DELAWARE
|
77-0079387
|
|||
(State
of incorporation or organization)
|
(I.R.S.
Employer Identification Number)
|
PART I.
FINANCIAL
INFORMATION
|
Page
|
|
Item
1. Financial Statements
|
||
Unaudited
Condensed Balance Sheets at June 30, 2008 and December 31,
2007
|
3
|
|
Unaudited
Condensed Statements of Income for the Three Month Periods Ended June 30,
2008 and 2007
|
4
|
|
Unaudited
Condensed Statements of Income for the Six Month Periods Ended June 30,
2008 and 2007
|
5
|
|
Unaudited
Condensed Statements of Cash Flows for the Six Month Periods Ended June
30, 2008 and 2007
|
6
|
|
Notes
to Unaudited Condensed Financial Statements
|
7
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
12
|
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
22
|
|
Item
4. Controls and Procedures
|
24
|
|
PART
II.
OTHER
INFORMATION
|
||
Item
1. Legal Proceedings
|
25
|
|
Item
1A. Risk Factors
|
25
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
25
|
|
Item
3. Defaults Upon Senior Securities
|
25
|
|
Item
4. Submission of Matters to a Vote of Security Holders
|
25
|
|
Item
5. Other Information
|
25
|
|
Item
6. Exhibits
|
26
|
June
30, 2008
|
December
31, 2007
|
||||||
ASSETS
|
|||||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
5,583
|
$
|
316
|
|||
Short-term investments
|
65
|
58
|
|||||
Accounts
receivable
|
143,423
|
117,038
|
|||||
Deferred income taxes
|
107,965
|
28,547
|
|||||
Fair
value of derivatives
|
-
|
2,109
|
|||||
Assets held for sale
|
-
|
1,394
|
|||||
Prepaid expenses and other
|
13,835
|
11,557
|
|||||
Total
current assets
|
270,871
|
161,019
|
|||||
Oil
and gas properties (successful efforts basis), buildings and equipment,
net
|
1,405,560
|
1,275,091
|
|||||
Other
assets
|
73,885
|
15,996
|
|||||
$
|
1,750,316
|
$
|
1,452,106
|
||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|||||||
Current
liabilities:
|
|||||||
Accounts
payable
|
$
|
134,872
|
$
|
90,354
|
|||
Revenue and royalties payable
|
30,242
|
47,181
|
|||||
Accrued
liabilities
|
21,443
|
21,653
|
|||||
Line of credit
|
-
|
14,300
|
|||||
Income taxes payable
|
7,661
|
2,591
|
|||||
Fair
value of derivatives
|
301,776
|
95,290
|
|||||
Total current liabilities
|
495,994
|
271,369
|
|||||
Long-term
liabilities:
|
|||||||
Deferred
income taxes
|
87,858
|
128,824
|
|||||
Long-term debt
|
511,000
|
445,000
|
|||||
Abandonment
obligation
|
40,051
|
36,426
|
|||||
Unearned revenue
|
57
|
398
|
|||||
Other long-term liabilities
|
4,801
|
1,657
|
|||||
Fair value of derivatives
|
322,560
|
108,458
|
|||||
966,327
|
720,763
|
||||||
Shareholders'
equity:
|
|||||||
Preferred
stock, $.01 par value, 2,000,000 shares authorized; no shares
outstanding
|
-
|
-
|
|||||
Capital stock, $.01 par value:
|
|||||||
Class
A Common Stock, 100,000,000 shares authorized; 42,716,259 shares issued
and outstanding (42,583,002 in 2007)
|
426
|
425
|
|||||
Class B Stock, 3,000,000 shares authorized; 1,797,784 shares
issued and outstanding (liquidation preference of $899) (1,797,784 in
2007)
|
18
|
18
|
|||||
Capital
in excess of par value
|
75,075
|
66,590
|
|||||
Accumulated
other comprehensive loss
|
(386,637
|
)
|
(120,704
|
)
|
|||
Retained
earnings
|
599,113
|
513,645
|
|||||
Total
shareholders' equity
|
287,995
|
459,974
|
|||||
$
|
1,750,316
|
$
|
1,452,106
|
Three
months ended June 30,
|
|||||||||||||
2008
|
2007
|
||||||||||||
REVENUES
AND OTHER INCOME ITEMS
|
|||||||||||||
Sales of oil and gas
|
$
|
185,332
|
$
|
113,426
|
|||||||||
Sales of electricity
|
16,979
|
13,867
|
|||||||||||
Gas marketing
|
11,531
|
-
|
|||||||||||
Gain on sale of assets
|
-
|
50,400
|
|||||||||||
Interest and other income, net
|
1,564
|
1,536
|
|||||||||||
215,406
|
179,229
|
||||||||||||
EXPENSES
|
|||||||||||||
Operating
costs - oil and gas production
|
55,185
|
35,725
|
|||||||||||
Operating costs - electricity generation
|
15,515
|
11,083
|
|||||||||||
Production
