Energen 3rd Quarter Earnings Up Strong on Increased Prices, Production.Oil & Gas Unit Eyes Organic Production Growth in 2008, 2009 BIRMINGHAM Birmingham, cities, United States Birmingham (bûr`mĭnghăm') 1 City (1990 pop. 265,968), seat of Jefferson co., N central Ala., in the Jones Valley near the southern end of the Appalachian system; founded and inc. , Ala ALA aminolevulinic acid. Ala alanine. ala (a´lah) pl. a´lae [L.] a winglike process. . -- Energen Corporation (NYSE NYSE See: New York Stock Exchange : EGN EGN External Gateway Network (WorldCom) EGN East Gate News EGN European Games Network ) announced today that its third quarter earnings rose sharply to 56 cents per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share largely due to higher realized per-unit of production revenues and increased oil and natural gas liquids (NGL NGL - A dialect of IGL. ) production. In addition, the Company increased its production estimates for 2006 and 2007 and said it expects accelerated development of its proved undeveloped (PUD PUD abbr. peptic ulcer disease Peptic ulcer disease (PUD) A stomach disorder marked by corrosion of the stomach lining due to the acid in the digestive juices. ), probable and possible reserves to generate organic production growth in 2008 and 2009 as well. Summary of Key Developments: * Energen reaffirmed its 2006 earnings guidance of $3.10 to $3.30 per diluted share on the strength of excellent year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. results, including increased production, and a strong hedge position that helps minimize the impact of lower commodity prices applicable to its unhedged production. This earnings range excludes the gain expected to be booked in the 4th quarter of 2006 from the sale of a one-half interest in the Company's lease position in multiple Alabama Alabama, indigenous people of North America Alabama (ăləbăm`ə), indigenous people of North America whose language belongs to the Muskogean branch of the Hokan-Siouan linguistic stock (see Native American languages). shales to Chesapeake Energy Chesapeake Energy (NYSE: CHK) is a producer of natural gas in the United States and according to their 3Q 2007 report, is the largest independent producer, third overall (including majors) and the most active driller of new wells in the US. Corporation. * Energen's oil and gas acquisition and development subsidiary, Energen Resources Corporation Energen Resources Corporation is the largest subsidiary of Energen Corporation, a diversified energy company headquartered in Birmingham, Alabama. It is a growing oil and gas acquisition and development company that has approximately 1. (ERC (database) ERC - An extended entity-relationship model. ), increased its production outlook for 2006 by another 1.5 billion cubic feet equivalent (Bcfe) to 95.5 Bcfe. * ERC estimated that its 2007 capital spending capital spending Spending for long-term assets such as factories, equipment, machinery, and buildings that permits the production of more goods and services in future years. budget should total approximately $250 million. * ERC raised its current production estimate for 2007 from 89 Bcfe to 95 Bcfe. * ERC said it expects accelerated development of its PUD, probable and possible reserves to generate organic production growth in 2008 and 2009, with initial production estimates of 97-99 Bcfe in 2008 and more than 100 Bcfe in 2009. * ERC announced that it is expanding its Carracas Canyon operations in the San Juan Basin The San Juan Basin is a drainage basin and geologic structural basin in the Four Corners region of the Southwestern United States; its main portion covers around 4,600 square miles, encompassing much of northwestern New Mexico, northeastern Arizona, and parts of Colorado and Utah. with the acquisition of approximately 30 Bcfe of proved and probable reserves from Dominion Resources Dominion NYSE: D (formerly Dominion Resources) is a power and energy company headquartered in Richmond, Virginia, USA, that supplies electricity, natural gas, or other energy services to homes in Virginia, West Virginia, Ohio, Pennsylvania, and eastern North Carolina. Inc. for approximately $30 million; the acquisition is expected to close in early December. * Energen said it has repurchased 1.2 million shares of its stock since May 18, 2006. The Company has not targeted a specific amount of shares to repurchase re·pur·chase tr.v. re·pur·chased, re·pur·chas·ing, re·pur·chas·es To buy (something) again. n. The act of buying something that one previously sold or owned. Noun 1. but plans to continue utilizing its repurchase capacity as a capital allocation The apportionment or designation of an item for a specific purpose or to a particular place. In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as option along with property acquisitions, reserve development, and shale shale, sedimentary rock formed by the consolidation of mud or clay, having the property of splitting into thin layers parallel to its bedding planes. Shale tends to be fissile, i.e., it tends to split along planar surfaces between the layers of stratified rock. exploration. Management Comments "Energen Resources' 2006 production year-to-date is up 5 percent over last year and is exceeding our expectations," said Mike Warren
