This summary is based on the first quarter fiscal 2006 earnings call conducted by Bill Barrett Corp. (BBG: chart) on May 9, 2006.
Key Investors Issues
- EPS for the quarter was 60 cents compared to 7 cents in the year ago quarter.
- Quarterly revenue rose to $97.8 million from $51.9 million in the prior year.
- The production went up year on year by 55% to a record 13.1 billion cubic feet equivalent.
- The net capital expenditure totaled $102.4 million in the quarter.
First Quarter Fiscal 2006 Financial Highlights
The production for the first quarter was a record 13.1 billion cubic feet equivalent (Bcfe), up 55% from the prior year quarter and up 10% from the previous quarter.
The quarterly production represents average of 146 million cubic feet equivalent per day (MMcfed). Net of the effects of hedging, the average sales price realized in the quarter was $7.42 per thousand cubic feet equivalent (Mcfe) compared to a realized price of $5.98 per Mcfe in the first quarter of 2005.
- Discretionary cash flow, a non-GAAP measure, was $71.3 million for the first quarter of 2006 compared to $31.6 million in the first quarter of 2005.
- Net income for the quarter was $22.1 million compared to $3.1 million in the first quarter of 2005. Earnings per share were 50 cents versus 7 cents in the first quarter of 2005.
In the first quarter of 2006, net capital expenditures totaled $102.4 million.
This comprised of $11.1 million for the acquisition of undeveloped properties; $88.1 million for drilling, development and exploration of natural gas and oil properties; $3.4 million for geologic and geophysical costs; $0.5 million for equipment and other expenditures; and an offset of $0.7 million received from industry partners pursuant to joint exploration agreements.
The cash operating costs for the quarter were $1.97 per Mcfe after reduction of 28 cents per Mcfe from the fourth quarter of 2005 and primarily relates to a decrease in production taxes due to lower prices and the increasing proportion of the company’s production coming from lower tax states including Colorado and Utah.
As of today, the company’s debt outstanding under its line of credit is $195 million after paying for CH4 acquisition. The company continues to be committed to maintaining a conservative balance sheet that provides it with flexibility and strong liquidity.
The $79 million acquisition of CH4 will enhance the value of the company’s Powder River Basin operations and provides with lower rich reserve and production growth at very attractive returns.
The acquisition will increase the company’s acreage position in the Powder River Basin by 69%, increases upfront net production in the basin by 35% in the Powder River Basin, and it gives Bill Barrett a greater operational scale and centralized efficiencies. The company acquired 11 Bcf of proved reserves and 51,000 net acres with a current net production rate of about 6 million a day. The majority of this acquisition is essential and complementary to the firm’s current acreage positions in the South Central area of the Basin, where it currently has 24.8 Bcf of proved reserves, 80,000 net acres, and a current net production rate of 19 million a day. Nearly 1.2 Bcf of the production guidance increase is associated with production from the CH4 property.
Bill Barrett has booked about an 11 Bcfe of proved reserves related to the acquisition. Probable and possible reserves totaled another 50.4 Bcfe. It will require approximately $44.5 million to develop the total 3P reserves over the next three to five years. Additionally, the management believes that there are further potential reserve additions beyond 3P reserves, completion of certain secondary call, development on certain acreage where the value is not attributed in the acquisition, an upside related to higher gas content could add additional reserves.
The management believes that it has yet another exploration success in one of its large-scale exploration projects, the Lake Canyon prospect of the Uinta Basin.
Since inception in 2002, the company has grown production at a compounded rate of 57% and had organic sequential growth production of 10% over the fourth quarter of 2005 as the well performance in the West Tavaputs and the Piceance continues to improve. The production grew despite the fact that the company was at maximum compressor capacity in both the Piceance and West Tavaputs areas. Additional compressors will be delivered and installed in May and June to elevate the issue and after busy summer drilling schedule, additional compressors will be delivered and installed late in the third quarter.
At #1 DLB well at Lake Canyon, in which Bill Barrett has a 75% working interest, the company has established oil production at an average rate of 315 barrels of oil per day during the first 13 days of production from the Wasatch formation. The DLB well will require a long-term and stable period in order to better quantify its potential, but the management is encouraged and excited with the results so far. The company controls a very large position in this area, with over 229,000 gross and over 155,000 net acreage surrounding this well. The company continues to analyze its new 3-D seismic that will guide the location selections for two exploratory tests that will be drilled later in 2006.
While growing its production, Bill Barrett also continues to generate and build new projects and add acreage in its current exploration projects.
The company increased its net undeveloped acreage by 18% to 1.4 million acres since year-end, by adding towards Circus, Big Horn, Paradox, Tri-State and Wallace Creek positions. Furthermore, the firm has identified several new geologic concepts to pursue, so that it can continue to fill its portfolio prospects in the future.
In the Lake Canyon area, the firm’s two shallow Green River oil tests that were drilled in 2005 continue to produce. Results have been sufficiently encouraging, but the company and its partners plans to drill at least four additional wells in late second quarter and at least ten additional wells by year-end. Bill Barrett has approximately 18.75% to 25% working interest in the shallow Green River program. The management believes that the Lake Canyon block, which is over 340 square miles in size, has tremendous potential upside.
