Unit Corporation (ticker: UNT) is a diversified energy company engaged through its subsidiaries in the exploration for and production of oil and natural gas, the acquisition of producing oil and natural gas properties, the contract drilling of onshore oil and natural gas wells, and the gathering and processing of natural gas. The company celebrated its 50th Anniversary in 2013.
Unit Corporation announced its Q4’13 production increased by 5% compared to Q3’13 and 18% year over year, according to its Q4’13 earnings release on February 25, 2014. The company currently holds 160 MMBOE in total proved reserves, a 7% increase compared to year-end 2012, despite the sale of 3.5 MMBOE in non-core properties. Net income for Q4’13 was $51.3 million and fiscal 2013 income totaled $184.7 million ($3.80 per diluted share). Unit management expects inclement weather to affect Q1’14 operations, but anticipates production in 2014 to grow by 15% to 18%.
Production Segment Developments
Overall, oil and gas production accounted for 49% of revenues in the quarter. Q4’13 production was 4.4 MMBOE (46% liquids). Liquids production has increased by 178% since UNT became more heavily focused on liquids in Q1’09. Total production for fiscal 2013 was 16.7 MMBOE as a result of Unit’s 11-rig program.
Production in the Wilcox play climbed 12% quarter-over-quarter and 21% year-over-year. Eight wells were drilled in Q4’13 including its first horizontal in November 2013, which produced initial rates of 953 BOEPD (92% gas). UNT has 100% ownership in all eight wells. Two rigs are currently in the area and a third is expected to arrive in H2’14 and will contribute to the anticipated drilling of 12 to 16 wells (two to four horizontals) in fiscal 2014.
UNT began its Granite Wash pad drilling program in Q4’13. Average quarterly production in the Granite Wash climbed 13% and yearly production increased by a total of 28%. First sales commenced on 26 horizontal wells in the region and operations were recently completed for an additional nine wells produced from three drilling pads. Results from the new wells are currently in the testing phase. UNT plans on running anywhere from four to six rigs in the region for 2014, with one of the rigs running in the nearby Cleveland play.
Production from Unit’s Mississippian formation play in south central Kansas jumped 47% compared to Q3’13. The company turned eight wells to sales line in the quarter (100% WI). Two rigs are currently in the region, and the wells consist of between 64% to 85% liquids. The results have prompted UNT to consider testing extended lateral wells and different fracturing designs. Two rigs are also operating in the Marmaton play, which turned 41 horizontal wells to sales during fiscal 2013.
Increased exploitation by Unit led to a 21% year-over-year increase in reserve value, equaling $1.8 billion for 160 MMBOE (77% of which is proved developed). Excluding the sale of 3.5 MMBOE for the year, production alone would have actually increased by 13.6 MMBOE. Approximately 31.2 MMBOE in reserves were added through discoveries.
Contract Drilling and Mid-Stream Segments
The company will place its first 1,500-horsepower BOSS rig into service in Q1’14 and management is hopeful new contract opportunities will arise. For the quarter, UNT averaged 65 operating drilling rigs. Currently 69 are in operation with the number expected to reach 73 by the end of Q1’14, with 23 of the rigs under long-term contracts. A total of 117 rigs are available in UNT’s fleet.
The company continues to sell off its older rigs, selling five on the year for a total of $32.4 million. The proceeds will be reinvested into its operating program as the rollout of the BOSS rig advances. UNT expects three BOSS rigs to be in service as soon as Q3’14. Management said it would like to have as many as six BOSS rigs in the field by the end of 2014, depending on contracts.
Operating profit for the mid-stream segment was $12.2 million, an increase of 89% TTM. Additional processing plants were added at both the Bellmon and Hemphill facilities, bringing UNT’s processing capacity to 225 MMcf/d. All plants are in full recovery mode.
In an operations update on January 13, 2014, UNT announced plans to drill 125 wells in its 2014 program with a budget of $928 million. Roughly $718 million of the budget is allotted for upstream development, and hedging will consist of approximately 62% of its anticipated oil production and 51% of its anticipated gas production. Management sees upside potential in as many as 2,100 gross wells in its core acreage.
The company currently has $645 of long term debt with none withdrawn from its $900 million borrowing base. Its debt to capital ratio is approximately 23% – well below the industry median average of 40%.
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