DELAWARE
|
77-0079387
|
|||
(State
of incorporation or organization)
|
(I.R.S.
Employer Identification Number)
|
PART
I. FINANCIAL INFORMATION
|
Page
|
||||
Item
1. Financial Statements
|
3 | ||||
Unaudited
Condensed Balance Sheets at September 30, 2008 and December 31,
2007
|
3 | ||||
Unaudited
Condensed Statements of Income for the Three Month Periods Ended September
30, 2008 and 2007
|
4 | ||||
Unaudited
Condensed Statements of Income for the Nine Month Periods Ended September
30, 2008 and 2007
|
5 | ||||
Unaudited
Condensed Statements of Cash Flows for the Nine Month Periods Ended
September 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
|
15 | ||||
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
27 | ||||
Item
4. Controls and Procedures
|
30 | ||||
PART
II.
OTHER
INFORMATION
|
|||||
Item
1. Legal Proceedings
|
30 | ||||
Item
1A. Risk Factors
|
30 | ||||
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
30 | ||||
Item
3. Defaults Upon Senior Securities
|
30 | ||||
Item
4. Submission of Matters to a Vote of Security Holders
|
30 | ||||
Item
5. Other Information
|
30 | ||||
Item
6. Exhibits
|
31 |
September
30, 2008
|
December
31, 2007
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 59 | $ | 316 | ||||
Short-term
investments
|
65 | 58 | ||||||
Accounts
receivable
|
145,701 | 117,038 | ||||||
Deferred
income taxes
|
38,987 | 28,547 | ||||||
Fair
value of derivatives
|
2,198 | 2,109 | ||||||
Assets
held for sale
|
- | 1,394 | ||||||
Prepaid
expenses and other
|
19,432 | 11,557 | ||||||
Total
current assets
|
206,442 | 161,019 | ||||||
Oil
and gas properties (successful efforts basis), buildings and equipment,
net
|
2,196,322 | 1,275,091 | ||||||
Other
assets
|
17,307 | 15,996 | ||||||
$ | 2,420,071 | $ | 1,452,106 | |||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 150,750 | $ | 90,354 | ||||
Revenue
and royalties payable
|
35,779 | 47,181 | ||||||
Accrued
liabilities
|
37,284 | 21,653 | ||||||
Line
of credit
|
19,300 | 14,300 | ||||||
Income
taxes payable
|
380 | 2,591 | ||||||
Fair
value of derivatives
|
110,427 | 95,290 | ||||||
Total
current liabilities
|
353,920 | 271,369 | ||||||
Long-term
liabilities:
|
||||||||
Deferred
income taxes
|
206,848 | 128,824 | ||||||
Long-term
debt
|
1,109,300 | 445,000 | ||||||
Abandonment
obligation
|
40,414 | 36,426 | ||||||
Unearned
revenue
|
- | 398 | ||||||
Other
long-term liabilities
|
6,226 | 1,657 | ||||||
Fair
value of derivatives
|
106,459 | 108,458 | ||||||
1,469,247 | 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; 42,737,029 shares issued
and outstanding (42,583,002 in 2007)
|
427 | 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
|
77,739 | 66,590 | ||||||
Accumulated
other comprehensive loss
|
(130,361 | ) | (120,704 | ) | ||||
Retained
earnings
|
649,081 | 513,645 | ||||||
Total
shareholders' equity
|
596,904 | 459,974 | ||||||
$ | 2,420,071 | $ | 1,452,106 |
Three
months ended September 30,
|
|||||||||
2008
|
2007
|
||||||||
REVENUES
AND OTHER INCOME ITEMS
|
|||||||||
Sales
of oil and gas
|
$ | 207,863 | $ | 118,733 | |||||
Sales
of electricity
|
18,317 | 12,241 | |||||||
Gas
marketing
|
13,284 | - | |||||||
Gain
on sale of assets
|
95 | 1,418 | |||||||
Interest
and other income, net
|
1,202 | 1,108 | |||||||
240,761 | 133,500 | ||||||||
EXPENSES
|
|||||||||
Operating
costs - oil and gas production
|
56,038 | 33,995 | |||||||
Operating
costs - electricity generation
|
13,706 | 9,760 | |||||||
Production
taxes
|
9,673 | 4,344 | |||||||
Depreciation,
depletion & amortization - oil and gas production
|
40,440 | 23,356 | |||||||