"Given the strength of our year-to-date earnings and our substantial hedge position for the remainder of the year, we believe our earnings guidance range of $3.10 to $3.30 per diluted share is achievable - and this is in spite of in opposition to all efforts of; in defiance or contempt of; notwithstanding. See also: Spite significant weakness in commodity prices in the last several months," Warren added. "Using near-strip pricing of $6.50 per thousand cubic feet (Mcf), $60 per barrel and 92 cents per gallon gallon: see English units of measurement. for our unhedged natural gas, oil and NGL production for the remainder of the year likely puts us near the lower end of this range but with room for price-improvement upside Upside The potential dollar amount by which the market or a stock could rise. Notes: This is basically an educated guess on how high a stock could go in the near future. See also: Bull, Downside . "We are currently completing the 2007 budget process and, because of the downward pressure on commodity prices, are now using lower assumed prices for unhedged volumes in 2007. The new pricing assumptions are $8 per Mcf for natural gas, $60 per barrel for oil and 78 cents per gallon for NGL production. "Our expected production increase goes a long way - but not the whole way - in offsetting the negative effect of this pricing," Warren noted. "Therefore, in an effort to more accurately reflect current strip prices, we are reducing our 2007 earnings guidance range just slightly to $3.80-$4.20 per diluted share (previous guidance was $3.90-$4.30 per diluted share). "We are very pleased that even with lower pricing assumptions, we still expect solid, year-over-year, double-digit earnings growth from our on-going operations," Warren said. "Our preliminary production estimate for 2007 of 95 Bcfe largely reflects our planned acceleration of the development of our PUD reserves (PUDs). ERC now expects to invest approximately $250 million of capital in 2007; we believe the impact of our 2007 drilling will carry over to benefit production in 2008," he added. James McManus, president of Energen and ERC, said: "As we have proceeded through the 2007 budget process and begun adjusting our mid-range forecast models, we have closely examined accelerating development of our extensive probable and possible reserves as well as our PUDs. Our initial assessment is that we can accelerate development of all three reserve classes, beginning primarily with the PUDs in 2007, so as to achieve organic production growth in 2008 and 2009. Our preliminary production estimate for 2008 production is 97-99 Bcfe, with a 2009 production estimate in excess of 100 Bcfe. "ERC has signed a purchase and sale agreement to acquire an estimated 30 Bcfe of proved and probable reserves in Carracas Canyon in the San Juan Basin from Dominion Resources Inc. This "tuck" acquisition is expected to close in early December," McManus said. "The San Juan Basin is home to our largest base of proved, probable and possible reserves, and this $30 million acquisition in the over-pressured Fruitland Coal will contribute further to our prospects in this region. "I would emphasize that none of our production estimates include potential production from our stake in multiple shale plays in Alabama," McManus added. "We are very pleased to be partnering with Chesapeake Energy in the exploration of Alabama shales (see news release dated October 16, 2006). ERC's net lease position now stands at approximately 100,000 acres, and we expect to continue leasing acreage in the coming months as we work with our partner to map out plans for testing and potential development." THIRD QUARTER RESULTS For the three months ending September 30, 2006, Energen's net income totaled $41.4 million, or 56 cents per diluted share. For the same period a year ago, net income totaled $19.1 million, or 26 cents per diluted share. Income from discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. totaled $55,000 in the current-year quarter and $13,000 in the prior-year period. Energen Resources ERC's net income totaled $49.9 million in the third quarter of 2006 and compared with $28.1 million in the same period last year. In addition to higher per-unit of production revenues and increased oil and liquids production, current quarter results also benefited from the absence of timing issues associated with market-to-market derivatives derivatives In finance, contracts whose value is derived from another asset, which can include stocks, bonds, currencies, interest rates, commodities, and related indexes. Purchasers of derivatives are essentially wagering on the future performance of that asset. that impacted net income in last year's third quarter. Revenues per unit of production for ERC's aggregate natural gas, oil and NGL production increased more than 30 percent to $6.98 per Mcfe. [TABLE OMITTED] Total third quarter 2006 production increased 4 percent to 24.3 Bcfe. ERC's oil production increased largely due to the Company's December 2005 acquisition of Permian Basin The Permian Basin is a sedimentary basin largely contained in the western part of the U.S. state of Texas. It reaches from just south of Lubbock, Texas, to just south of Midland & Odessa, extending westward into the southeastern part of the adjacent state of New Mexico. oil properties and subsequent development work. NGL production volumes also increased due to increased production in the San Juan Basin. ERC's natural gas production was unchanged. [TABLE OMITTED] Per-unit lease operating expense Operating Expense The essential things that a company must purchase in order to maintain business. Notes: For example, the payment of employees wages are an operating expense. Also known as OPEX. (LOE LOE Ley Orgánica de Educación (Spanish) LOE Level Of Effort LOE Limited Objective Experiment LOE Letter of Explanation LOE Language Other than English. ) in the third quarter of 2006 totaled $1.97 per Mcfe. This 13 percent increase over the same period a year ago largely was due to a general rise in field service costs driven by higher commodity prices, increased repairs and work-over expense, and the December 2005 acquisition of Permian Basin properties, partially offset by lower production taxes. Per-unit depreciation, depletion depletion n. when a natural resource (particularly oil) is being used up. The annual amount of depletion may, ironically, provide a tax deduction for the company exploiting the resource because if the resource they are exploiting runs out, they will no longer be able and amortization (DD&A) expense in the third quarter of 2006 totaled 98 cents per Mcfe, unchanged from the same period a year ago. Alabama Gas Corporation Alagasco's natural gas distribution operations reported a net loss of $7.7 million in the third quarter of 2006 as compared with a net loss of $8.8 million in the same period a year ago. Alagasco's operations and maintenance expense per customer exceeded its inflation-based cap at the end of the 2006 rate year (September 30); however, the resulting revenue reduction was less than a revenue reduction in the same period a year ago. The 3rd quarter 2005 revenue reduction was required by the utility's rate-setting methodology to keep the utility from earning beyond its allowed range of return on average equity at the end of the rate year. RESULTS OF THE YEAR-TO-DATE PERIOD For the first nine months of 2006, Energen's net income totaled $178.4 million, or $2.42 per diluted share. This compared with $115.7 million, or $1.57 per diluted share, in the same period a year ago. Income from discontinued operations totaled $47,000 in the current year-to-date period and $117,000 in the prior-year period. Energen Resources Corporation ERC's year-to-date 2006 net income totaled $150.1 million as compared with net income of $84.0 million in the same period a year ago. This 79 percent increase in net income largely was due to higher commodity prices, increased production and the absence of timing issues associated with market-to-market derivatives. Revenues per unit of production in the first nine months of 2006 increased 34 percent over the same period last year to $7.06 per Mcfe; meanwhile, year-to-date production of 71.6 Bcfe in 2006 outpaced production in the same period last year by 3.4 Bcfe, or 5 percent. [TABLE OMITTED] [TABLE OMITTED] Per-unit LOE in the first nine months of 2006 totaled $1.94 per Mcfe. This 19 percent increase over the same period a year ago largely was due to accelerated maintenance expenses in the San Juan Basin, a general rise in field service costs, increased repairs and work-over expenses, the December 2005 acquisition of Permian Basin properties and a modest increase in production taxes. DD&A expense in the first nine months of 2006 increased 2 percent per unit to 98 cents per Mcfe and was due largely to the December 2005 acquisition of Permian Basin oil properties. Alabama Gas Corporation Alagasco earned net income of $29.2 million in the year-to-date period of 2006. This compared with net income of $31.3 million in the same period a year ago. This decline largely reflects the impact of decreased usage driven by the high price of natural gas supplies during the winter heating season, partially offset by the utility's ability to earn on a higher level of equity representing investment in utility plant. In addition, prior year-to-date results included the impact of a revenue reduction designed to keep the utility from earning beyond its allowed range of return on average equity at the end of the 2005 rate year. RESULTS OF THE TRAILING 12 MONTHS For the 12 months ended September 30, 2006, Energen's net income totaled $235.8 million, or $3.20 per diluted share. This compared with $147.0 million, or $2.00 per diluted share, in the same period a year ago. Income from discontinued operations totaled $55,000 and $133,000 in the 12 months ending September 30, 2006 and 2005, respectively. Energen Resources Corporation Energen Resources' net income in the trailing 12-month period totaled $201.3 million and compared with $111.4 million in the same period last year. The oil and gas company benefited from a 36 percent increase in average per-unit of production revenues and a 4 percent increase in production volumes to 94.4 Bcfe. Alabama Gas Corporation The utility's net income for the 2006 rate year totaled $34.9 million as compared with $35.9 million in the 2005 rate year. Alagasco's return on average equity of $282 million for the rate year ended September 30, 2006, was 12.4 percent. The utility under-earned its allowed return of 13.15-13.65 percent largely due to the impact of price-driven conservation during the winter. 