NEW YORK, Feb 15, 2011 (GlobeNewswire via COMTEX) -- Warren Resources, Inc. (Nasdaq:WRES) announced today reserves and production results for year-end 2010 and provided an operational update and guidance for 2011.
2010 PRODUCTION, ESTIMATED RESERVES AND CAPITAL EXPENDITURES
The Company announced today that production for the year ended December 31, 2010 was an estimated 1.7 million barrels of oil equivalent ("MMboe"), a 9% increase from the previous year. In 2010, Warren produced 969 thousand barrels of oil and 4.7 billion cubic feet ("Bcf") of natural gas, compared to 953 thousand barrels of oil and 3.9 Bcf of natural gas in 2009. Warren's average full year 2010 realized crude oil prices increased to $71.47 per barrel from $53.93 per barrel in 2009, and average full year 2010 realized natural gas prices increased to $4.09 per thousand cubic feet ("Mcf") from $3.09 per Mcf in 2009. Total production in the fourth quarter of 2010 was an estimated 0.4 MMboe, a 7% increase over the fourth quarter of 2009.
The Company's estimated proved reserves at December 31, 2010 were 21.6 MMboe, a 4% increase from the previous year end. At December 31, 2010, 47% of Warren's proved reserves were oil reserves and 53% of its proved reserves were natural gas reserves. Approximately 85% of total PV- 10 is categorized as proved developed producing and 15% is proved undeveloped.
These year-end 2010 proved reserves represent total production replacement of 152%. Warren is looking forward to executing the 2011 California drilling program to further validate its development plans and to further define the potential of its 150 to 200 horizontal well development inventory.
The present value of the Company's reserves at December 31, 2010, discounted at 10% per annum and before the impact of income taxes, was $288 million using the 12-month average of the first day of the month commodity prices for each month of 2010. This 12-month calculation resulted in an average price of $73.30 per barrel of crude oil and $4.13 per Mcf of natural gas for 2010, compared to 2009 12-month average prices of $54.33 per barrel of oil and $3.22 per Mcf of natural gas. Using futures strip prices as of December 31, 2010, the pre-tax PV-10 value of Warren's proved reserves would have been $407.7 million.
Warren's reported reserve estimates do not include, at this time, any probable or possible reserves.
Preliminary, unaudited capital expenditures for 2010 were $38.5 million. The capital expenditures were allocated: $19.9 million to drilling and development operations in the Wilmington Field oil properties in California, $7 million for a new drilling rig to be used in the WTU in California, $2.6 million of rig mobilization and site assembly costs, $7.4 million relating to stimulating wells and development operations in our coalbed methane ("CBM") natural gas properties in Wyoming and $1.6 million for additional property acquisitions in Wyoming.
2010 YEAR-END DEBT AND LIQUIDITY
The Company paid down $13 million of debt under its senior credit facility during the fourth quarter of 2010. This reduced the principal amount borrowed under the facility to $69.5 million at December 31, 2010. The Company's senior credit facility, which is due in November 2012, has a borrowing base of $120 million, with $50.5 million of borrowing capacity available at December 31, 2010. At December 31, 2010, Warren was, and currently is, in full compliance with all covenants under its senior credit facility.
Capital Spending Plan for 2011
The Company intends to fund 2011 capital expenditures primarily with cash flow from operations. Based on the 2011 commodity price outlook and hedge positions, and subject to Board approval, the Company forecasts a 2011 capital expenditure budget of approximately $59.4 million, consisting of $41.4 million in California and $18 million in Wyoming, which amount represents a 54% increase from 2010. The specific capital expenditure budgets, including assumptions and limitations, for Warren's major properties are discussed in the operational updates below. The amount and allocation of actual capital expenditures will depend on a number of factors, including oil and gas prices, regulatory and environmental approvals, agreements among various working interest owners in the Atlantic Rim Project in Wyoming to form one, single, large unit area, drilling and service costs, timing of drilling wells, variances in forecasted production and acquisition opportunities.
Wilmington Oil Field in the Los Angeles Basin in California
During 2010, the Company drilled 8 gross (7.9 net) Tar wells (7 producers and one water injector) and 2 Upper Terminal formation sinusoidal horizontal producing wells in the Wilmington Townlot Unit ("WTU"). The thirty day initial producing rate for the 7 new Tar producing wells averaged 152 barrels of oil per day ("BOPD") per well. The newly drilled Tar wells are currently averaging approximately 73 BOPD each. Additionally, the sinusoidal horizontal well in the J sand of the Upper Terminal formation was drilled and placed on production in June 2010. The first Upper Terminal well exhibited thirty day initial producing rates of approximately 225 BOPD and was producing 170 BOPD at year end 2010. The second Upper Terminal formation sinusoidal horizontal well was drilled in the Hx sand in July 2010. That well encountered water in the last half of the 2,000 feet completion section and has been plugged back to shut off excessive water production. The plug back was only moderately successful, and, after the Company drills the first 4 wells of 2011, it will evaluate re-drilling and completing this Upper Terminal Hx sand sinusoidal well.