Depreciation,
depletion & amortization - electricity
generation
|
646 | 938 | |||||||
Gas
marketing
|
12,034 | - | |||||||
General
and administrative
|
14,524 | 9,333 | |||||||
Interest
|
8,755 | 4,326 | |||||||
Commodity
derivatives
|
(594 | ) | - | ||||||
Dry
hole, abandonment, impairment and exploration
|
1,571 | 5,175 | |||||||
156,793 | 91,227 | ||||||||
Income
before income taxes
|
83,968 | 42,273 | |||||||
Provision
for income taxes
|
30,620 | 15,418 | |||||||
Net
income
|
$ | 53,348 | $ | 26,855 | |||||
Basic
net income per share
|
$ | 1.20 | $ | .61 | |||||
Diluted
net income per share
|
$ | 1.17 | $ | .60 | |||||
Dividends
per share
|
$ | .075 | $ | .075 | |||||
Weighted
average number of shares of capital stock outstanding used to calculate
basic net income per share
|
|||||||||
Effect
of dilutive securities:
|
44,527 | 44,112 | |||||||
Equity
based compensation
|
886 | 772 | |||||||
Director
deferred compensation
|
128 | 118 | |||||||
Weighted
average number of shares of capital stock used to calculate diluted net
income per share
|
45,541 | 45,002 | |||||||
Unaudited
Condensed Statements of Comprehensive Income
|
|||||||||
Three
Month Periods Ended September 30, 2008 and 2007
|
|||||||||
(In
Thousands)
|
|||||||||
Net
income
|
$ | 53,348 | $ | 26,855 | |||||
Unrealized
gains (losses) on derivatives, net of income taxes (benefits) of $144,881
and ($7,027), respectively
|
225,693 | (10,541 |
)
|
||||||
Reclassification
of realized gains on derivatives included in net income, net of income
taxes of $18,745 and $1,411, respectively
|
30,584 | 2,116 | |||||||
Comprehensive
income
|
$ | 309,625 | $ | 18,430 |
Nine
months ended September 30,
|
|||||||
2008
|
2007
|
||||||
REVENUES
AND OTHER INCOME ITEMS
|
|||||||
Sales
of oil and gas
|
$ | 557,689 | $ | 333,933 | |||
Sales
of electricity
|
51,223 | 40,704 | |||||
Gas
marketing
|
28,046 | - | |||||
Gain
on sale of assets
|
510 | 51,816 | |||||
Interest
and other income, net
|
4,095 | 3,754 | |||||
641,563 | 430,207 | ||||||
EXPENSES
|
|||||||
Operating
costs - oil and gas production
|
152,852 | 103,330 | |||||
Operating
costs - electricity generation
|
45,620 | 35,014 | |||||
Production
taxes
|
23,121 | 12,297 | |||||
Depreciation,
depletion & amortization - oil and gas production
|
96,588 | 65,478 | |||||
Depreciation,
depletion & amortization - electricity
generation
|
1,991 | 2,661 | |||||
Gas
marketing
|
26,087 | - | |||||
General
and administrative
|
37,067 | 29,291 | |||||
Interest
|
16,444 | 13,593 | |||||
Commodity
derivatives
|
172 | - | |||||
Dry
hole, abandonment, impairment and exploration
|
9,162 | 9,342 | |||||
409,104 | 271,006 | ||||||
Income
before income taxes
|
232,459 | 159,201 | |||||
Provision
for income taxes
|
86,939 | 61,534 | |||||
Net
income
|
$ | 145,520 | $ | 97,667 | |||
Basic
net income per share
|
$ | 3.27 | $ | 2.22 | |||
Diluted
net income per share
|
$ | 3.20 | $ | 2.18 | |||
Dividends
per share
|
$ | .225 | $ | .225 | |||
Weighted
average number of shares of capital stock outstanding used to calculate
basic net income per share
|
44,466 | 44,020 | |||||
Effect
of dilutive securities:
|
|||||||
Equity
based compensation
|
914 | 701 | |||||
Director
deferred compensation
|
126 | 115 | |||||
Weighted
average number of shares of capital stock used to calculate diluted net
income per share
|
45,506 | 44,836 | |||||
Unaudited
Condensed Statements of Comprehensive Income
|
|||||||
Nine
Month Periods Ended September 30, 2008 and 2007
|
|||||||
(In
Thousands)
|
|||||||
Net
income
|
$ | 145,520 | $ | 97,667 | |||
Unrealized