2006 EARNINGS OUTLOOK AFFIRMED af·firm v. af·firmed, af·firm·ing, af·firms v.tr. 1. To declare positively or firmly; maintain to be true. 2. To support or uphold the validity of; confirm. v.intr. Energen management today affirmed its 2006 earnings guidance range of $3.10-$3.30 per diluted share. Adjustments in the underlying assumptions revolve re·volve v. re·volved, re·volv·ing, re·volves v.intr. 1. To orbit a central point. 2. To turn on an axis; rotate. See Synonyms at turn. 3. largely around year-to-date actual performance, increased production estimate and lower commodity prices applicable to unhedged production. * Energen increased its estimated 2006 production by another 1.5 Bcfe to 95.5 Bcfe to reflect increased production year-to-date, development success beyond budgeted expectations, and a slight increase in development capital. * Commodity prices applicable to unhedged production were adjusted to reflect near-strip pricing of $6.50 per Mcfe for natural gas, $60 per barrel for oil and 92 cents per gallon for NGL production. * Not included in the range is the expected gain The expected gain (or expected return) is the weighted-average most likely outcome in gambling, probability theory, economics or finance. Discrete scenarios In gambling and probability theory, there is usually a discrete set of possible outcomes. from the recent sale of one-half interest in ERC's Alabama shale acreage position to Chesapeake Energy. [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] Average oil and gas revenues per unit of production for ERC's production associated with NYMEX See New York Mercantile Exchange. NYMEX See New York Mercantile Exchange (NYM). contracts as well as for unhedged production will reflect the impact of basis differentials. Average NGL revenue per unit of production will be net of transportation and fractionation fractionation /frac·tion·a·tion/ (frak?shun-a´shun) 1. in radiology, division of the total dose of radiation into small doses administered at intervals. 2. fees. For production associated with basin-specific contracts, ERC will receive the contracted hedge price. Energen typically hedges basis differentials where applicable. In the tables above, the basin-specific contract prices were converted for comparability purposes to a NYMEX-equivalent price by adding to them ERC's assumed basis differentials. While there are many factors that affect ERC's financial results, the largest influences typically are the commodity prices applicable to the Company's unhedged production; however, given ERC's current hedge position for the remainder of 2006 and assuming prices as outlined above for its unhedged production, the sensitivities to pricing changes applicable to Energen's earnings guidance for 2006 are immaterial Not essential or necessary; not important or pertinent; not decisive; of no substantial consequence; without weight; of no material significance. immaterial adj. . Other Factors ERC's estimated capital spending in 2006 has been modified slightly to approximately $220 million, including some $30 million for the planned acquisition of Carracas Canyon properties. Capital spending at Alagasco is estimated to be approximately $72 million. Other key assumptions that support Energen's earnings guidance include: * The utility earning a 12-12.5 percent return on average equity of $285 million. * A DD&A rate at ERC of approximately 98 cents per Mcfe and LOE including production taxes of approximately $1.90 per Mcfe. 2007 EARNINGS GUIDANCE Energen management adjusted the Company's 2007 earnings guidance range downward slightly to $3.80-$4.20 per diluted share on the basis of lower commodity price assumptions for its unhedged production. The impact of ERC's increased production estimates largely offset the stand-alone earnings impact of the lower price assumptions. Embedded Inserted into. See embedded system. in Energen's 2007 new earnings guidance are assumptions that NYMEX prices applicable to ERC's unhedged natural gas and oil production will average $8 per Mcf and $60 per barrel, respectively. The assumed average price for the Company's unhedged NGL production in 2007 is approximately 78 cents per gallon. Estimated average shares outstanding were adjusted to reflect those shares repurchased as of September 30, 2006. Additional changes may occur as the Company finalizes its 2007 budget process and completes its assessment of year-end reserves. 