Tulsa-based Unit Corp. is planning to drill no wells in the upstream segment in 2020, and it has cut capital spending for the contract drilling segment and reduced midstream spend by 57% from 2019, the company said.
The contract drilling segment started the year with 32 drilling rigs operating, after placing into service one proprietary Boss drilling rig in the fourth quarter. However, as operators front-loaded their drilling budgets in 2019, Unit’s average rig utilization decreased through the year, falling from 30-32 average rigs through mid-May 2019 to 18 at the end of August, where it remained into early December. Unit finished the year with 20 drilling rigs operating.
Three high-spec Boss drilling rigs were put into service in 2019, bringing the total number in the fleet to 14, all of which continue to maintain 100% utilization, according to CEO Larry Pinkston.
The advanced technology comes with a higher price tag, as the company reported a 7% year/year increase in average drilling rig day rates primarily because of more Boss rigs in operation. Unit indicated that cost cuts identified during the fourth quarter were expected to reduce lease operating expenses by 10% this year.
The company’s oil and gas segment reported an increase in the oil production mix, with oil and natural gas liquids (NGL) production representing 48% of its production of 4.2 million boe in 4Q2019. Total equivalent production for 2019 was 16.8 million boe, a 1% decrease from 2018.
In the southern Oklahoma Hoxbar oil trend and the Red Fork plays in western Oklahoma, Unit completed 14 horizontal wells in 2019.
“This mix of Marchand and Red Fork wells enabled the company to increase its oil production percentage,” Pinkston said. Annual production from western Oklahoma averaged 95.7 MMcfe/d, weighted to 35% oil, 22% NGLs and 43% natural gas.
In the Wilcox play in Southeast Texas, seven vertical natural gas and condensate wells were completed last year, bringing annual production to an average 76 MMcfe/d, weighted 72% gas, 21% NGLs and 7% oil. In addition to the new wells, the company continued its recompletion program.
In the Granite Wash, two extended length lateral horizontal wells were completed in 2019, with annual production from the Texas Panhandle averaging 91.9 MMcfe/d, weighted 55% gas, 37% NGLs and 9% oil.
“For this segment, our focus for 2019 was to increase the proportion of oil in our production mix, specifically with the results from the new Red Fork and Marchand wells, which met or exceeded our expectations,” Pinkston said. “We were able to increase our oil production by 12% year/year. We suspended our operated drilling rig program at the beginning of the third quarter, and we are not operating any drilling rigs at this time.”
Unit participated in 61 nonoperated wells in the Midcontinent region last year. In December, the company sold the Panola Field assets in eastern Oklahoma for $18 million.
Estimated year-end 2019 proved reserves were 71.9 million boe, or 431.5 Bcfe, down 55% from 2018 levels of 159.7 million boe, or 958.1 Bcfe, according to Unit. Estimated reserves were 51% gas-weighted, with 32% NGLs and 17% oil.
During 2019, the company converted 39 proved undeveloped well locations into proved developed wells at a cost of about $77.2 million.
Unit’s midstream segment reported that gas processed volumes fell 3%, while gathered volumes decreased 7%. Liquids volumes remained relatively unchanged, as compared to the third quarter of 2019. For 2019, gas gathered rose 11% year/year, while gas processed was up 4%; liquids sold volumes per day decreased by 6%.
“In an effort to accelerate growth of this segment through the acquisition and consolidation of synergistic assets, we completed an acquisition in December of approximately 600 miles of gathering pipeline and compression in central Oklahoma,” Pinkston said. “The acquired assets will complement this segment's existing infrastructure and allow for greater operational flexibility and efficiency between gathering and processing facilities in the area. Our goal is to continue to search for these types of opportunities that will allow us to grow this segment.”
In December, Unit was given six months to regain compliance under New York Stock Exchange rules.
Unit reported a fourth quarter net loss of $335 million (minus $6.33/share), compared with a net loss of $77.8 million (minus $1.49) in 4Q2018. The 4Q2019 results included a $390 million ceiling test write down in the carrying value of oil and natural gas properties and $800,000 related to the writeoff of two small gas gathering systems.
For 2019, net loss was $553.9 million (minus $10.48/share), compared with net losses in 2018 of $45.3 million (minus 87 cents).
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