losses on derivatives, net of income tax benefits of $58,260 and $19,484,
respectively
|
(95,055 | ) | (29,226 |
)
|
|||
Reclassification
of realized gains on derivatives included in net income, net of income
taxes of $52,341 and $529, respectively
|
85,399 | 793 | |||||
Comprehensive
income
|
$ | 135,864 | $ | 69,234 |
Nine
months ended September 30,
|
||||||||
2008
|
2007
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income
|
$ | 145,520 | $ | 97,667 | ||||
Depreciation,
depletion and amortization
|
98,579 | 68,139 | ||||||
Dry
hole and impairment
|
6,858 | 8,725 | ||||||
Commodity
derivatives
|
(180 | ) | 804 | |||||
Stock-based
compensation expense
|
6,653 | 5,437 | ||||||
Deferred
income taxes
|
76,502 | 53,162 | ||||||
Unrealized
loss on ineffective hedges
|
172 | - | ||||||
Gain
on sale of oil and gas properties
|
(510 | ) | (51,816 | ) | ||||
Other,
net
|
(1,500 | ) | 750 | |||||
Change
in book overdraft
|
3,935 | (2,995 | ) | |||||
Cash
paid for abandonment
|
(3,957 | ) | (660 | ) | ||||
Increase
in current assets other than cash and cash
equivalents
|
(35,361 | ) | (10,785 | ) | ||||
Increase
in current liabilities other than book overdraft, line of credit and fair
value of derivatives
|
34,537 | 13,116 | ||||||
Net
cash provided by operating activities
|
331,248 | 181,544 | ||||||
Cash
flows from investing activities:
|
||||||||
Exploration
and development of oil and gas properties
|
(302,266 | ) | (206,240 | ) | ||||
Property
acquisitions
|
(667,030 | ) | (56,167 | ) | ||||
Additions
to vehicles, drilling rigs and other fixed assets
|
(4,146 | ) | (2,944 | ) | ||||
Proceeds
from sale of assets
|
2,038 | 68,432 | ||||||
Capitalized
interest
|
(15,461 | ) | (13,160 | ) | ||||
Net
cash used in investing activities
|
(986,865 | ) | (210,079 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from issuances on line of credit
|
308,000 | 285,150 | ||||||
Payments
on line of credit
|
(303,000 | ) | (296,650 | ) | ||||
Proceeds
from issuance of long-term debt
|
1,481,300 | 179,300 | ||||||
Payments
on long-term debt
|
(817,000 | ) | (134,300 | ) | ||||
Debt
issuance cost
|
(8,353 | ) | - | |||||
Dividends
paid
|
(10,084 | ) | (10,036 | ) | ||||
Proceeds
from stock option exercises
|
2,834 | 3,051 | ||||||
Excess
tax benefit and other
|
1,663 | 1,795 | ||||||
Net
cash provided by financing activities
|
655,360 | 28,310 | ||||||
Net
decrease in cash and cash equivalents
|
(257 | ) | (225 | ) | ||||
Cash
and cash equivalents at beginning of year
|
316 | 416 | ||||||
Cash
and cash equivalents at end of period
|
$ | 59 | $ | 191 | ||||
1.
|
General
|
2.
|
Recent Accounting
Developments
|
3.
|
Fair
Value Measurement
|
September
30, 2008 (in millions)
|
Total
carrying value on the condensed Balance Sheet
|
Level
2
|
Level
3
|
|||||||||
Commodity
derivatives
|
209.8 | .9 | 208.9 | |||||||||
Interest
rate swaps
|
4.9 | 4.9 | - | |||||||||
Total
liabilities at fair value
|
214.7 | 5.8 | 208.9 |
(in
millions)
|
Three
months ended September 30, 2008
|
Nine
months ended September 30, 2008
|
||||||
Fair
value, beginning of period
|
$ | 569.6 | $ | 194.3 | ||||
Total
realized and unrealized gains and (losses) included in sales of oil and
gas
|
(370.5 | ) | 31.1 | |||||
Purchases,
sales and settlements, net
|
9.8 | (16.5 | ) | |||||
Transfers
in and/or out of Level 3
|
- | - | ||||||
Fair
value, September 30, 2008
|
$ | 208.9 | $ | 208.9 | ||||
Total
unrealized gains and (losses) included in income related to financial
assets and liabilities still on the condensed balance sheet at September
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.
