|HighPoint Resources Reports Third Quarter 2018 Financial and Operating Results|
For the third quarter of 2018, the Company reported a net loss of
Chief Executive Officer and President
"We successfully managed through mid-stream constraints that persisted into the third quarter and delivered financial results that were highlighted by a 14% sequential increase in both equivalent production and oil volumes, strong growth in EBITDAX, and lower lease operating expense. Oil represented 63% of total equivalent production and we anticipate that the percentage of oil volumes will continue to grow in future quarters as the Hereford development program is expanded. DCP's commissioning of the Mewbourn 3 gas processing facility was completed during the quarter and reached design capacity of 200 MMcf/d in mid-September. We have strategically diversified our gas processing exposure in Northeast ("NE") Wattenberg to other outlets, which will approximately double our first half of 2018 processing capacity by year-end. We believe this flexibility will limit our exposure to any future mid-stream constraints in NE Wattenberg and mitigates our reliance on DCP.
"Our favorable oil weighting, low cost structure and attractive oil differential allows us to deliver a peer leading basin operating margin of
1 Basin operating margin is defined as the average realized price per Boe before hedging less lease operating expense, gathering, transportation and process expense and production tax expense
OPERATING AND FINANCIAL RESULTS
The following table summarizes certain operating and financial results for the third quarter of 2018 and 2017 and for the second quarter of 2018:
* Not meaningful.
The Company reported oil, natural gas and natural gas liquids ("NGL") production of 2.74 MMBoe for the third quarter of 2018, which was an increase of 43% over the third quarter of 2017. Oil volumes totaled 1.72 MMBbls or 63% of total equivalent volumes, which was an increase of 43% over the third quarter of 2017. Production sales volumes from NE Wattenberg totaled 2.3 MMBoe and Hereford volumes totaled 0.4 MMBoe.
Production sales volumes were comprised of approximately 63% oil, 20% natural gas and 17% NGLs.
Pro forma production for the first nine months of 2018 was 7.4 MMBoe (62% oil and includes approximately 0.3 MMBoe associated with Hereford for the first quarter of 2018) and it is estimated that 0.5 MMBoe of production has been adversely impacted due to mid-stream constraints. Despite DCP's addition of processing capacity, the Company continues to be impacted by high line pressures, which is having a modest impact on production.
For the third quarter of 2018, WTI oil prices averaged
For the third quarter of 2018, the Company had derivative commodity swaps in place for 13,843 barrels of oil per day tied to WTI pricing at
Lease operating expense ("LOE") averaged
Production tax expense averaged
Depreciation, depletion and amortization averaged
Debt and Liquidity
Capital expenditures for the third quarter of 2018 totaled
Capital expenditures included
Production sales volumes for the third quarter of 2018 in the Hereford Field averaged 4,255 Boe/d (75% oil), which is a 68% increase over the second quarter of 2018. During the third quarter, 14 wells were spud and 8 wells were placed on flowback, including the initial 5 wells that were drilled and completed by the Company. Drilling operations commenced in April on DSU 11-63-14, which included 10 XRL wells (6 Niobrara and 4 Codell). Drilling was completed in June and flowback began on the initial four wells at the end of September (one well had mechanical issues and is being used as an observation well). The four wells were completed utilizing the Company's standard completion design and modified controlled flowback methodology. Drilling and completion costs for the four wells averaged
Completion operations continue on DSU 11-63-15 (10 XRL wells) and DSU 11-64-23 (3 XRL wells) and it is anticipated that the wells will be placed on flowback during the fourth quarter of 2018. Drilling operations have commenced on DSU 11-63-16 (15 XRL wells).