taxes
|
7,481
|
4,139
|
|||||||||||
Depreciation,
depletion & amortization - oil and gas production
|
29,073
|
23,397
|
|||||||||||
Depreciation, depletion & amortization - electricity
generation
|
652
|
961
|
|||||||||||
Gas
marketing
|
11,071
|
-
|
|||||||||||
General
and administrative
|
11,160
|
9,651
|
|||||||||||
Interest
|
3,951
|
4,976
|
|||||||||||
Commodity
derivatives
|
59
|
-
|
|||||||||||
Dry
hole, abandonment, impairment and exploration
|
3,464
|
3,519
|
|||||||||||
137,611
|
93,451
|
||||||||||||
Income
before income taxes
|
77,795
|
85,778
|
|||||||||||
Provision
for income taxes
|
28,654
|
33,821
|
|||||||||||
Net
income
|
$
|
49,141
|
$
|
51,957
|
|||||||||
Basic
net income per share
|
$
|
1.10
|
$
|
1.18
|
|||||||||
Diluted
net income per share
|
$
|
1.08
|
$
|
1.16
|
|||||||||
Dividends
per share
|
$
|
.075
|
$
|
.075
|
|||||||||
Weighted
average number of shares of capital stock outstanding used to calculate
basic net income per share
|
44,478
|
44,029
|
|||||||||||
Effect
of dilutive securities:
|
|||||||||||||
Equity
based compensation
|
1,003
|
751
|
|||||||||||
Director deferred compensation
|
127
|
115
|
|||||||||||
Weighted
average number of shares of capital stock used to calculate diluted net
income per share
|
45,608
|
44,895
|
|||||||||||
Unaudited Condensed Statements of Comprehensive (Loss)
Income
|
|||||||||||||
Three
Month Periods Ended June 30, 2008 and 2007
|
|||||||||||||
(In
Thousands)
|
|||||||||||||
Net
income
|
$
|
49,141
|
$
|
51,957
|
|||||||||
Unrealized
gains (losses) on derivatives, net of income tax benefits of ($162,792)
and ($4,395), respectively
|
(260,225
|
)
|
(6,593
|
)
|
|||||||||
Reclassification
of realized gains (losses) on derivatives included in net income, net of
income taxes (benefit) of $21,898 and ($697), respectively
|
37,268
|
(1,045
|
)
|
||||||||||
Comprehensive
(loss) income
|
$
|
(173,816
|
)
|
$
|
44,319
|
Six
months ended June 30,
|
|||||||||||||
2008
|
2007
|
||||||||||||
REVENUES
AND OTHER INCOME ITEMS
|
|||||||||||||
Sales of oil and gas
|
$
|
349,827
|
$
|
215,200
|
|||||||||
Sales of electricity
|
32,906
|
28,463
|
|||||||||||
Gas marketing
|
14,762
|
-
|
|||||||||||
Gain on sale of assets
|
414
|
50,398
|
|||||||||||
Interest and other income, net
|
2,893
|
2,647
|
|||||||||||
400,802
|
296,708
|
||||||||||||
EXPENSES
|
|||||||||||||
Operating
costs - oil and gas production
|
96,814
|
69,335
|
|||||||||||
Operating costs - electricity generation
|
31,914
|
25,254
|
|||||||||||
Production
taxes
|
13,448
|
7,954
|
|||||||||||
Depreciation,
depletion & amortization - oil and gas production
|
56,148
|
42,122
|
|||||||||||
Depreciation, depletion & amortization - electricity
generation
|
1,345
|
1,723
|
|||||||||||
Gas
marketing
|
14,053
|
-
|
|||||||||||
General
and administrative
|
22,543
|
19,958
|
|||||||||||
Interest
|
7,689
|
9,267
|
|||||||||||
Commodity
derivatives
|
767
|
-
|
|||||||||||
Dry
hole, abandonment, impairment and exploration
|
7,590
|
4,168
|
|||||||||||
252,311
|
179,781
|
||||||||||||
Income
before income taxes
|
148,491
|
116,927
|
|||||||||||
Provision
for income taxes
|
56,319
|
46,115
|
|||||||||||
Net
income
|
$
|
92,172
|
$
|
70,812
|
|||||||||
Basic
net income per share
|
$
|
2.07
|
$
|
1.61
|
|||||||||
Diluted
net income per share
|
$
|
2.03
|
$
|
1.58
|
|||||||||
Dividends
per share
|
$
|
.15
|
$
|
.15
|
|||||||||
Weighted
average number of shares of capital stock outstanding used to calculate
basic net income per share
|
44,435
|
43,973
|
|||||||||||
Effect
of dilutive securities:
|
|||||||||||||
Equity
based compensation
|
924
|
668
|
|||||||||||
Director deferred compensation
|
124
|
113
|
|||||||||||
Weighted
average number of shares of capital stock used to calculate diluted net
income per share
|
45,483
|
44,754
|
|||||||||||
Unaudited Condensed Statements of Comprehensive (Loss)
Income
|
|||||||||||||
Six