Commencing in March 2011, Warren is planning to drill 4 wells in the WTU, consisting of 2 sinusoidal wells in the Upper Terminal (one J sand and one Hx sand), the first-ever sinusoidal well in the WTU Ranger formation and 1 horizontal well in the Tar formation to test a new fault block. The full-year 2011 WTU capital budget consists of $27.7 million for drilling 14 new producing horizontal wells and 2 water injection wells, including production optimization expenditures, and $5.9 million for facilities improvements and other infrastructure costs. Additionally, Warren plans to spend approximately $7.8 million on infrastructure improvements in the North Wilmington Unit ("NWU") in 2011.
During 2011, Warren plans to drill 8 Upper Terminal formation sinusoidal horizontal producing wells in the WTU to leverage the success of the first WTU Upper Terminal sinusoidal well. The Company will also drill 5 Ranger sinusoidal horizontal producing wells, one additional Tar formation producing well and 2 Ranger injection wells in the WTU. Warren believes its innovative and highly targeted horizontal wells will result in access to untapped reservoir areas and strong initial production rates, with corresponding additions to its reserves.
The all electric, sound-proofed drilling rig purchased in August 2010 for use in the WTU has been fully assembled on site at the WTU central facility and will commence drilling the first well in March 2011. Warren believes that owning its own custom-designed drilling rig at the WTU gives the Company drilling flexibility and limits its exposure to rising rig rates. In addition, management feels that the capabilities, mobility and relatively small footprint of this new rig will allow us to drill wells in a shorter time frame and in a lower environmental impact manner.
As part of the development plan for the WTU, the Company has filed 12 applications for water injection wells that are currently pending before the California Division of Oil, Gas and Geothermal Resources ("DOGGR"). However, because of the DOGGR's personnel constraints and new more rigid review and interpretation procedures, these water injection permits are taking longer than previous permits. Due to the volume of water being injected into the Upper Terminal formation and the corresponding rise in reservoir pressure, during 2011, the Company has elected to temporarily shut-in approximately 300 net BOPD (approximately 110,000 barrels of oil annually) from lower producing, higher water-cut wells, until water injection well permits are obtained for the Tar and Ranger formations. Additionally, as a result of the delay in receiving water injection permits, the reservoir pressure in the Tar formation has been dropping, resulting in a steeper production decline. The Company estimates that with proper water injection, the Tar formation wells could produce approximately 20,000 barrels of oil more during 2011 compared to current levels.
If DOGGR permit approvals are obtained as anticipated in the summer and fall of 2011, Warren believes that these temporarily shut-in wells will begin to return to production in late 2011 and eventually return to full production during 2012 and 2013. In the interim, Warren is examining other ways to dispose of this excess produced water. If the Company is able to dispose of the excess water, the wells that are temporarily shut-in would be brought back on production sooner than currently anticipated.
The Company also plans to commence drilling in the Ranger formation in the NWU in late 2011 or early 2012. A second drilling rig will be contracted to perform this work. During the first quarter of 2011, the Company temporarily shut in approximately 100 BOPD as it repaired infrastructure at the NWU. Warren owns 100% of the working interest in the NWU.
For 2011, the Wyoming capital budget is $18 million, which includes $10.0 million to drill approximately 25 gross (10.3 net) new Atlantic Rim CBM wells. The Company also intends to participate in the drilling of 47 gross (3.8 net) wells in the Catalina Unit of the Atlantic Rim for $3.0 million and incur other infrastructure costs of $2.0 million. Lastly, in 2011, the Company expects to drill an exploratory horizontal oil well in the Niobrara Shale formation at an estimated cost of $3.0 million.
Atlantic Rim Coalbed Methane Project in the Eastern Washakie Basin, Wyoming
During the fourth quarter of 2010, gross gas production from the Sun Dog Unit was 1.4 Bcf compared to 1.5 Bcf during the fourth quarter of 2009. Several wells in the Sun Dog Unit were off line during the quarter for fracture stimulation. For the full-year 2010, gross production from the Sun Dog Unit was approximately 6.1 Bcf compared to 6.2 Bcf for the year ended December 31, 2009, representing a decrease of 1.5%. Warren's working interest in the Sun Dog Unit is approximately 42%.