|
Crude
Oil Sales (NYMEX WTI) Collars
|
Average Barrels
Per Day
|
Floor/Ceiling
Prices
|
Deferred
Premium Per Barrel
|
|||||||||
Full
year 2009
|
1,000
|
$
|
100.00 / $163.60 |
$
|
1.00 | |||||||
Full
year 2009
|
1,000
|
$
|
100.00 / $150.30 |
$
|
- | |||||||
Full
year 2009
|
1,000
|
$
|
100.00 / $160.00 |
$
|
2.00 | |||||||
Full
year 2009
|
1,000
|
$ | 100.00 / $150.00 |
$
|
0.63 | |||||||
Full
year 2009
|
1,000
|
$
|
100.00 / $157.48 |
$
|
- | |||||||
Full
year 2010
|
1,000
|
$ | 100.00 / $161.10 |
$
|
1.00 | |||||||
Full
year 2010
|
1,000
|
$
|
100.00 / $150.30 |
$
|
- | |||||||
Full
year 2010
|
1,000
|
$
|
100.00 / $160.00 |
$
|
2.00 | |||||||
Full
year 2010
|
1,000
|
$
|
100.00 / $150.00 |
$
|
1.55 | |||||||
Full
year 2010
|
1,000
|
$
|
100.00 / $158.50 |
$
|
- |
5.
|
Asset Retirement
Obligations
|
Beginning
balance at January 1
|
$
|
36,426
|
||
Liabilities
incurred
|
3,490
|
|||
Liabilities
settled
|
(3,957
|
)
|
||
Revisions
in estimated liabilities
|
2,006
|
|||
Accretion
expense
|
2,449
|
|||
Ending
balance at September 30
|
$
|
40,414
|
6.
|
Acquisitions and
Dispositions
|
7.
|
Dry
Hole, Abandonment and Impairment
|
|
8. Pro Forma Results
|
Three
Months Ended
September
30, 2008
|
Three
Months Ended
September
30, 2007
|
Nine
Months Ended
September
30, 2008
|
Nine
Months Ended
September
30, 2007
|
|||||||||||||
Pro
forma revenue
|
$ | 253,112 | $ | 142,785 | $ | 694,269 | $ | 454,747 | ||||||||
Pro
forma income from operations
|
$ | 91,082 | $ | 31,035 | $ | 239,235 | $ | 124,520 | ||||||||
Pro
forma net income
|
$ | 57,427 | $ | 20,913 | $ | 150,423 | $ | 78,878 | ||||||||
Pro
forma basic earnings per share
|
$ | 1.29 | $ | 0.47 | $ | 3.38 | $ | 1.79 | ||||||||
Pro
forma diluted earnings per share
|
$ | 1.27 | $ | 0.46 | $ | 3.31 | $ | 1.76 |
Purchase
price (in thousands):
|
As
of
September
30, 2008
|
||||
Original
purchase price
|
$ | 622,356 | |||
Closing
adjustments for property costs, and operating expenses in excess of
revenues between the effective date and closing date
|
43,811 | ||||
Total
purchase price allocation
|
$ | 666,167 | |||
Preliminary
allocation of purchase price (in thousands):
|
|||||
Oil
and natural gas properties
|
$ | 651,803 |
(i)
|
||
Pipeline
|
17,288 | ||||
Total
assets acquired
|
669,091 | ||||
Current
liabilities
|
(1,569 | ) |
(ii)
|
||
Asset
retirement obligation
|
(1,355 | ) | |||
Net
assets acquired
|
$ | 666,167 |
9.
|
Income
Taxes
|
10.
|
Debt
Obligations
|
|
Financial
Covenants
|
11.
|
Contingencies
and Commitments
|
12.
|
Subsequent
Events
|
·
|
Investing
our capital in a disciplined manner and maintaining a strong financial
position
|
·
|
Developing
our existing resource base
|
·
|
Acquiring
additional assets with significant growth
potential
|
·
|
Accumulating
significant acreage positions near our producing
operations
|
·
|
Utilizing
joint ventures with respected partners to enter new
basins
|
·
|
Achieved
target production averaging 35,150 BOE/D, up 31% from the third quarter of
2007 and up 21% from the second quarter of
2008
|
·
|
Closed
on our East Texas acquisition on July 15, 2008, adding approximately 335
Bcfe of proved reserves
|
·
|
Increased
Diatomite net production to an average of 2,100 BOE/D, up 24% from the
second quarter of 2008
|
·
|
Increased
Piceance net average production to 22.7 MMcf/D in the third quarter of
2008, up 37% from the second quarter of
2008
|
·
|
Production
at Poso Creek averaged 3,300 Bbl/D, up 3% from the second quarter of
2008
|
·
|
Increased
both oil and natural gas production during the quarter with oil production
up 9% and natural gas production up 89% from the third quarter of