Month Periods Ended June 30, 2008 and 2007
|
|||||||||||||
(In
Thousands)
|
|||||||||||||
Net
income
|
$
|
92,172
|
$
|
70,812
|
|||||||||
Unrealized
gains (losses) on derivatives, net of income tax benefits of ($203,141)
and ($12,457), respectively
|
(320,748
|
)
|
(18,685
|
)
|
|||||||||
Reclassification
of realized gains (losses) on derivatives included in net income, net of
income taxes (benefit) of $33,596 and ($882), respectively
|
54,815
|
(1,323
|
)
|
||||||||||
Comprehensive
(loss) income
|
$
|
(173,761
|
)
|
$
|
50,804
|
Six
months ended June 30,
|
||||||||||
2008
|
2007
|
|||||||||
Cash
flows from operating activities:
|
||||||||||
Net income
|
$
|
92,172
|
$
|
70,812
|
||||||
Depreciation, depletion and amortization
|
57,493
|
43,845
|
||||||||
Dry
hole and impairment
|
5,332
|
3,547
|
||||||||
Commodity derivatives
|
(257
|
)
|
675
|
|||||||
Stock-based compensation expense
|
4,412
|
3,779
|
||||||||
Deferred
income taxes
|
39,030
|
39,695
|
||||||||
Unrealized
loss on ineffective hedges
|
751
|
-
|
||||||||
Gain
on sale of oil and gas properties
|
(414
|
)
|
(50,398
|
)
|
||||||
Other,
net
|
689
|
415
|
||||||||
Change in book overdraft
|
13,075
|
(4,060
|
)
|
|||||||
Cash paid for abandonment
|
(2,127
|
)
|
(625
|
)
|
||||||
Increase in current assets other than cash and cash
equivalents
|
(29,294
|
)
|
(5,066
|
)
|
||||||
Increase
(decrease) in current liabilities other than book overdraft, line of
credit and fair value of derivatives
|
12,952
|
(14,635
|
)
|
|||||||
Net
cash provided by operating activities
|
193,814
|
87,984
|
||||||||
Cash
flows from investing activities:
|
||||||||||
Exploration and development of oil and gas
properties
|
(168,382
|
)
|
(148,452
|
)
|
||||||
Property
acquisitions
|
(380
|
)
|
(56,106
|
)
|
||||||
Additions to vehicles, drilling rigs and other fixed
assets
|
(3,201
|
)
|
(2,052
|
)
|
||||||
Deposit on potential acquisition
|
(59,000
|
)
|
-
|
|||||||
Proceeds from sale of assets
|
1,809
|
61,258
|
||||||||
Capitalized interest
|
(8,463
|
)
|
(8,365
|
)
|
||||||
Net
cash used in investing activities
|
(237,617
|
)
|
(153,717
|
)
|
||||||
Cash
flows from financing activities:
|
||||||||||
Proceeds
from issuances on line of credit
|
187,100
|
203,800
|
||||||||
Payments
on line of credit
|
(201,400
|
)
|
(210,300
|
)
|
||||||
Proceeds
from issuance of long-term debt
|
286,300
|
179,300
|
||||||||
Payments on long-term debt
|
(220,300
|
)
|
(104,300
|
)
|
||||||
Dividends
paid
|
(6,705
|
)
|
(6,678
|
)
|
||||||
Proceeds from stock option exercises
|
2,640
|
2,595
|
||||||||
Excess tax benefit and other
|
1,435
|
1,215
|
||||||||
Net
cash provided by financing activities
|
49,070
|
65,632
|
||||||||
Net
increase (decrease) in cash and cash equivalents
|
5,267
|
(101
|
)
|
|||||||
Cash
and cash equivalents at beginning of year
|
316
|
416
|
||||||||
Cash
and cash equivalents at end of period
|
$
|
5,583
|
$
|
315
|
||||||
1.
|
General
|
1.
|
General
(Cont’d)
|
2.
|
Recent Accounting
Developments
|
3.
|
Fair
Value Measurement
|
3.
|
Fair
Value Measurement (Cont’d)
|
June
30, 2008 (in millions)
|
Total
carrying value on the condensed Balance Sheet
|
Level
2
|
Level
3
|
Commodity
derivatives
|
$619.5
|
$49.9
|
$569.6
|
Interest
rate swaps
|
4.8
|
4.8
|
-
|
Total
liabilities at fair value
|
$624.3
|
$54.7
|
$569.6
|
(in
millions)
|
Three
months ended June 30, 2008
|
Six
months ended June 30, 2008
|
|
Fair
value, beginning of period
|
$243.9
|
$
194.3
|
|
Total
realized and unrealized gains and (losses) included in sales of oil and
gas
|
326.1
|
401.6
|
|
Purchases,
sales and settlements, net
|
(.4)
|
(26.3)
|
|
Transfers
in and/or out of Level 3
|
-
|
-
|
|
Fair
value, June 30, 2008
|
$569.6
|
$569.6
|
|
Total
unrealized gains and (losses) included in income related to financial
assets and liabilities still on the condensed balance sheet at June 30,
2008
|
$
-
|
$-
|
4.
