Rockies producer Bill Barrett Corp. is among those in the region enjoying higher netbacks on the back of Rockies Express Pipeline (REX)-West, as well as colder weather in the region. Executives said Tuesday they also are encouraged by the failure of coal-fired power generation to gain a foothold in the region.
"We've seen dramatic improvement in first-of-month prices through the fourth quarter and continuing into 2008," COO Joe Jaggers told financial analysts during an earnings conference call. "In addition, the high volatility in daily cash prices we were seeing earlier in the quarter has disappeared. Since December we've been seeing daily pricing consistently in the range of $6-8/MMBtu at CIG. We attributed much of this to regional weather and associated demand but also attribute it to the impact of the Rockies Express Pipeline, which began service to the Midcontinent on Jan. 12" (see Daily GPI, Jan. 14).
Last October Bill Barrett had voluntarily curtailed 1.5 Bcfe of Rockies production due to low sales prices, CFO Bob Howard said.
"While we are all very pleased with the short-term improvement in prices, it's the longer-term fundamentals that have us the most excited," Jaggers said. "Two primary factors contribute to our optimism. The first is the likely prospect for additional timely infrastructure beyond Rockies Express. There are several additional pipelines proposed...The second factor is the likelihood of strong increases in regional demand as several proposed coal-burning power plants intended to address growing regional power demand have encountered permitting difficulties. In short, the pricing environment in the Rockies has improved considerably over the fourth quarter and early 2008."
Barrett natural gas and oil production totaled 61.2 Bcfe for 2007 compared with 52.1 Bcfe in 2006. Including the effect of hedging, the average sales price realized was $6.13/Mcfe in 2007 compared with $6.60/Mcfe in 2006. Hedging in 2007 increased natural gas and oil revenues by $86.9 million ($1.42/Mcfe on average). For the fourth quarter 2007, production totaled 17.2 Bcfe, up 21% compared with 14.2 Bcfe in the fourth quarter of 2006, and the average realized price was $6.19/Mcfe, down slightly from $6.21/Mcfe in the fourth quarter of 2006.
Howard said the company would continue hedging up to 70% of production.
Proved reserves at year-end 2007 were 558 Bcfe, up 30% from year-end 2006 and up 44% as adjusted for 2007 property sales. Capital expenditures for 2007 totaled $443.7 million.
"Our team delivered record growth in reserves along with very strong production and record cash flows, despite a challenging natural gas price environment. We are now realizing substantial reserve growth at a very competitive cost at our West Tavaputs and Gibson Gulch assets," said CEO Fred Barrett.
Barrett said the company has good exposure to the "immense resource base" of the Rockies and the company is "poised for growth," with plenty of reserves of the "preferred bridge fuel" -- gas.
"We're finally seeing the initial positive results on the Rockies basis differential associated with new service capacity on REX-West. We're also benefiting from cold snaps this winter that have driven larger storage withdrawals, as well as less than projected LNG [liquefied natural gas] imports as a result of demand in Asia and Europe, and declining Canadian exports. Longer term, we are bullish on the macroeconomics for natural gas, specifically for increased power generation demand as planned construction for coal-fired plants continues to run into environmental roadblocks."
Net income was $26.8 million (60 cents/diluted share) in 2007 compared with $62 million ($1.40/share) in 2006. The $35.2 million decline was primarily a result of $10 million of higher discretionary cash from operations, more than offset by certain higher noncash expenses. For the fourth quarter 2007, net income was $2.5 million (6 cents/share), compared with $11 million (25 cents/share) in the prior year period. Fourth quarter 2007 results were affected by higher depreciation, depletion and amortization expense as well as higher dry hole costs of $13.6 million, which included proportionate expenses for drilling and testing the lower zones of the Draco and Leviathan wells in the Montana Overthrust, the second Yellow Jacket exploration well located in the Paradox Basin, the most recent West Tavaputs deep well located in the Uinta Basin and a nonoperated well in the Wind River Basin.
"We are well positioned in 2008 for sustained success with 80% of our $550-600 million capital expenditure budget devoted to development," Barrett said. "In addition, the company plans to earmark 20% of its budget for a robust exploration program, including four new resource plays and delineation drilling based on encouraging 2007 results at Blacktail Ridge/Lake Canyon, Yellow Jacket and Circus. In addition, the new year brings a stronger and more stable natural gas price environment to Rocky Mountain producers. We expect double-digit growth again in 2008."
Capital expenditures for 2007 totaled $443.7 million and included: $383.4 million for drilling, exploration and development of gas and oil properties; $23.6 million for acquisition of proved and undeveloped properties; $31.8 million for geologic and geophysical costs and exploratory dry holes and abandonment; and $4.9 million for furniture, fixtures, equipment and other assets. Barrett sold its Williston Basin and other properties for $84.4 million and received $12.1 million in proceeds from partners to participate in joint exploration programs on projects assembled by the company.
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