Resolute Energy Corporation (NYSE: REN) reported Q3’11 net income of $37.6 million, or $0.59 per share, compared to a Q3’10 net loss of $7.1 million, or a loss $0.14 per share. Total revenues for Q3’11 were $54.0 million, an increase of 29% from Q3’10 revenues of $41.8 million. Production during Q3’11 averaged 7,920 BOEPD, an increase of 4% from Q3’10.
For the nine months ended September 30, 2011, net income was $46.5 million, an increase of 178% when compared to $16.7 million in the prior year period. Revenues for the first nine months of 2011 totaled $168 million, an increase of 36% from the prior year period. Production during the first nine months of 2011 averaged approximately 7,930 BOEPD, an 8% increase from the prior year period.
For readers not familiar with Resolute Energy, or the company’s operational strategy, please read our REN review write-up titled Resolute Energy Corp: Oil-Weighted Company with Strong Balance Sheet published on October 13, 2011.
Production Guidance Slightly Lower than Expected:
REN has an average 2011 production guidance of between 8,000 to 8,400 BOEPD. For the first nine months of 2011, REN averaged 7,930 BOEPD. The company believes its continued operational work in Aneth, the Bakken, Permian and Wyoming will allow the company to meet its previously reported guidance.
The Aneth Field; REN’s CO2 Flooding Program:
During Q3’11, REN initiated operations at the Aneth central compression facility. The facility allows REN to expand its CO2 flood projects, reduce per unit costs, and enable REN to extract methane and NGLs from the recycled gas stream. Additionally, REN is 85% complete with its pipeline portion of the company’s phase 4 CO2 project in the northwest portion of the field. The field provides significant cash flows to REN, and provides a vehicle for the company to reinvest cash flows to its oil-prone growth areas in the Permian Basin and Bakken. Production from the Aneth field accounts for approximately 75% of company-wide production. At the McElmo Creek Unit, the company completed 18 wells and injected 11 wells to date. During Q4’11, REN plans to bring on an additional five injection wells.
Legacy Wyoming Properties at Hilight Field (Powder River Basin) Performing as Expected:
Currently, REN is focused on recompleting wells in the Mowry formation in both the Powder River Basin. REN recompleted five Hilight Field wells in the Mowry formation during Q3’11 (average production of approximately 17 BOEPD) representing nine total wells re-completed year-to-date. Although Wyoming production declined 17.3% to 139 BOPD from Q3’10, the reduction was attributed to the sale of non-strategic properties and the shut-in of uneconomic CBM wells, so the company should have a solid baseline for increased production over coming quarters. REN’s Wyoming properties account for approximately 20% of the company’s overall production. In 2011, REN plans to make a total of twelve Mowry recompletions.
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Operational Efficiencies are Key in the Williston Basin:
Through its joint venture with GeoResources (NASDAQ: GEOI), the company drilled four gross wells in the Bakken, and has reduced its drilling days to 19 days per well from 25 days per well, reducing total well cost. The partnership is running two rigs in the play and has drilled a total of ten gross wells. REN confirmed in the news release it believes it has adequate availability of pressure pumping and other OilService equipment to execute its development plan for its Bakken acreage into 2012.
Company Increases Position in the Permian Basin:
During Q3’11, REN acquired proved reserves of approximately 4.5 MMBOE and production of approximately 450 BOEPD in the Midland portion of the Permian Basin. The current wells are producing from the Mississippian formation with some contribution from the up-hole Pennsylvanian, Wolfcamp and Spraberry formations. In the Delaware Basin, REN is running one rig drilling vertical wells targeting the Wolfbone play in Reeves County. Since REN commenced drilling in May 2011, the company has drilled four gross wells, three of which were drilled during Q3’11. The company entered the Permian through the acquisition of 18,400 gross (7,900 net acres) in the Delaware portion of the Permian Basin in Reeves County.
Liquidity and Strong Balance Sheet.
At September 30, 2011 the company had borrowings of $145.5 million on a current borrowing base of $300 million. The borrowing base is currently being evaluated consistent with its scheduled semi-annual redetermination process, and management expects that the redetermined borrowing base will be modestly higher than the current amount. Year to date, REN has received $74.4 million of warrant exercise proceeds. Resolute’s debt remained at 18% of market capitalization (as of November 4, 2011), as compared to the median of 31% of the 87 companies in EnerCom’s U.S. E&P database.