Unit Corporation (UNT)
Q4 2012 Earnings Call
February 19, 2013 11:00 AM ET
Executives
Larry Pinkston – President and CEO
Brad Guidry – EVP, Exploration for Unit Petroleum Company
John Cromling – EVP, Drilling for Unit Drilling Company
Bob Parks – President, Mid-Stream
David Merrill – SVP, CFO and Treasurer
Analysts
Jim Rollyson – Raymond James
Brian Velie – Capital One
Phillip Jungwirth – BMO Capital Markets
Ray Deacon – Brean Capital
Presentation
Operator
Welcome to the Unit Corporation Fourth Quarter and Year End 2012 Earnings Conference Call. My name is John and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.
This conference call 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 call that address activities, events or developments that the company expects or anticipates will or may occur in the future are forward-looking statements.
Several risks and uncertainties could cause actual results to differ materially from these statements, including: the impact that any decline in wells being drilled we’ll have on production and drilling rig utilization; the productive capabilities of the company’s wells, future demand for oil and natural gas, future drilling rig utilization and day rates; projected growth of the company’s oil and natural gas production; oil and gas reserve information, as well as the ability to meet 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 of 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.
I will now turn the call over to Larry Pinkston, President and CEO. Larry Pinkston, you may begin.
Larry Pinkston
Thank you, John. Good morning, everyone. We want to thank you for joining us this morning. With me today are David Merrill, Brad Guidry, John Cromling, and Bob Parks. Each of these gentlemen will be providing you with updates concerning their segments. Then we’ll take questions after the conclusion of their comments.
We released fourth quarter 2012 and full-year 2012 results this morning. After the effect of a non-cash ceiling test write down, we reported a net loss for the fourth quarter of $56.5 million, or $1.18 per diluted share. With the effect of the ceiling test write downs for 2012, we reported net income of $23.2 million, or $0.48 per diluted share.
As noted, the ceiling test write down does not impact cash flow, the write down resulted from substantially lower natural gas and natural gas liquid prices. Excluding the impact of the write down, fourth quarter net income would have been $47.9 million or $0.99 per diluted share for the year. Excluding the ceiling write downs, net income would have been $199.8 million or $4.15 per diluted share, a 2% increase over 2011.
As noted, 2012 was a year in which we faced strong commodity price headwinds. The year was also one in which we had significant accomplishments in all three of our business segments and a number of meaningful transactions that were brought to fruition.
In our exploration and production segment, we ended 2012 with total proved reserves of 150 million barrels of oil equivalent, a 29% increase over 2011. We replaced 337% of 2012 production with new proved reserves. We completed a very significant acquisition of approximately $600 million from Noble Energy, bolstering one of the core areas with many years of future drilling locations.
We announced a very significant discovery in our Wilcox play, which we believe house 160 Bcfe net resource potential for us. We also completed the divestiture of two non-core asset packages generating net proceeds of approximately $270 million.
In our contract drilling segment, we were able to place two new build rigs into service and we sold one 600 horsepower mechanical drilling rig. As I’ve noted on the third quarter call, we’ve seen some softening in the rig demand in the fourth quarter. By the end of the fourth quarter, we had 63 rigs operating. We have seen an uptick in rig utilization in the first quarter of 2013, which John will discuss shortly.
In our midstream segment, we added 45 million cubic feet per day additional natural gas processing capacity at our capital Hemphill plant, which has increased total capacity to 160 million cubic feet per day. This plant is in the Granite Wash play, one of our core areas for both our exploration and production and contract drilling segment. We also completed the construction of our Bellmon processing system and the emerging Mississippian play. We continue to add to this gathering system and connect new wells.
Our midstream segment currently has – we currently have the capacity to process 280 million cubic feet per day throughout our midstream segment. Ethane prices during the second half of the year had a significant negative impact to our Midstream and oil and gas segment. The process has recovered somewhat thus far in 2013.
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