|
Hedging
|
·
|
Swaps
on 15,400 MMBtu/D at $8.50 for the full year of 2009 and basis swaps on
the same volumes for average prices of $1.17, $1.12, $.97, and $1.05 for
each of the four quarters of 2009,
respectively.
|
5.
|
Asset Retirement
Obligations
|
Beginning
balance at January 1
|
$
|
36,426
|
||
Liabilities
incurred
|
2,102
|
|||
Liabilities
settled
|
(2,127
|
)
|
||
Revisions
in estimated liabilities
|
2,006
|
|||
Accretion
expense
|
1,644
|
|||
Ending
balance at June 30
|
$
|
40,051
|
6.
|
Income
Taxes
|
7.
|
Long-term
and Short-term Debt Obligations
|
8.
|
Contingencies
and Commitments
|
9.
|
Subsequent
Events
|
·
|
Developing
our existing resource base
|
·
|
Acquiring
additional assets with significant growth
potential
|
·
|
Utilizing
joint ventures with respected partners to enter new
basins
|
·
|
Accumulating
significant acreage positions near our producing
operations
|
·
|
Investing
our capital in a disciplined manner and maintaining a strong financial
position
|
·
|
Achieved
record production averaging 29,000 BOE/D, up 7% from the second quarter of
2007 and up 3% from the first quarter of
2008
|
·
|
Increased
Piceance net average production to 20.8 MMcf/D in the month of June, up
24% from the first quarter of 2008
|
·
|
Increased
Diatomite net production to an average of 1,700 BOE/D, up 24% from the
first quarter of 2008
|
·
|
Production
at Poso Creek averaged 3,200 Bbl/D, up 19% from the first quarter of
2008
|
·
|
Achieved
a production exit rate of 30,000
BOE/D
|
·
|
Completed
relocation of our corporate headquarters from Bakersfield, California to
Denver, Colorado
|
·
|
Announced
that David D. Wolf would join the Company as Executive Vice President and
Chief Financial Officer
|
·
|
Closed
on the acquisition of 4,500 acres in Limestone and Harrison Counties of
East Texas on July 15, 2008, adding an estimated 32 MMcf/D to
production
|
·
|
Increased
our 2008 capital budget by $75 million to $370 million to fund the
development of our East Texas
acquisition
|
·
|
Entered
into an amended and restated secured credit facility with a $1 billion
borrowing base
|
·
|
Targeting
a production average of approximately 35,000 BOE/D in the third quarter
and a 2008 exit rate of between 39,000 and 40,000
BOE/D
|
June
30, 2008
(2Q08)
|
June
30, 2007
(2Q07)
|
2Q08
to 2Q07 Change
|
March
31, 2008
(1Q08)
|
2Q08
to 1Q08
Change
|
||||||
Sales
of oil
|
$
|
146
|
$
|
94
|
55%
|
$
|
131
|
11%
|
||
Sales
of gas
|
39
|
19
|
105%
|
33
|
19%
|
|||||
Total
sales of oil and gas
|
$
|
185
|
$
|
113
|
64%
|
$
|
164
|
13%
|
||
Sales
of electricity
|
17
|
14
|
21%
|
16
|
6%
|
|||||
Gain
on sale of assets
|
-
|
50
|
-%
|
-
|
-%
|
|||||
Other
revenues
|
13
|
2
|
550%
|
5
|
160%
|
|||||
Total
revenues and other income
|
$
|
215
|
$
|
179
|
20%
|
$
|
185
|
16%
|
||
Net
income
|
$
|
49
|
$
|
52
|
(6%)
|
$
|
43
|
14%
|
||
Earnings
per share (diluted)
|
$
|
1.08
|
$
|
1.16
|
(7%)
|
$
|
.95
|
14%
|
|
June
30, 2008
|
%
|
June
30, 2007
|
%
|
March
31, 2008
|
%
|
|||||
Heavy
Oil Production (Bbl/D)
|
16,888
|
58
|
16,129
|
59
|
16,375
|
58
|
||||
Light
Oil Production (Bbl/D)
|
3,723
|
13
|
4,034
|
15
|
3,510
|
13
|
||||
Total
Oil Production (Bbl/D)
|
20,611
|
71
|
20,163
|
74
|
19,885
|
71
|
||||
Natural
Gas Production (Mcf/D)
|
50,339
|
29
|
42,193
|
26
|
49,086
