Unit Corporation (ticker: UNT) is one of the more diversified companies in the oil and gas industry, with segments focused on upstream, midstream and drilling operations. Unit has been in business since 1953 and 2015 is shaping up to be a banner year for the company, headlined by production reaching all-time highs and the increasing popularity of its BOSS rig.
Production Record in Q1’15
Unit Corp. announced record production volumes of 56.9 MBOEPD (47% liquids) in its Q1’15 earnings release, equaling respective increases of 8% and 22% compared to Q4’14 and Q1’14. Four rigs are currently running on UNT’s acreage, with two in both the Southern Oklahoma Hoxbar Oil Trend (SOHOT) and Wilcox play of southern Texas. Unit anticipates maintaining the four-rig count through the end of Q2’15 but may revise the number depending on the commodity market. UNT management said well costs are roughly 24% lower than 2014 due to increased efficiencies and lower service costs.
“Our 2015 production guidance is approximately 18.6 to 19.0 MMBoe, an increase of 2% to 4% over 2014, although actual results will continue to be subject to industry conditions,” said Larry Pinkston, President and Chief Executive Officer of Unit Corp. “Unit has a strong asset base, and we have a proven record of weathering these unfavorable pricing cycles.”
Oklahoma is SOHOT Right Now
Results from a Hoxbar well targeting the Marchand formation are in: 30-day volumes of 2,444 BOEPD, 60-day volumes of 2,063 BOEPD and 90-day volumes of 2,013 BOEPD. The production mix was 90% liquids. In a conference call following the release, Brad Guidry, Executive Vice President, said Marchand bench wells were generating 92% rates of returns at a price stack $3 gas, $50 oil and $14.11 NGLs. Two additional wells were drilled in the Medrano formation and averaged a combined 30-day rate of 12.8 MMcfe/d, with liquids accounting for 30% of the mix.
The SOHOT trend, announced as a core play roughly one year ago, holds four to six potentially stacked pay sands, including the Marchand and Medrano formations. First well tests in the Marchand revealed anticipated costs of $7 million per well with estimated ultimate recovery (EUR) of 300 to 500 MBOE, while Medrano wells held EURs of 3.0 to 4.5 Bcfe at a midpoint price tag of $4.6 million.. The recent wells greatly exceed the 30-day rates of test wells drilled last year, which included a 1,100 BOEPD Marchand well and a 4.6 MMcfe/d Medrano well.
UNT drilled three wells in the region in the latest quarter and anticipates drilling 9 to 12 horizontal wells in addition to the previous three within the fiscal year. Its expenditures are projected at $90 million. Unit believes it has as many as 225 gross drilling locations in its SOHOT inventory.
Wilcox Remains Steady
Production in the Wilcox region was unchanged compared to Q4’14. Three new wells were completed, including a new Wilcox discovery located to the south of the Gilly field. The vertical well encountered 238 feet of net pay and is scheduled to be hydraulically fractured within the month. Testing rates were 2.5 MMcf/d. The two other wells have been completed and are in the flowback stage. UNT plans on completing 14 Wilcox wells at $100 million in 2015, with six being of the horizontal variety.
The company’s other operations in Granite Wash and Mississippian both increased their volumes on a quarter over quarter basis but are not in line for future drilling plans due to the attractiveness of the SOHOT and Wilcox plays. UNT’s midstream segment recorded an operating profit of $9.8 million in the quarter – 2% below Q4’14. On a quarter-over-quarter basis, processed gas volumes climbed by 15% but liquids volumes declined by 17%. A new seven mile pipeline in the Snowshoe project of Pennsylvania is expected to be completed by Q4’15.
Drilling Segment Persevering
Unit had an average of 50.1 active rigs in Q1’15 – a 38% decrease compared to Q4’14. Average operating margins actually increased by 16%. Unit has a total of 92 rigs in its fleet, including six BOSS rigs. Contracts for two additional BOSS rigs are in place and will be in service later this year. “In the last few weeks, we have seen an increased number of inquiries for rigs for later in this year,” said John Cromling, Executive Vice President of the drilling segment.
Pinkston added: “We feel our contract drilling rig count and the industry rig count have pretty well bottomed-out unless another commodity price shock should occur.”
Unit plans on selling 30 of its older rigs as part of the transition to its BOSS fleet.
Unit Corp. Financials
Like virtually all of its E&P peers, Unit was affected by the lower commodity environment. Average realized prices for oil, natural gas liquids and natural gas were down 38%, 66% and 31%, respectively, compared to Q4’14. The significant drops led to a Q1’15 net loss of $248.4 million ($5.07 per share) on revenues of $255.1 million. Oil and gas accounted for 42% of overall revenue, while contract drilling and its midstream segment made up 37% and 21%, respectively. Adjusted net income, including the effects of a $400.6 million pre-tax non-cash ceiling write down, was $3.7 million, or $0.08 per share.
The company currently holds long-term debt of $883.6 million, consisting of $646.3 million net of senior subordinated notes and $237.3 million of borrowings on its credit agreement. The credit agreement is scheduled to mature in April 2020 – an extension of its previous maturity date of September 2016. The borrowing base associated with the credit agreement is $725 million, and Unit has an elected amount of $500 million. A total of $488 million is currently available on the base. Unit’s debt to market cap percentage of 47% is below the 57% median of its 86 peers in EnerCom’s E&P Weekly benchmarking report. Its long-term debt to capitalization was 26% as of year-end 2014.
Unit’s 2015 capital budget of $477 million remains intact, with approximately $325 million expected to be spent in the first half of 2015. The program will be funded through internally generated cash flow, proceeds of non-core asset sales and remaining borrowings on its credit facility.
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