompany rig profit
   
5,044
   
376
   
4,440
 
    Operating profit from contract drilling
                   
        before elimination of intercompany
                   
        rig profit
   
50,188
   
20,330
   
48,939
 
    Contract drilling operating days
   
6,214
   
4,584
   
6,474
 
    Average daily operating margin before
                   
        elimination of intercompany rig profit
 
$
8,077
 
$
4,435
 
$
7,559
 
 ________________ 
We have included the average daily operating margin before elimination of intercompany rig profit because:
·  
Our management uses the measurement to evaluate the cash flow performance or our contract drilling segment and to evaluate the performance of contract drilling management.
·  
It is used by investors and financial analysts to evaluate the performance of our company.
 
7