2007
|
·
|
Amended
our credit facility increasing the borrowing base from $600 million to $1
billion
|
·
|
David
D. Wolf joined the Company as Executive Vice President and Chief Financial
Officer
|
·
|
Increased
the borrowing base on our senior secured credit facility from $1.0 billion
to $1.25 billion with an increase in our commitments to $1.08 billion on
October 17, 2008
|
·
|
Reducing
drilling activity from 12 rigs to 4 rigs by year-end 2008 with 1 rig in
California, 1 rig in the Piceance basin and 2 rigs in East
Texas
|
·
|
Targeting
a production average of 37,000 to 38,000 BOE/D in the fourth
quarter
|
·
|
Planning
to takeover operations in East Texas from the seller on November 1,
2008
|
·
|
Anticipating
a 2009 Capital budget of approximately $200 million focusing on
development of the diatomite and other high return oil projects in
California and high impact recompletions in East
Texas
|
·
|
Expect
proved reserves at year-end to range between 235-245 MMBOE, up over 40%
from 169 MMBOE at year-end 2007, with organic growth of 27
MMBOE
|
September
30, 2008
(3Q08)
|
September
30, 2007
(3Q07)
|
3Q07
to 3Q08 Change
|
June
30, 2008
(2Q08)
|
2Q08
to 3Q08 Change
|
||||||||||||||||
Sales
of oil
|
$ | 145 | $ | 100 | 45 | % | $ | 146 | (1 | %) | ||||||||||
Sales
of gas
|
63 | 19 | 232 | % | 39 | 62 | % | |||||||||||||
Total
sales of oil and gas
|
$ | 208 | $ | 119 | 75 | % | $ | 185 | 12 | % | ||||||||||
Sales
of electricity
|
18 | 12 | 50 | % | 17 | 6 | % | |||||||||||||
Gain
on sale of assets
|
- | 2 | - | % | - | - | % | |||||||||||||
Other
revenues
|
15 | 1 | 1,400 | % | 13 | 15 | % | |||||||||||||
Total
revenues and other income
|
$ | 241 | $ | 134 | 80 | % | $ | 215 | 12 | % | ||||||||||
Net
income
|
$ | 53 | $ | 27 | 96 | % | $ | 49 | 8 | % | ||||||||||
Earnings
per share (diluted)
|
$ | 1.17 | $ | .60 | 95 | % | $ | 1.08 | 8 | % |
September
30, 2008
|
%
|
September
30, 2007
|
%
|
June
30, 2008
|
%
|
|||||||||||||||||||
Heavy
Oil Production (Bbl/D)
|
17,264 | 49 | 15,806 | 59 | 16,888 | 58 | ||||||||||||||||||
Light
Oil Production (Bbl/D)
|
3,898 | 11 | 3,675 | 14 | 3,723 | 13 | ||||||||||||||||||
Total
Oil Production (Bbl/D)
|
21,162 | 60 | 19,481 | 73 | 20,611 | 71 | ||||||||||||||||||
Natural
Gas Production (Mcf/D)
|
83,928 | 40 | 44,346 | 27 | 50,339 | 29 | ||||||||||||||||||
Total
(BOE/D)
|
35,150 | 100 | 26,873 | 100 | 29,000 | 100 | ||||||||||||||||||
Oil
and gas, per BOE:
|
||||||||||||||||||||||||
Average
sales price before hedging
|
$ | 80.22 | $ | 49.35 | $ | 91.89 | ||||||||||||||||||
Average
sales price after hedging
|
64.98 | 47.93 | 69.77 | |||||||||||||||||||||
Oil,
per Bbl:
|
||||||||||||||||||||||||
Average
WTI price
|
$ | 118.22 | $ | 75.15 | $ | 123.80 | ||||||||||||||||||
Price
sensitive royalties
|
(5.30 | ) | (5.50 | ) | (5.92 | ) | ||||||||||||||||||
Quality
differential and other
|
(10.80 | ) | (9.56 | ) | (11.52 | ) | ||||||||||||||||||
Crude
oil hedges
|
(26.12 | ) | (4.37 | ) | (29.37 | ) | ||||||||||||||||||
Average
oil sales price after hedging
|
$ | 76.00 | $ | 55.72 | $ | 76.99 | ||||||||||||||||||
Natural
gas price:
|
||||||||||||||||||||||||
Average
Henry Hub price per MMBtu
|
$ | 10.24 | $ | 6.24 | $ | 10.93 | ||||||||||||||||||
Conversion
to Mcf
|
.52 | .31 | .55 | |||||||||||||||||||||
Natural
gas hedges
|
.15 | 1.07 | (.69 | ) | ||||||||||||||||||||
Location,
quality differentials and other
|
(2.81 | ) | (3.06 | ) | (2.15 | ) | ||||||||||||||||||
Average
gas sales price after hedging per Mcf
|
$ | 8.10 | $ | 4.56 | $ | 8.64 |
September
30, 2008
|
%
|
September
30, 2007
|
%
|
|||||||||||||
