Williams, whose exploration assets are weighted 99% to natural gas, last year saw its U.S. proved reserves grow by 9.5%, and it replaced 216% of its wellhead production of 276 Bcfe. In the final three months of 2006, domestic output jumped 28% to 826 MMcf/d.
The Tulsa-based company's business isn't centered around exploration and production (E&P) -- it also gathers, processes and transports natural gas -- but E&P proved a substantial driver for last year's earnings. Williams' E&P business primarily develops gas reserves in the Piceance, Powder River, San Juan, Fort Worth and Arkoma basins. Overall, U.S. production grew 23%, or 140 MMcfe/d over 2005 output.
Most of the gains by the Tulsa-based company came through the drillbit, E&P President Ralph Hill said Thursday on a conference call. "We had impressive drill-bit volume growth...Our approach to responsible development continues to provide positive outcomes in production growth, reserves replacement and our ability to work with landowners, communities and regulatory agencies."
In the past three years, Williams added more than 1.6 Tcfe in domestic net reserves from its long-term drilling inventory.
Average production from domestic and international assets last year increased 21% over 2005 to stand at 803 MMcfe/d, compared with 662 MMcfe/d. Production solely from U.S. assets jumped 23% to 752 MMcfe/d, compared with 612 MMcfe/d. Last year's drilling success rate was 99% -- it hit on 1,770 of 1,783 gross wells. Domestic and international proved reserves totaled 3.9 Tcfe at year end.
In the Piceance Basin, output jumped 37% last year, up 126 MMcfe/d over 2005 figures. Twenty-five rigs now are operating in the basin, six more than in 2005. At its Powder River coalbed methane play, "Big George is the story," said Hill. There, production climbed 88% year-over-year, and sequential quarter volumes rose 15% in 4Q2006 compared with 3Q2006.
The E&P segment is on track to deliver 15-20% output growth in 2007 -- but at a higher estimated cost. Williams has increased its capital expenditures by 10% this year to meet its output estimates. Like many of its peers, the E&P's unit costs rose last year -- production lifting costs in the final three months were $2.96, or 13% over the same period of 2005 and 8% higher sequentially than in 3Q2006.
"On cost performance, we do believe we will be in the top quartile in costs," said Hill. Williams has a three-year average finding and development (F&D) cost of $1.55/MMcfe; depletion, depreciation and amortization costs were $1.28/Mcfe.
Williams cut its 2007 earnings guidance by about 3%, but it increased its capital expenditure budget by 10%. Earnings-per-share are now expected at around $1.10-1.50, or about eight cents lower than guidance given in 3Q2006.
Higher costs in E&P are a factor, said Hill, but he noted that additional drilling is planned in several areas this year. In the Barnett Shale, for instance, Williams will be adding more acreage to its drilling profile. "There is a lot of cost creep, but it's not a huge increase...a lot of increase in capital expenditures come from new opportunities."
Williams, he said, was "negotiating strongly with vendors, and we feel it's at the right level. The increase in costs will primarily be for new activity. The budget is very high, and it's more than we are used to. There are increases on the F&D side, but it still keeps it very competitive...Now, with more capital, there will be an increase in capacity."
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