|
29
|
||||
Total
(BOE/D)
|
29,000
|
100
|
27,195
|
100
|
28,066
|
100
|
||||
Oil
and gas, per BOE:
|
||||||||||
Average sales price before hedging
|
$
|
91.89
|
$
|
44.72
|
$
|
71.67
|
||||
Average
sales price after hedging
|
69.77
|
45.43
|
60.43
|
|||||||
Oil,
per Bbl:
|
||||||||||
Average
WTI price
|
$
|
123.80
|
$
|
65.02
|
$
|
97.82
|
||||
Price
sensitive royalties
|
(5.92
|
)
|
(4.20
|
)
|
(4.47
|
)
|
||||
Quality
differential and other
|
(11.52
|
)
|
(9.24
|
)
|
(10.78
|
)
|
||||
Crude
oil hedges
|
(29.37
|
)
|
(.52
|
)
|
(15.60
|
)
|
||||
Correction
to royalties payable
|
-
|
-
|
5.85
|
|||||||
Average
oil sales price after hedging
|
$
|
76.99
|
$
|
51.06
|
$
|
72.82
|
||||
Natural
gas price:
|
||||||||||
Average
Henry Hub price per MMBtu
|
$
|
10.93
|
$
|
7.55
|
$
|
8.05
|
||||
Conversion
to Mcf
|
.55
|
.38
|
.40
|
|||||||
Natural
gas hedges
|
(.69
|
)
|
.71
|
(.12
|
)
|
|||||
Location,
quality differentials and other
|
(2.15
|
)
|
(3.53
|
)
|
(.90
|
)
|
||||
Average
gas sales price after hedging
|
$
|
8.64
|
$
|
5.11
|
$
|
7.43
|
June
30, 2008
|
%
|
June
30, 2007
|
%
|
|||||||
Heavy
Oil Production (Bbl/D)
|
16,631
|
58
|
16,112
|
61
|
||||||
Light
Oil Production (Bbl/D)
|
3,617
|
13
|
3,643
|
14
|
||||||
Total
Oil Production (Bbl/D)
|
20,248
|
71
|
19,755
|
75
|
||||||
Natural
Gas Production (Mcf/D)
|
49,712
|
29
|
39,463
|
25
|
||||||
Total
(BOE/D)
|
28,534
|
100
|
26,332
|
100
|
||||||
Oil
and gas, per BOE:
|
||||||||||
Average sales price before hedging
|
$
|
84.02
|
$
|
44.25
|
||||||
Average
sales price after hedging
|
67.23
|
44.72
|
||||||||
Oil,
per Bbl:
|
||||||||||
Average
WTI price
|
$
|
111.12
|
$
|
61.68
|
||||||
Price
sensitive royalties
|
(5.21
|
)
|
(3.97
|
)
|
||||||
Quality
differential and other
|
(11.15
|
)
|
(9.01
|
)
|
||||||
Crude
oil hedges
|
(22.66
|
)
|
(.24
|
)
|
||||||
Correction
to royalties payable
|
2.85
|
-
|
||||||||
Average
oil sales price after hedging
|
$
|
74.95
|
$
|
48.46
|
||||||
Natural
gas price:
|
||||||||||
Average
Henry Hub price per MMBtu
|
$
|
9.49
|
$
|
7.16
|
||||||
Conversion
to Mcf
|
.47
|
.36
|
||||||||
Natural
gas hedges
|
(.41
|
)
|
.44
|
|||||||
Location,
quality differentials and other
|
(1.50
|
)
|
(2.12
|
)
|
||||||
Average
gas sales price after hedging
|
$
|
8.05
|
$
|
5.84
|
||||||
Gas Basis
Differential. The basis differential between Henry Hub
(HH) and Colorado Interstate Gas (CIG) index narrowed due to the increased
take away capacity added by the start up of the Rockies Express Pipeline
(REX) in January. However, the differential widened again in
the second quarter. In the first quarter of 2008, the CIG basis
differential per MMBtu, based upon first-of-month values, averaged $1.07
below HH and ranged from $.91 to $1.19 below HH. For the
second quarter, the differential averaged $2.46 with the range going from
$1.78 at the start of the quarter to $3.24 below HH at the end of the
quarter. We have contracted a total of 35,000 MMBtu/D on the REX pipeline
under two separate transactions to provide firm transportion for our
Piceance basin gas production. After the REX startup in 2008,
all of the Piceance basin gas was sold at mid-continent (ANR, NGPL or
PEPL) indexes which averaged approximately $.70 above the CIG index
pricing before the cost of transportation.