Heavy
Oil Production (Bbl/D)
|
16,845 | 54 | 16,019 | 60 | ||||||||||||
Light
Oil Production (Bbl/D)
|
3,710 | 12 | 3,655 | 14 | ||||||||||||
Total
Oil Production (Bbl/D)
|
20,555 | 66 | 19,674 | 74 | ||||||||||||
Natural
Gas Production (Mcf/D)
|
61,201 | 34 | 41,109 | 26 | ||||||||||||
Total
(BOE/D)
|
30,755 | 100 | 26,525 | 100 | ||||||||||||
Oil
and gas, per BOE:
|
||||||||||||||||
Average
sales price before hedging
|
$ | 82.57 | $ | 45.98 | ||||||||||||
Average
sales price after hedging
|
66.37 | 45.82 | ||||||||||||||
Oil,
per Bbl:
|
||||||||||||||||
Average
WTI price
|
$ | 113.52 | $ | 66.22 | ||||||||||||
Price
sensitive royalties
|
(3.36 | ) | (4.48 | ) | ||||||||||||
Quality
differential and other
|
(12.90 | ) | (9.26 | ) | ||||||||||||
Crude
oil hedges
|
(23.83 | ) | (1.61 | ) | ||||||||||||
Correction
to royalties payable
|
1.88 | - | ||||||||||||||
Average
oil sales price after hedging
|
$ | 75.31 | $ | 50.87 | ||||||||||||
Natural
gas price:
|
||||||||||||||||
Average
Henry Hub price per MMBtu
|
$ | 9.74 | $ | 7.02 | ||||||||||||
Conversion
to Mcf
|
.49 | .36 | ||||||||||||||
Natural
gas hedges
|
(.15 | ) | .67 | |||||||||||||
Location,
quality differentials and other
|
(2.01 | ) | (2.85 | ) | ||||||||||||
Average
gas sales price after hedging per Mcf
|
$ | 8.07 | $ | 5.20 | ||||||||||||
Gas Basis
Differential. The basis differential between Henry Hub
(HH) and Colorado Interstate Gas (CIG) index increased during the third
quarter after decreasing at the start up of the Rockies Express Pipeline
(REX) in January. The differential averaged $4.31 in the third
quarter. In the second quarter of 2008, the CIG basis
differential per MMBtu, based upon first-of-month values, averaged $2.45
below HH and ranged from $1.77 to $3.24 below HH. For the
third quarter, the differential averaged $4.31 with the range from $2.19
at the start of the quarter to $6.61 below HH at the end of the quarter.
The large September differential was due primarily to maintenance on REX
which put a large portion of the pipeline out of service for almost the
entire month. Maintenance was completed and REX was back in
service September 28, 2008. 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 $1.08 above the CIG index pricing before the cost
of transportation.
|
September
30, 2008
|
September
30, 2007
|
June
30, 2008
|
||||||
Electricity
|
||||||||
Revenues
(in millions)
|
$
|
18.3
|
$
|
12.3
|
$
|
17.0
|
||
Operating
costs (in millions)
|
$
|
13.7
|
$
|
9.8
|
$
|
15.5
|
||
Electric
power produced - MWh/D
|
2,096
|
2,257
|
1,919
|
|||||
Electric
power sold - MWh/D
|
1,908
|
2,077
|
1,724
|
|||||
Average
sales price/MWh
|
$
|
104.91
|
$
|
71.28
|
$
|
108.21
|
||
Fuel
gas cost/MMBtu (including transportation)
|
$
|
8.20
|
$
|
4.84
|
$
|
10.01
|
Amount
per BOE
|
Amount
(in thousands)
|
|||||||||||||||||||||||
September
30, 2008
|
September
30, 2007
|
June
30,
2008
|
September
30, 2008
|
September
30, 2007
|
June
30, 2008
|
|||||||||||||||||||
Operating
costs – oil and gas production
|
$ | 17.33 | $ | 13.75 | $ | 20.91 | $ | 56,038 | $ | 33,995 | $ | 55,185 | ||||||||||||
Production
taxes
|
2.99 | 1.76 | 2.83 | 9,673 | 4,344 | 7,481 | ||||||||||||||||||
DD&A
– oil and gas production
|
12.51 | 9.45 | 11.02 | 40,440 | 23,356 | 29,073 | ||||||||||||||||||
G&A
|
4.49 | 3.78 | 4.23 | 14,524 | 9,333 | 11,160 | ||||||||||||||||||
Interest
expense
|
2.71 | 1.75 | 1.50 | 8,755 | 4,326 | 3,951 | ||||||||||||||||||
Total
|
$ | 40.03 | $ | 30.49 | $ | 40.49 | $ | 129,430 | $ | 75,354 | $ | 106,850 |
|
·
|
Operating
costs: Steam costs are the primary variable component of our operating