Flowback commenced from the nine XRL wells drilled, but not completed, by the previous operator in June and July, respectively. After completing two full quarters since acquisition, early production data has confirmed the Company's acquisition and initial development model, including high oil content, productive deliverability across the acreage position and expectations of completion costs. The wells have exhibited some production variations due to a combination of tighter effective spacing of 18 wells per DSU, mechanical issues, and certain Codell wells being drilled as vertical offsets to Niobrara wells compared to a standard "wine rack" development pattern. The best performing well is located in DSU 11-63-13 on the eastern portion of the field and has shown strong indications of performance as it reached a peak initial rate of approximately 700 Boe/d (84% oil) from a lateral of 8,377 feet utilizing modified controlled flowback. The well is located adjacent to the initial development wells located in DSU 11-63-14. The Company has also seen solid production from the western portion of the field as one of the DUCs in DSU 11-63-18 reached a peak initial rate of approximately 620 Boe/d (90% oil) utilizing modified controlled flowback. This early well performance, which is located across a six mile section of the Hereford Field, supports the Company's model for the full scale Hereford development program.
The Company produced an average of 25,477 Boe/d (61% oil) in the third quarter of 2018 in NE Wattenberg, representing a 38% increase over the third quarter of 2017. For the third quarter of 2018, the Company drilled 7 XRL wells and placed 19 XRL wells on initial flowback. The Company continues to see strong performance from DSU 5-61-27 (10 XRL wells), which is located in the east-central portion of NE Wattenberg. Initial flowback began in the second quarter and after six months of production the wells are currently producing approximately 615 Boe/d (80% oil) per well, highlighting the resource opportunity of the remaining 15 undeveloped DSUs in this area of the field.
The Company’s NE Wattenberg gas volume allocated to DCP progressively increased during the third quarter as a result of DCP's Mewbourn 3 gas processing facility being commissioned in August and reaching design capacity in September. The Company has diversified its gas processing exposure in NE Wattenberg to other outlets and has approximately doubled its first half 2018 capacity, with a further increase expected in the first half of 2019. This added flexibility mitigates the Company's reliance on DCP and limits any local mid-stream issues in NE Wattenberg for the foreseeable future.
FOURTH QUARTER OPERATING GUIDANCE
The Company is providing capital expenditure and production guidance for the fourth quarter of 2018 as discussed below.
See "Forward-Looking Statements" below.
COMMODITY HEDGES UPDATE
The following table summarizes our current hedge position as of
Realized sales prices will reflect basis differentials from the index prices to the sales location.
Third Quarter Conference Call and Webcast
The Company plans to host a conference call on Thursday, November 1, 2018, to discuss third quarter 2018 results. The call is scheduled at
All statements in this press release, other than statements of historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Words such as expects, forecast, guidance, anticipates, intends, plans, believes, seeks, estimates and similar expressions or variations of such words are intended to identify forward-looking statements herein; however, these are not the exclusive means of identifying forward-looking statements. In particular, the Company is providing "Fourth Quarter Operating Guidance", which contains projections for certain fourth quarter operational and financial metrics. Additional forward-looking statements in this release relate to, among other things, future capital expenditures, costs, projects and opportunities; and the availability of adequate natural gas processing capacity, future line pressures and the timing and effect of new midstream facilities, and future diversification of gas processing capacity.
These and other forward-looking statements in this press release are based on management's judgment as of the date of this release and are subject to numerous risks and uncertainties. Actual results may vary significantly from those indicated in the forward-looking statements. Please refer to the
Adjusted Net Income (Loss) Reconciliation
(1) Adjusted (provision for) benefit from income taxes is calculated using the Company's current effective tax rate prior to applying the valuation allowance against deferred tax assets.
Discretionary cash flow, adjusted net income (loss) and EBITDAX are non-GAAP measures. These measures are presented because management believes that they provide useful additional information to investors for analysis of the Company's performance and, in the case of discretionary cash flow, liquidity. In addition, the Company believes that these measures are widely used by professional research analysts and others in the valuation, comparison and investment recommendations of companies in the oil and gas exploration and production industry, and that many investors use the published research of industry research analysts in making investment decisions.
These measures should not be considered in isolation or as a substitute for net income, income from operations, net cash provided by operating activities or other income, profitability, cash flow or liquidity measures prepared in accordance with GAAP. The definition of these measures may vary among companies, and, therefore, the amounts presented may not be comparable to similarly titled measures of other companies.
Vice President, Investor Relations