To maximize its stake in the Barnett Shale, DTE Energy said last Tuesday it will develop its western Barnett Shale properties itself while offering for sale its more developed acreage and production in the eastern part of the play as part of its restructuring of its nonutility assets.
The company plans to drill 40 western Barnett wells this year and spend between $80 million and $150 million annually developing the area. Dave Meador, DTE executive vice president, noted that recent horizontal well results "indicate incremental value can be created" beyond the production from vertical wells.
Meanwhile, DTE is open to selling its more developed Barnett acreage for the right price. "This is no fire sale," Meador said in outlining plans during the second quarter earnings conference call.
DTE's Barnett Shale properties were producing 25 MMcf/d from 151 wells at the end of the second quarter, up from 21 MMcf/d from 137 wells at the end of the first quarter. Meador said he would not break down production into east and west since "we might be entering into a competitive sales process soon." DTE had 440 Bcf of reserves, 40% of it proven, at the end of 2006.
DTE realized $1.5 billion after tax from the sale of its Antrim Shale properties in Michigan to Atlas Energy Resources LLC. That sale closed June 29 (see NGI, May 28). The company also reached agreement for the sale of a 50% interest in a portfolio of 15 industrial and power projects June 30, with gross proceeds of approximately $800 million from the sale and a refinancing of the portfolio, which is expected to close by year-end.
In late July, DTE Energy closed the previously announced sale of its Georgetown peaker plant and also entered into an agreement to sell its 50% interest in the Crete peaker plant. Combined net proceeds from the sales exceeded the company's estimate of $50 million. The sale of the Crete interest is subject to receipt of regulatory approval and is expected to close in the second half of 2007.
"The results of our nonutility monetization plan have exceeded our expectations," Meador said. "We have repurchased more than $625 million in common stock since December 2006, so we are well on our way to reaching our goal of buying back $900 million in stock by year end while maintaining a strong balance sheet." Meador said the company was returning to shareholders some of the proceeds from selling its nonutility operations.
DTE's second quarter earnings of $385 million ($2.20/diluted share) included the Antrim sale and compared with a reported earnings loss of $33 million, (19 cents/share) in the second quarter of 2006.
Operating earnings for the second quarter 2007 were $101 million (59 cents/share), a significant increase compared with a second quarter 2006 operating earnings loss of $1 million (1 cent/share). The increase was primarily due to increased earnings in the synthetic fuel segment and timing-related losses at Energy Trading during second quarter 2006.
DTE Energy also reported year-to-date cash flow from operations of approximately $998 million. Including synfuel production payments, adjusted cash from operations was approximately $1.2 billion, a 12% increase from year-to-date 2006.
The company also reached agreement during the quarter for the disposition of 7.2 Bcf of base gas from its MichCon gas utility storage facilities. The collaborative settlement, which is subject to state regulatory approval, calls for MichCon to deliver 3.6 Bcf of this gas to its customers at a substantial savings to market-priced supplies. The settlement also calls for MichCon to retain the proceeds from the sale of 3.6 Bcf of gas, which it expects to sell in 2008 and 2009 (see separate report).
DTE also reported that its utilities have been performing well this summer. Operating earnings for Detroit Edison were 37 cents/share versus 46 cents/share in the second quarter of 2006. DTE's MichCon gas utility had an operating earnings loss of 1 cent/share versus a 5-cent/share loss in the second quarter of 2006. Driving the improvement were better spring heating weather and higher gas sales volumes.
Coal and gas midstream operating earnings, including non-utility gas pipelines and storage as well as coal transportation and marketing, were 6 cents/share, equivalent to the second quarter of 2006. Operating earnings from Antrim and Barnett Shale operations were 3 cents/share, up from 1 cent/share in the second quarter of 2006. Driving the improvement was increased production from the company's Barnett Shale wells.
DTE's energy trading division had operating earnings of 5 cents/share versus a loss of 13 cents/share in the second quarter of 2006. The year ago quarter included timing-related losses.
Operating earnings from the synthetic fuel segment were 21 cents/share compared with a 24-cent/share loss in the second quarter of 2006. Earnings improved due to higher production in 2007 and greater reserves recognized in 2006.
DTE Energy reiterated its 2007 operating earnings guidance, excluding synthetic fuel, of $450 million to $485 million. Synthetic fuel is expected to add operating earnings of $150 million to $215 million in 2007.
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