This summary is based on the second quarter fiscal 2007 earnings call conducted by Bill Barrett Corp (BBG: chart) on August 7, 2007.
Management:
Chairman and CEO: Fred Barrett
President and COO: Joe Jaggers
Chief Financial Officer: Bob Howard
Investor Relations: Bill Crawford
Key Investors Issues
- Earnings per share increased to 22 cents from 19 cents in the prior year.
- Revenue grew to $101 million compared to $83 million in the previous year.
- In Q2, the average sales price was $5.92 per Mcfe and the firm generated $1.23 per share of discretionary cash flow.
Second Quarter Fiscal 2007 Financial Highlights
The company produced 15.1 Bcfe in the second quarter of 2007, a 24% increase over the second quarter of 2006 and a 6% increase over the first quarter of 2007.
West Tavaputs and Piceance continued to emerge as the primary drivers of this growth. As the company moved through the summer, it has reached record production levels, over 175 million a day net to the company. The firm is raising its production guidance range to 61 to 64 Bcfe for 2007, which represents a 17% to 23% increase over 2006.
The company produced oil and gas at an average daily rate of 165 million cubic feet equivalent per day, up 5% on a daily basis over the Q1 and a 24% increase over the second quarter of 2006.
In the second quarter of 2007, the average sales price was $5.92 per Mcfe and the firm generated $55.1 million of discretionary cash flow, which is $1.23 per share. This compares to the first quarter of 2007 when the average sales price was $6.84 per Mcfe and it generated $68.5 million of cash flow. For the first half of 2007, the firm has generated cash flow of $2.77 per share. Reduction in average sales price is illustrated by the depressed Rockies prices. For example, the first of the month pricing for CIG averaged $3.77 per Mmbtu in the second quarter of 2007 compared to $5.58 per Mmbtu in the first quarter. Offsetting the price decline was $21.1 million of tax settlements in the second quarter, substantially more than the $7.4 million received in the first quarter.
The company’s cash costs increased compared to the last quarter primarily due to the 33 cents per Mcfe increase in lease operating expenses.
Production taxes decreased 5 cents per Mcfe due to lower sale prices and both gathering and transportation costs and general and administrative expenses decreased by 1 cent per Mcfe each, primarily due to production increase. The total cash operating cost for the second quarter was $2.14 per Mcfe and compared to $1.88 per Mcfe in the first quarter.
In June, the company sold its Williston Basin properties and realized an $11 million pre-tax gain.
In the second quarter, the firm also recognized a $2.3 million impairment charge, to reduce the book value of the remaining properties held for sale to its estimated fair market value. The firm generated net income of $9.9 million or 22 cents per share in the second quarter, which compares to $14.2 million or 32 cents per share in the 2007 first quarter, and $8.2 million or 19 cents per share in the second quarter of last year.
With its significant capital expenditure program, the company is maintaining a hedge position to support its cash flow from operations.
Approximately 6% of the gas production for July-through December 2007 is hedged to a combined floor and swap price of $6.02 per Mmbtu and 32% of the 2008 gas production is hedged at a combined current swap price of $6.77. The 2008 hedges are concentrated in the first quarter to mitigate risks and potential market volatility as a result of the next phase of the Rockies Express pipeline being placed in service in January. The firm intends to add additional hedges in 2008 and 2009 as market conditions warrant. The company’s all gas hedges are settled at a CIG price in the Rockies to respond to gas selling arrangements.
The capital expenditures for the first six months were nearly $193 million.
This would include $172 million to drill incomplete wells and to add facilities, $16 million for leasehold acquisitions, $4 million for geologic/geophysical costs and $1 million for furniture, fixtures and equipment. The firm is funding its 2007 capital expenditures with cash flow from operations, proceeds from the Williston properties sale, and debt availability.
Proceeds from the sale of the Williston properties were used to pay down the outstanding borrowings on its revolving credit facility. The firm ended the quarter with $132 million outstanding under its credit facility. After selling the Williston properties, the firm’s borrowing base is $340 million. The management expects that the borrowing base will increase after the bank group reviews the mid-year 2007 reserves. The company has plenty of liquidity with its revolver and may look to tap other debt markets if those markets begin to look attractive.
As the firm moves through the first half of 2007, it is extremely encouraged with its development assets in West Tavaputs and the Piceance and also the early signs of gas production in Big George CBM blocks. 