costs and fluctuate based on the amount of steam we inject and the price
of fuel used to generate steam. The following table presents steam
information:
|
September
30, 2008
(3Q08)
|
September
30, 2007
(3Q07)
|
3Q07
to
3Q08 Change
|
June
30, 2008
(2Q08)
|
2Q08
to 3Q08 Change
|
||||||||||||||||
Average
volume of steam injected (Bbl/D)
|
105,574 | 88,711 | 19 | % | 97,853 | 8 | % | |||||||||||||
Fuel
gas cost/MMBtu (including transportation)
|
$ | 8.20 | $ | 4.84 | 69 | % | $ | 10.01 | (18 | %) | ||||||||||
Approximate
net fuel gas volume consumed in steam generation (MMBtu/D)
|
29,362 | 23,348 | 26 | % | 27,382 | 7 | % |
·
|
Production
taxes: Our production taxes have increased compared to the third quarter
of 2007 as commodity prices and thus the value of our oil and natural gas
has increased. The increase from the second quarter of 2008 is
primarily due to an increase in the assessed value of our properties in
California. Severance taxes paid in Utah, Colorado and
Texas 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 fluctuate with oil and gas
prices.
|
·
|
Depreciation,
depletion and amortization: DD&A increased per BOE by 32% and 14%
in the third quarter of 2008 as compared to the third quarter of 2007 and
as compared to the second quarter of 2008, respectively, due to an
increase in the contribution of our development properties with higher
drilling and leasehold acquisition costs and the integration of our East
Texas assets which have higher finding and development costs than our
legacy assets.
|
·
|
General
and administrative: Approximately 70% of our G&A is related to
compensation. The primary reason for the increase in G&A during the
third quarter of 2008 as compared to the third quarter of 2007 was due to
due to additional staffing and the costs associated with the 2008
relocation of our corporate office from Bakersfield, California to Denver,
Colorado.
|
·
|
Interest
expense: Our total outstanding borrowings were approximately $1.1 billion
at September 30, 2008 compared to $440 million and $511 million at
September 30, 2007 and June 30, 2008, respectively. Our average borrowings
increased since June 30, 2008 primarily due to the East Texas acquisition
in the third quarter of 2008. For the three months ended
September 30, 2008, $7 million of interest cost has been capitalized and
we expect to capitalize approximately $23 million of interest cost during
the full year of 2008.
|
Anticipated
range
Full
Year 2008
per
BOE
|
Nine
months ended
September
30, 2008
|
Nine
months ended
September
30, 2007
|
||||||||||
Operating
costs-oil and gas production
|
$ | 17.00 to 19.00 | $ | 18.14 | $ | 14.27 | ||||||
Production
taxes
|
2.50
to 3.00
|
2.74 | 1.70 | |||||||||
DD&A
– oil and gas production (1)
|
11.75
to 12.25
|
11.46 | 9.04 | |||||||||
G&A
|
4.00
to 4.50
|
4.40 | 4.05 | |||||||||
Interest
expense
|
1.50
to 2.00
|
1.95 | 1.88 | |||||||||
Total
|
$ | 36.75 to 40.75 | $ | 38.69 | $ | 30.94 |
|
·
|
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:
|
Nine
months ended
September
30, 2008
|
Nine
months ended
September
30, 2007
|
Change
|
||||||||||
Average
volume of steam injected (Bbl/D)
|
98,050 | 86,157 | 14 | % | ||||||||
Fuel
gas cost/MMBtu (including transportation)
|
$ | 8.70 | $ | 5.78 | 51 | % | ||||||
Approximate
net fuel gas volume consumed in
steam
generation (MMBtu/D)
|
26,128 | 21,698 | 20 | % |
·
|
Production
taxes: Production taxes per BOE in the nine months ended September 30,
2008 were 61% higher than the comparable period in 2007 as commodity
prices and thus the value of our oil and natural gas has increased.