|
June
30, 2008
|
June
30, 2007
|
March
31, 2008
|
||||||||
Electricity
|
||||||||||
Revenues
(in millions)
|
$
|
17.0
|
$
|
13.9
|
$
|
15.9
|
||||
Operating
costs (in millions)
|
$
|
15.5
|
$
|
11.1
|
$
|
16.4
|
||||
Electric
power produced - MWh/D
|
1,919
|
2,060
|
2,152
|
|||||||
Electric
power sold - MWh/D
|
1,724
|
1,819
|
1,959
|
|||||||
Average
sales price/MWh
|
$
|
108.21
|
$
|
84.13
|
$
|
90.48
|
||||
Fuel
gas cost/MMBtu (including transportation)
|
$
|
10.01
|
$
|
6.46
|
$
|
7.94
|
Amount
per BOE
|
Amount
(in thousands)
|
||||||||||||||||||
June
30, 2008
|
June
30, 2007
|
March
31, 2008
|
June
30, 2008
|
June
30, 2007
|
March
31, 2008
|
||||||||||||||
Operating
costs – oil and gas production
|
$
|
20.91
|
$
|
14.44
|
$
|
16.30
|
$
|
55,185
|
$
|
35,725
|
$
|
41,629
|
|||||||
Production
taxes
|
2.83
|
1.67
|
2.34
|
7,481
|
4,139
|
5,967
|
|||||||||||||
DD&A
– oil and gas production
|
11.02
|
9.45
|
10.60
|
29,073
|
23,397
|
27,076
|
|||||||||||||
G&A
|
4.23
|
3.90
|
4.46
|
11,160
|
9,651
|
11,383
|
|||||||||||||
Interest
expense
|
1.50
|
2.01
|
1.46
|
3,951
|
4,976
|
3,738
|
|||||||||||||
Total
|
$
|
40.49
|
$
|
31.47
|
$
|
35.16
|
$
|
106,850
|
$
|
77,888
|
$
|
89,793
|
|
·
|
Operating
costs: The majority of the increase in our operating costs was due to
higher steam costs resulting from higher fuel costs. The following table
presents steam information:
|
June
30, 2008
(2Q08)
|
June
30, 2007
(2Q07)
|
2Q08
to 2Q07
Change
|
March
31, 2008
(1Q08)
|
2Q08
to 1Q08
Change
|
|
Average
volume of steam injected (Bbl/D)
|
97,853
|
84,032
|
16%
|
91,326
|
7%
|
Fuel
gas cost/MMBtu (including transportation)
|
$
10.01
|
$
6.46
|
55%
|
$
7.94
|
26%
|
Approximate
net fuel gas volume consumed in steam
generation
(MMBtu/D)
|
27,382
|
22,559
|
21%
|
21,634
|
27%
|
·
|
Production
taxes: Our production taxes have increased compared to the second quarter
of 2007 and the first quarter of 2008 as commodity prices and thus the
values of our oil and natural gas has increased. Severance taxes paid in
Utah and Colorado, are directly related to the field sales price of the
commodity. In California, our production is burdened with ad valorem taxes
on our total proved reserves. We expect production taxes to track oil and
gas prices generally.
|
·
|
Depreciation,
depletion and amortization: DD&A increased per BOE by 17% and 4%
in the second quarter of 2008 as compared to the second quarter of 2007
and as compared to the first quarter of 2008, respectively, due to an
increase in the contribution of our development properties with higher
drilling and leasehold acquisition costs, which is in line with our
expectations.
|
·
|
General
and administrative: Approximately 70% of our G&A is related to
compensation. The primary reason for the increase in G&A during the
second quarter of 2008 as compared to the second quarter of 2007 was
primarily due to an increase in the number of employees from 243 as of
June 30, 2007 to 274 as of June 30,
2008.
|
·
|
Interest
expense: Our total outstanding borrowings were approximately
$511 million at June 30, 2008 compared to $475 million and $455
million at June 30, 2007 and March 31, 2008, respectively. For the three
months ended June 30, 2008, $4 million of interest cost has been
capitalized and we expect to capitalize approximately $20 million of
interest cost during the full year of
2008.
|
Anticipated
range
|
||||||||||
in
2008
per
BOE
|
Six
months ended
June
30, 2008
|
Six
months ended
June
30, 2007
|
||||||||
Operating
costs-oil and gas production (1)
|
$
|
18.50
to 20.50
|
$
|
18.64
|
$
|
14.55
|
||||
Production
taxes
|
2.20
to 2.70
|
2.59
|
1.67
|
|||||||
DD&A
– oil and gas production
|
10.00
to 11.00
|
10.81
|
8.84
|
|||||||
G&A
|
4.00
to 4.50
|
4.34
|
4.19
|
|||||||
Interest
expense
|
1.50
to 2.00
|
1.48
|
1.94
|
|||||||
Total
|
$
|
36.20
to 40.70
|
$
|
37.86
|
$
|
31.19
|
|
·
|
Operating
costs: The majority of the increase in our operating costs was due to
higher steam costs resulting from higher fuel costs. The following table
presents steam information:
|
Six
months ended
June
30, 2008
|
Six
months ended
June
30, 2007
|
Change
|
||
Average
volume of steam injected (Bbl/D)
|
94,589
|
85,076
|
11%
|
|
Fuel
gas cost/MMBtu (including transportation)
|
$
8.98
|
$
6.58
|
37%
|
|
Approximate
net fuel gas volume consumed in
steam
generation (MMBtu/D)
|
24,536
|
21,022
|
17%
|
·
|
Production
taxes: Production taxes per BOE in the six months ended June 30, 2008 were
55% higher than the comparable period in 2007 as commodity prices and thus
the values of our oil and natural gas has increased. Severance taxes paid
in Utah and Colorado, are directly related to the field sales price of the
commodity. In California, our production is burdened with ad valorem taxes
on our total proved reserves. We expect production taxes to track oil and
gas prices generally.
