Stellar production growth from Bill Barrett Corp.'s (BBC) Uinta and Piceance basin properties -- plus hedges placed on more than 60% of the gas output -- helped the company escape relatively unscathed in 2Q2007 from low Rocky Mountain prices.
The company last week reported gas production of 15.1 Bcfe, a 24% increase over 2Q2006 and a 6% increase over 1Q2007 levels. Including the effects of hedging; BBC realized an average sale price of $5.92/Mcfe in 2Q2007 down from $6.42/Mcfe a year earlier. Total production in the first six months reached 29.2 Bcfe, a 15% jump from the same period a year ago. Net income, which included a pretax gain on asset sales and impairment of some properties for sale, was $9.9 million, up from $8.2 million in 2Q2006.
So far this year BBC has been challenged by significantly higher lease operating expenses (LOE), which were up more than 55% in the period and 41% in the first six months of the year. CEO Fred Barrett said higher LOEs resulted from higher labor, water disposal and other nonrecurring costs and "should be short-lived." The company also faced increased costs for gathering, processing and transporting its natural gas, but "increasing economies of scale" and higher gas prices in the future should help to partially offset the higher costs.
BBC raised its LOE forecast for 2007 to 70-75 cents/Mcfe.
The CEO noted that the company is progressing in its development and exploration programs and is producing at a record rate of more than 175 MMcfe/d net. BBC increased its 2007 production forecast to 61-64 Bcfe and expects to realize an overall 17-23% annual production growth. Like other Rocky Mountain operators looking for support for gas prices, BBC is looking to January when the Rockies Express West gas pipeline is scheduled to be placed into service.
Even though the crown jewels of BBC's development assets are its shallow and deep drilling program in West Tavaputs in the Uinta Basin and its ongoing Piceance drilling program, "early signs of success in coalbed methane gas development in its Big George block look favorable," said COO Joe Jaggers. In 2Q2007, BBC spudded 56 of its 245 wells planned for the Big George in the Powder River Basin (PRB).
Jaggers said the PRB program, which contributed 10% of BBC's production in the first half of the year, was "back-end loaded due to heavy wildlife stipulations [in place] and current constraints with gathering systems." He said BBC also is drilling in the Montana Overthrust at its Circus Prospect, where it has more than 300,000 gross acres.
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