Eclipse Resources, a small but growing driller headquartered in State College, PA but drilling exclusively in the Ohio Utica Shale, released their fourth quarter and full year 2015 update yesterday. Among the highlights: Production was up 186% in 2015 over 2014. Revenue was up 97% over 2014. Eclipsed drilled 31 wells, completed 51 wells and brought 76 wells online in 2015. The company will continue to focus exclusively on the Utica in 2016, as they did in 2015. They plan to spend $168 million in 2016, of which $130 million is for drilling and completions, and with that money they will drill 7.6 net Utica wells, complete 9.4 net Utica wells and exit the year with 11.5 net Utica wells drilled but uncompleted (DUCs). The elephant in the room is that Eclipse lost nearly $1 billion in 2015. However, as with many other drillers, the loss was on paper only–not out of pocket. With impairments (write-down of lease values) and with depreciation and other accounting shenanigans, almost all of the loss was on paper. Hey, at least they will keep on drillin’ in 2016! Here’s the update with the details…
Eclipse Resources Fourth Quarter and Full Year 2015, 2016 Capital Budget
Fourth Quarter 2015 Highlights:
- Net production averaged 247.0 MMcfe/d, which was approximately 5% above the high end of the Company’s previously issued guidance range for the quarter, representing a 100% increase to the fourth quarter of 2014 and an approximately 10% sequential increase over the third quarter 2015. For the fourth quarter 2015, the production mix was approximately 70% natural gas, 18% NGL’s and 12% oil
- Revenues grew to $65.8 million. Adjusted Revenue1, which includes the impact of cash settled derivatives, grew to $74.4 million, representing a 41% increase relative to the fourth quarter 2014
- Adjusted EBITDAX1 grew to $31.3 million, representing a 20% increase relative to the fourth quarter 2014
- Unit operating expenses2 were $1.31 per Mcfe, below the low end of the Company’s previously issued guidance
- Cash general and administrative expenses fell to $6.8 million, representing a 48% decrease relative to the fourth quarter 2014, and $3.2 million below the low end of the Company’s previously issued guidance
- The Company realized a natural gas price, before the impact of cash settled derivatives and excluding firm transportation expenses, of $2.32 per Mcf, a $0.22 premium to NYMEX natural gas prices. The Company realized a natural gas price, after the impact of cash settled derivatives and including transportation costs, of $2.66 per Mcf, a $0.56 premium to NYMEX natural gas prices
- The Company realized an average oil price, before the impact of cash settled derivatives of $32.03 per barrel, a $9.75 per barrel discount to WTI oil prices. The Company realized an oil price, after the impact of cash settled derivatives, of $38.25 per barrel, a $3.53 per barrel discount to WTI oil prices
- The Company realized a natural gas liquids price of $14.50 per barrel, or approximately 35% of the average WTI oil price
- Capital Expenditures were $45.1 million
- The Company drilled 4 gross (1.0 net) wells, completed 2 gross (0.3 net) wells and turned 15 gross (8.0 net) wells to sales
Full Year 2015 Highlights:
- Net production averaged 207.9 MMcfe per day, a 186% increase from 2014. For the full year 2015 the production mix was approximately 66% natural gas, 19% natural gas liquids and 15% oil
- Revenues grew to $255.3 million. Adjusted Revenue1, which includes the impact of cash settled derivatives, grew to $271.7 million, representing a 97% increase over full year 2014
- Adjusted EBITDAX1 grew to $113.1 million, representing a 81% increase over full year 2014
- Unit operating expenses2 were $1.26 per Mcfe, below the low end of the Company’s previously issued guidance for the year
- Capital expenditures were $309.5 million, $20.5 million below the Company’s previously revised capital budget
- The Company drilled 31 gross (15.0 net) wells, completed 51 gross (20.5 net) wells and turned 76 gross (33.8 net) wells to sales for the full year 2015
- During 2015, the Company averaged 20 drilling days (from spud to rig release) per well with an average lateral length of 8,500 feet, representing a 31% drilling day improvement compared to the 2014 drilling program; additionally, Eclipse averaged 5.18 completion stages per day, a 16% increase over 2014
2016 Strategic Plan and Capital Budget Highlights:
At the beginning of 2016, the Company had liquidity of $281 million consisting of $184 million in cash and cash equivalents, and available borrowing capacity under the Company’s revolving credit facility of $97 million (after giving effect to $28 million of outstanding letters of credit)
In February, the Company completed its spring borrowing base redetermination of its revolving credit facility, that resulted in no change to its $125 million borrowing base which remains undrawn other than for letters of credit
The Company has recently augmented its hedges by adding a collar on 30,000 MMbtu per day of natural gas for calendar 2017 with a floor price of $2.50 per MMbtu and a ceiling price of $3.03 per MMbtu, and a swap of 850 Bbl per day of oil for March 2016 through December 2016 at an average price of $45.55 per Bbl
Based on production guidance for the year, the Company has hedges in place representing 90% of its expected natural gas production at an average floor price of $3.11 per MMbtu and ceiling price of $3.21 per MMbtu; 70% of its expected oil and condensate production at an average floor price of $53.84 per Bbl and ceiling price of $59.50 per Bbl; and 60% of its expected propane production at an average price of $0.46 per gallon
During 2016, the Company plans to focus on enhancing its margins, continuing to improve its peer leading drilling and completion efficiencies in the Utica Shale, strengthening its balance sheet and preserving its high quality asset base for the future. Details on these initiatives include:
The Company plans to continue to streamline its operations in order to improve its operating margins which include the sale of certain non-core and higher-cost assets. During the year, the company anticipates receiving proceeds from these non-core assets of between $15 million and $20 million
As a result of decreased activity, the Company implemented a workforce reduction in the second half of 2015. The Company estimates that its 2016 cash general and administrative expenses fall to approximately $36.0 million, and the Company intends to continue to thoroughly analyze its cost structure to identify additional savings opportunities
The Company expects to maintain its voluntary production curtailment initiative through at least the first half of 2016 in order to preserve its productive capacity from its producing wells until commodity prices improve. At current forward strip prices, the Company anticipates that its production during 2016 to be consistent with the 2015 full year rate of approximately 200 MMcfe per day until such time as the Company elects to adjust this curtailment approach
The Company plans to maintain flexibility in implementing its 2016 capital plan, which is heavily weighted to the second half of the year enabling the Company to further delay restarting its drilling and completion activity as necessary
The Company has established an initial capital budget of $168.0 million3, which includes approximately $130 million for drilling and completion activities and approximately $35 million for land activities
The initial capital budget includes capital expenditures to drill 7.6 net horizontal Utica Shale wells and complete 9.4 net horizontal Utica Shale wells in 2016. The Company expects to exit the year with 11.5 net drilled but uncompleted wells
In establishing this capital budget, the Company has assumed an average Henry Hub natural gas price of at least $2.34 per Mcf and an average WTI oil price of at least $34.80 per Bbl for the year
The 2016 Capital Budget is expected to be fully funded through internally generated cash flows and the Company’s current cash balance; the Company does not anticipate making any borrowings on its revolving credit facility during 2016 to fund its initial capital budget
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