|
·
|
Depreciation,
depletion and amortization: DD&A per BOE were 22% higher in the six
months ended June 30, 2008 compared to the same period in the prior year
due to an increase in the contribution of our development properties with
higher drilling and leasehold acquisition costs, which is in line with our
expectations.
|
·
|
General
and administrative: G&A per BOE increased by 4% in the six months
ended June 30, 2007 compared to the same period in the prior year due to
additional staffing and higher overall compensation costs associated with
our growth activities.
|
·
|
Interest
expense: Our outstanding borrowings, including our senior unsecured money
market line of credit and senior subordinated notes, was approximately
$511 million at June 30, 2008 compared to approximately
$475 million at June 30, 2007. For the six months ended June 30,
2008, $8 million of interest cost has been
capitalized.
|
Three
months ended
June
30, 2008
|
Six months ended
June
30, 2008
|
|||||||||
Gross Wells
|
Net
Wells
|
Gross
Wells
|
Net
Wells
|
|||||||
S.
Midway
|
34
|
34
|
57
|
57
|
||||||
N.
Midway
|
33
|
33
|
69
|
69
|
||||||
S.
Cal
|
4
|
4
|
25
|
25
|
||||||
Piceance
|
20
|
12
|
39
|
21
|
||||||
Uinta
|
20
|
20
|
29
|
29
|
||||||
DJ
|
9
|
9
|
46
|
39
|
||||||
Totals
|
120
|
112
|
265
|
240
|
June
30, 2008
(2Q08)
|
June
30, 2007
(2Q07)
|
2Q08
to 2Q07 Change
|
March
31, 2008
(1Q08)
|
2Q08
to 1Q08 Change
|
|
Average
production (BOE/D)
|
29,000
|
27,195
|
7%
|
28,066
|
3%
|
Average
oil and gas sales prices, per BOE after hedging
|
$
69.77
|
$
45.43
|
54%
|
$
60.43
|
15%
|
Net
cash provided by operating activities (1)
|
$107
|
$
81
|
32%
|
$
87
|
23%
|
Working
capital
|
$
(225)
|
$
(39)
|
(464)%
|
$
(123)
|
(79)%
|
Sales
of oil and gas
|
$185
|
$113
|
64%
|
$ 164
|
13%
|
Total
debt
|
$511
|
$475
|
8%
|
$
455
|
12%
|
Capital
expenditures, including acquisitions and deposits on
acquisitions
|
$154
|
$131
|
18%
|
$
77
|
100%
|
Dividends
paid
|
$3.4
|
$
3.4
|
-%
|
$
3.3
|
3%
|
(1)
|
The
change in the book overdraft line in the Statements of Cash Flows is
classified as an operating activity to reflect the use of these funds in
operations, rather than their prior year classification as a financing
activity.
|
Total
|
2008
|
2009
|
2010
|
2011
|
2012
|
Thereafter
|
|||||||||
Total
debt and interest
|
$
|
687.4
|
$
|
14.3
|
$
|
28.5
|
$
|
28.6
|
$
|
333.5
|
$
|
16.5
|
$
|
266.0
|
|
Abandonment
obligations
|
40.0
|
.7
|
1.4
|
1.4
|
1.5
|
1.5
|
33.5
|
||||||||
Operating
lease obligations
|
17.0
|
1.2
|
2.2
|
2.1
|
2.1
|
2.1
|
7.3
|
||||||||
Drilling
and rig obligations
|
55.9
|
12.8
|
16.3
|
7.4
|
19.4
|
-
|
-
|
||||||||
Firm
natural gas
|
|||||||||||||||
transportation
contracts
|
165.7
|
7.7
|
19.5
|
19.5
|
19.5
|
19.1
|
80.4
|
||||||||
Total
|
$
|
966.0
|
$
|
36.7
|
$
|
67.9
|
$
|
59.0
|
$
|
376.0
|
$
|
39.2
|
$
|
387.2
|
Item
3.
