13,800 acre, $13.3 million DJ basin acquisition also announced
Bill Barrett Corporation (ticker: BBG) reported fourth quarter results and reserves today, showing a net loss of $49 million, ($0.79) per share. Full 2016 results are a net loss of $170 million, or ($3.08) per share. After adjusting for derivative losses and other special charges, results are losses of $11 million in Q4 and $38 million in 2016.
Proved reserves are down 35% to 54.9 MMBOE, from 83.7 MMBOE in 2015. The vast majority of this decrease is due to price-related and other revisions. The company reported that the reduced development activity level in 2016 would cause PUD reserves to “age out.” With this in mind, these DJ basin and Uinta reserves were removed from the proved category.
According to the company, had these locations not been removed and exclusive of asset sales 2016 reserves would have increased 8% compared to 2015. It is anticipated that with a more active development program, Bill Barrett will add back some of these locations in 2017.
Active rigs to increase to 2, jump in CapEx and well count
Bill Barrett expects that 2017 CapEx will be between $255 million and $285 million. An estimated 70-75 gross wells are expected to be drilled in the Wattenberg field. This is far above 2016 levels, when the company spent $98.3 million to drill 15 wells. Overall, this is a CapEx increase of 175% and a 383% increase in wells drilled.
DJ acquisition
Bill Barrett recently announced the closing of a 13,800 net acre acquisition in the DJ basin for $13.3 million. The company estimates that this acreage contains 80 extended reach lateral (XRL) drilling locations and ownership in an additional 20 gross XRL locations.
The company’s activity in 2017 will be focused on XRL development in the DJ basin and previously planned recompletions in the Uinta basin. A second drilling rig will be added in Q2 2017 to facilitate the increase in drilling activity. Bill Barrett anticipates well costs in 2017 to increase by about 12%, with average well costs increasing from $4.25 million to $4.75 million.
Q&A from BBG Q4 conference call
Q: The 70 to 75 gross XRL wells you’re going to drill this year, what’s that on a net basis? And given the CapEx spend this year is going to have a much bigger impact on 2018 with the 30% to 50% growth, I’m wondering what an exit rate this year looks like, call it what Q4 2017 might look like production-wise versus Q1, to get a sense for how we enter 2018. Thank you.
BBG CEO R. Scot Woodall: We assume probably basically a working interest of about 80%, is a pretty good average. So if you take that well count and in the way we are budgeting 2017 is at a well cost of $4.75 million. So as you heard me in the prepared remarks talk about $4.25 million was our most recent wells, and that included the higher sand concentrations, there will be a little bit more incremental cost to go to the higher stage count, reducing the stage size from 170 feet, say, down to 100 feet. So there’s a little bit of additional cost that’s built into our $4.75 million number, as well as some service cost inflation that’s built into that number. And if you’ll use about 80%, I think you’ll arrive at about the capital number that you can see in our guidance today. Exit rate for 2017 is up some, but I wouldn’t say materially. We’ll get some of these wells online, but the real growth really does hit into 2018.
Q: So of the 70 to 75 wells, how many of those do you think you’ll have online this year?
R. Scot Woodall: I think about half of those wells get completed in 2017.
Q: Is there a thought to maybe revisit what you guys looked at last year in potentially monetizing that asset [in the Uinta] to add some cash as you ramp up on DJ?
R. Scot Woodall: I’m not sure that it’s immediately on the table, but it does cash flow probably at current strip something north of $20 million. And so I kind of like the cash flow. Clearly, if someone would come and offer a good multiple to that, would we take that and that would be able to really fund basically a rig in the DJ. So it’s something that we’re considering, but we have not engaged a marketing process as of yet.
Q: On the DJ, I think last quarter when we spoke with the one rig program, kind of the plans to kind of jump around with it. When you’re bringing in the second rig, can you just maybe talk about kind of where we should think about those two rigs working throughout the year?
R. Scot Woodall: It is kind of a mixture of in the southern acreage position and the northern acreage position, and kind of goes back and forth. We’ve drilled south of the river already in 2016. We drilled just north of the river in 2016. And we’ve drilled one pad in the north section in 2017, and we’re drilling a second pad north of the river now in 2017. The second rig, when it comes in, will primarily be focused on that acreage that’s on the southern acreage and really probably more directionally south of the river in that southwest portion. So it will be on our own acreage position, and then I think eventually it will walk down to this new acreage position that we’re announcing today that we acquired as well.