2007 Hedge Position [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] Average oil and gas revenues per unit of production for ERC's production associated with NYMEX contracts as well as for unhedged production will reflect the impact of basis differentials. Average NGL revenue per unit of production will be net of transportation and fractionation fees. For production associated with basin-specific contracts, ERC will receive the contracted hedge price. Energen typically hedges basis differentials where applicable. In the tables above, the basin-specific contract prices were converted for comparability purposes to a NYMEX-equivalent price by adding to them ERC's assumed basis differentials. Earnings Sensitivities to Commodity Price Changes Given ERC's current hedge position for 2007 and using the price assumptions given above for the Company's unhedged production, changes in commodity prices are estimated to have the following impact on Energen's 2007 earnings: * Every 10-cent change in the average NYMEX price of gas from $8.00 represents an estimated net income impact of approximately $1.3 million (1.8 cents per diluted share). * Every $1.00 change in the average NYMEX price of oil from $60.00 per barrel represents an estimated net income impact of approximately $545,000 (0.7 cents per diluted share). * Every 1-cent change in the average price of liquids from $0.78 per gallon represents an estimated net income impact of approximately $120,000 (0.2 cents per diluted share). Price-related events such as substantial basis differential changes could cause earnings sensitivities to be materially different from those outlined above. Other key assumptions that support Energen's 2007 earnings guidance include: * Average diluted shares outstanding of 73.4 million; and * Alagasco's earning within its allowed range of return on average equity of approximately $297 million. BEYOND 2007 Energen said today that, based on a preliminary assessment of 2008 and 2009, it anticipates that its planned acceleration of PUD, probable and possible reserve development beginning in 2007 will generate organic production growth in both 2008 and 2009. The Company estimates that production in 2008 could range from 97-99 Bcfe, with 2009 production exceeding 100 Bcfe. A preliminary estimate of capital spending for development activities in 2008 and 2009 is approximately $185 million each year. The bulk of drilling activity is expected to occur in ERC's two largest areas of operation, the San Juan San Juan, city, Argentina San Juan (săn wän, Span. sän hwän), city (1991 pop. 353,476), capital of San Juan prov., W Argentina. It is a commercial and industrial center in an agricultural region. and Permian basins. In the San Juan Basin, activity will focus in the over-pressured Fruitland Coal, including the Carracas Canyon area where ERC is expanding its position with a $30 million acquisition from Dominion Resources. In the Permian Basin, activity will focus on ERC's waterflood operations. This release contains statements expressing expectations of future plans, objectives and performance that constitute forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. made pursuant to the Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. provision of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. Except as otherwise disclosed, the Company's forward-looking statements do not reflect the impact of possible or pending acquisitions, divestitures or restructurings. We undertake no obligation to correct or update any forward-looking statements, whether as a result of new information, future events or otherwise. All statements based on future expectations rather than on historical facts are forward-looking statements that are dependent on certain events, risks and uncertainties that could cause actual results to differ materially from those anticipated. In addition, the Company cannot guarantee the absence of errors in input data, calculations and formulas used in its estimates, assumptions and forecasts. A more complete discussion of risks and uncertainties that could affect future results of Energen and its subsidiaries is included in the Company's periodic reports filed with the Securities and Exchange Commission. Energen Corporation is a diversified diversified (di·verˑ·s energy holding company with headquarters in Birmingham, AL. Its two lines of business are the acquisition and development of domestic, onshore on·shore adj. 1. Moving or directed toward the shore: an onshore wind. 2. Located on the shore: an onshore beacon; an onshore patrol. adv. natural gas, oil and NGL reserves and natural gas distribution in central and north Alabama North Alabama is a region of the U.S. state of Alabama, generally thought to include these 12 counties: Cherokee, Colbert, DeKalb, Franklin, Jackson, Lauderdale, Lawrence, Limestone, Madison, Marshall, Morgan, and Winston, with a combined population of 953,247, or 20. . Energen Resources has approximately 1.7 trillion One thousand times one billion, which is 1, followed by 12 zeros, or 10 to the 12th power. See space/time. (mathematics) trillion - In Britain, France, and Germany, 10^18 or a million cubed. In the USA and Canada, 10^12. cubic feet equivalent of proved reserves proved reserves The quantity of minerals expected to be recoverable under current economic and operating conditions. The amount of proved reserves is important in valuing the stock of a company with significant holdings in natural resources. in the San Juan, Permian and Black Warrior Black Warrior, river, United States Black Warrior, navigable river, 178 mi (286 km) long, rising in N central Ala. and flowing generally SW to the Tombigbee River. basins and in the North Louisiana/East Texas area. More information is available at www.energen.com. [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] |
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