Quantitative
and Qualitative Disclosures About Market
Risk
|
Average
|
Average
|
|||||||||
Barrels
|
Floor/Ceiling
|
MMBtu
|
Average
|
|||||||
Term
|
Per
Day
|
Prices
|
Term
|
Per
Day
|
Price
|
|||||
Crude
Oil Sales (NYMEX WTI) Collars
|
Natural
Gas Sales (NYMEX HH TO CIG) Basis Swaps
|
|||||||||
Full
year 2008
|
10,000
|
$47.50
/ $70.00
|
3rd
Quarter 2008
|
19,000
|
$1.40
|
|||||
Full
year 2009
|
10,000
|
$47.50
/ $70.00
|
4th
Quarter 2008
|
21,000
|
$1.46
|
|||||
Full
year 2009
|
295
|
$80.00
/ $91.00
|
||||||||
Full
year 2010
|
1,000
|
$60.00
/ $80.00
|
Natural
Gas Sales (NYMEX HH TO PEPL) Basis Swaps
|
|||||||
Full
year 2010
|
1,000
|
$55.00
/ $76.20
|
1st
Quarter 2009
|
15,400
|
$1.17
|
|||||
Full
year 2010
|
1,000
|
$55.00
/ $77.75
|
2nd
Quarter 2009
|
15,400
|
$1.12
|
|||||
Full
year 2010
|
1,000
|
$55.00
/ $77.70
|
3rd
Quarter 2009
|
15,400
|
$0.97
|
|||||
Full
year 2010
|
1,000
|
$55.00
/ $83.10
|
4th
Quarter 2009
|
15,400
|
$1.05
|
|||||
Full
year 2010
|
1,000
|
$60.00
/ $75.00
|
||||||||
Full
year 2010
|
1,000
|
$65.50
/ $78.50
|
Natural Gas Sales (NYMEX HH)
Swaps
|
|||||||
Full
year 2010
|
280
|
$80.00
/ $90.00
|
3rd
Quarter 2008
|
16,200
|
$8.04
|
|||||
Full
year 2011
|
270
|
$80.00
/ $90.00
|
4th
Quarter 2008
|
16,200
|
$8.04
|
|||||
Full
year 2009
|
15,400
|
$8.50
|
||||||||
Crude
Oil Sales (NYMEX WTI) Swaps
|
||||||||||
Full
year 2008
|
335
|
$92.00
|
Natural Gas Sales (NYMEX HH)
Collars
|
Floor/Ceiling
Prices
|
||||||
Full
year 2009
|
240
|
$71.50
|
3rd
Quarter 2008
|
2,800
|
$7.50
/ $8.50
|
|||||
4th
Quarter 2008
|
4,800
|
$8.00
/ $9.50
|
Impact
of percent change in futures prices
|
||||||||||||||||
June
30, 2008
|
on
pretax future cash (payments) and receipts
|
|||||||||||||||
NYMEX
Futures
|
-20%
|
-10%
|
+
10%
|
+
20%
|
||||||||||||
Average
WTI Futures Price (2008 – 2011)
|
$
|
139.01
|
$
|
111.21
|
$
|
125.11
|
$
|
152.91
|
$
|
166.82
|
||||||
Average
HH Futures Price (2008 – 2009)
|
12.82
|
10.26
|
11.55
|
14.11
|
15.39
|
|||||||||||
Crude
Oil gain/(loss) (in millions)
|
$
|
(604.8
|
)
|
$
|
(350.0
|
)
|
$
|
(477.4
|
)
|
$
|
(732.2
|
)
|
$
|
(859.6
|
)
|
|
Natural
Gas gain/(loss) (in millions)
|
(30.2
|
)
|
(10.1
|
)
|
(22.1
|
)
|
(46.1
|
)
|
(58.1
|
)
|
||||||
Total
|
$
|
(635.0
|
)
|
$
|
(360.1
|
)
|
$
|
(499.5
|
)
|
$
|
(778.3
|
)
|
$
|
(917.7
|
)
|
|
Net
pretax future cash (payments) and receipts by year (in millions) based on
average price in each year:
|
||||||||||||||||
2008
(WTI $140.73; HH $13.54)
|
$
|
(157.4
|
)
|
$
|
(91.2
|
)
|
$
|
(126.2
|
)
|
$
|
(196.2
|
)
|
$
|
(231.2
|
)
|
|
2009
(WTI $140.88; HH $12.47)
|
(291.1
|
)
|
(168.8
|
)
|
(229.9
|
)
|
(352.3
|
)
|
(413.5
|
)
|
||||||
2010
(WTI $138.51)
|
(181.9
|
)
|
(98.2
|
)
|
(140.1
|
)
|
(223.8
|
)
|
(265.6
|
)
|
||||||
2011
(WTI $136.79)
|
(4.6
|
)
|
(1.9
|
)
|
(3.3
|
)
|
(6.0
|
)
|
(7.4
|
)
|
||||||
Total
|
$
|
(635.0
|
)
|
$
|
(360.1
|
)
|
$
|
(499.5
|
)
|
$
|
(778.3
|
)
|
$
|
(917.7
|
)
|