Severance taxes paid in Utah, Colorado and Texas 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.
|
·
|
Depreciation,
depletion and amortization: DD&A per BOE was 27% higher in the nine
months ended September 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 and the integration
of our East Texas acquisition.
|
·
|
General
and administrative: G&A per BOE increased by 9% in the nine months
ended September 30, 2008 compared to the same period in the prior year due
to additional staffing and higher overall compensation costs associated
with our growth activities and the relocation of our corporate
headquarters.
|
·
|
Interest
expense: Our total outstanding borrowings was approximately
$1.1 billion at September 30, 2008 compared to approximately
$440 million at September 30, 2007. Our average borrowings increased
since September 30, 2007 primarily due to the East Texas acquisition in
the third quarter of 2008. For the nine months ended September
30, 2008, $16 million of interest cost has been
capitalized.
|
Three
months ended
September
30, 2008
|
Nine
months ended
September
30, 2008
|
|||||||||||||||
Asset
Team
|
Gross Wells
|
Net
Wells
|
Gross
Wells
|
Net
Wells
|
||||||||||||
S.
Midway
|
11 | 11 | 68 | 68 | ||||||||||||
N.
Midway
|
23 | 23 | 92 | 92 | ||||||||||||
S.
Cal
|
- | - | 25 | 25 | ||||||||||||
Piceance
|
26 | 16 | 65 | 37 | ||||||||||||
Uinta
|
16 | 16 | 45 | 45 | ||||||||||||
DJ
|
33 | 26 | 79 | 65 | ||||||||||||
Texas
|
9 | 9 | 9 | 9 | ||||||||||||
Totals
|
118 | 101 | 383 | 341 |
September
30, 2008
(3Q08)
|
September
30, 2007
(3Q07)
|
3Q07
to 3Q08
Change
|
June
30, 2008
(2Q08)
|
2Q08
to 3Q08
Change
|
||||||||||||||||
Average
production (BOE/D)
|
35,150 | 26,873 | 31 | % | 29,000 | 21 | % | |||||||||||||
Average
oil and gas sales prices, per BOE after hedging
|
$ | 64.98 | $ | 47.93 | 36 | % | $ | 69.77 | (7 | )% | ||||||||||
Net
cash provided by operating activities (1)
|
$ | 137 | $ | 93 | 47 | % | $ | 107 | 28 | % | ||||||||||
Working
capital
|
$ | (148 | ) | $ | (91 | ) | (63 | )% | $ | (225 | ) | 34 | % | |||||||
Sales
of oil and gas
|
$ | 208 | $ | 119 | 75 | % | $ | 185 | 12 | % | ||||||||||
Total
debt
|
$ | 1,129 | $ | 440 | 157 | % | $ | 511 | 1,21 | % | ||||||||||
Capital
expenditures, including acquisitions and deposits on
acquisitions
|
$ | 742 | $ | 63 | 1,078 | % | $ | 154 | 382 | % | ||||||||||
Dividends
paid
|
$ | 3.4 | $ | 3.4 | - | % | $ | 3.4 | - | % |
(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
|
$ | 1,524.7 | $ | 37.7 | $ | 70.6 | $ | 70.6 | $ | 70.6 | $ | 70.6 | $ | 1,204.6 | ||||||||||||||
Abandonment
obligations
|
40.4 | .4 | 1.7 | 1.7 | 1.6 | 1.6 | 33.4 | |||||||||||||||||||||
Operating
lease obligations
|
17.5 | .6 | 2.3 | 2.3 | 2.3 | 2.3 | 7.7 | |||||||||||||||||||||
Drilling
and rig obligations
|
74.4 | 12.4 | 27.6 | 15.0 | 19.4 | - | - | |||||||||||||||||||||
Firm
natural gas
|
||||||||||||||||||||||||||||
transportation
contracts
|
161.9 | 3.9 | 19.5 | 19.5 | 19.5 | 19.1 | 80.4 | |||||||||||||||||||||
Total
|
$ | 1,818.9 | $ | 55.0 | $ | 121.7 | $ | 109.1 | $ | 113.4 | $ | 93.6 | $ | 1,326.1 |
|
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 |
4th
Quarter 2008
|
21,000 | $ | 1.46 | ||||||||||
Full
year 2009
|
10,000 | $ | 47.50 / $70.00 | ||||||||||||||
Full
year 2009
|
295 | $ | 80.00 / $91.00 |
Natural
Gas Sales (NYMEX HH TO PEPL) Basis Swaps
|
|||||||||||||
Full
year 2009
|
1,000 | $ | 100.00 / $163.60 |
1st
Quarter 2009
|
15,400 | $ | 1.17 | ||||||||||
Full
year 2009
|
1,000 | $ | 100.00 / $150.30 |
2nd
Quarter 2009
|
15,400 | $ | 1.12 | ||||||||||
Full
year 2009
|
1,000 | $ | 100.00 / $160.00 |
3rd
Quarter 2009
|
15,400 | $ | 0.97 |