For the fourth quarter of 2010, gross gas production from the Doty Mountain Unit was 1.2 Bcf compared to 0.7 Bcf during the fourth quarter of 2009. For the full-year 2010, gross production from the Doty Mountain Unit was approximately 4.2 Bcf compared to 2.5 Bcf for the year ended December 31, 2009, representing an increase of 69%. The increase resulted from successful well fracture stimulation procedures. Warren's working interest in the Doty Mountain Unit is approximately 40%.
During the fourth quarter of 2010, gross gas production from the Catalina Unit in the Atlantic Rim project was 2.2 Bcf compared to 2.5 Bcf during the fourth quarter of 2009. For the full-year 2010, gross production from the Catalina unit was approximately 9.1 Bcf compared to 10.2 Bcf for the year ended December 31, 2009, representing a decrease of 10%. Currently, the Company owns approximately 8% working interest in the Catalina Unit. Warren expects its working interest percentage to increase to approximately 17% as the Catalina Unit is developed on our acreage.
There was no new drilling in the Atlantic Rim in 2010. Warren, the other working interest owners and Anadarko, the Operator, are in the process of consolidating the existing unit areas in the southern portion of the Atlantic Rim area, including the Sun Dog and Doty Mountain Units, into one, single, large unit area encompassing approximately 113,000 acres. This should help consolidate operations and reduce expenses because water and natural gas transportation, handling and injection wells and facilities can be shared by the larger area, rather than unnecessarily duplicated for each separate unit, as has been the case in the past. Assuming the various working interest owners agree on the large unit, as a condition of approval of the unit, the BLM may require the drilling of approximately 25 CBM wells per year, which is about the same number required under the separate units collectively. Therefore, as stated earlier, the Atlantic Rim CBM capital budget for 2011 includes $10 million to drill approximately 25 gross (10.3 net) new CBM wells.
Niobrara Shale Formation in Wyoming
Warren owns certain deep rights below a portion of the Atlantic Rim CBM Project, which include an approximate 80,000 net acre position that is potentially prospective for the Niobrara Shale oil production. The acreage is primarily located in the southern portion of the Eastern Washakie Basin in Wyoming and is adjacent to the Colorado border.
Warren estimates that its Niobrara Shale formation is at depths between 4,000 and 10,000 feet. Successful Niobrara Shale oil wells that have been developed in southern Wyoming and northern Colorado are typically drilled horizontally with multiple-stage fracing. The Company is budgeting to drill an exploratory horizontal oil well in the second half of 2011. The Company is also considering other possibilities for developing the Niobrara Shale formation, including joint ventures, cooperative development agreements and joint participation agreements.
Warren provides the following forecast for net production and capital expenditures based on the information available at the time of this release. Please see the forward-looking statement at the end of this release for more discussion of the inherent limitations of this information.
First Quarter ending Year ending
March 31, 2011 December 31, 2011
Oil (MBbl) 200 - 225 875 - 975
Gas (MMcf) 1,150 - 1,250 4,700 - 5,100
Oil Equivalent (Mboe) 392 - 433 1,658 - 1,825
Capex Budget (in millions): $59.4
As discussed above, 2011 oil production guidance is lower due to a lack of approved water injection wells by the California DOGGR. Several mitigating factors and positive offsets to this issue are outlined below:
-- Warren's 2011 oil production guidance would have been approximately
1,014 - 1,114 MBbls, but 110 MBbls will be temporarily shut in during
2011 to balance water injection needs; 20 MBbls of additional production
could have resulted by reducing Tar formation decline rates if approved
injection well permits were obtained; and 9 MMbls associated with
shutting in NWU wells.
-- Warren began filing and submitting injection applications early in this
new California review and interpretation process, and now has 12 of the
25 Los Angeles Basin area applications submitted, filed and pending
before the DOGGR. As a result, the Company believes that it is an
advantageous position, and expects that 2 of these injection well
permits will be issued during mid-year 2011 and 2 more in the third
quarter of 2011.
-- Many companies and cities, as well as the State of California, are being
impacted by the new interpretation of DOGGR rules, leading to increased
pressure to resolve this issue.
-- Additional DOGGR resources have been recently added and more are
-- Many Warren ideas are being studied both internally and by DOGGR to
further mitigate production impacts.
-- Warren and the AQMD continue efforts to develop mutually agreeable
wording for the CEQA document. We anticipate certification of the
document the latter part of this year and do not believe there will be
an impact on forecasted 2011 production.
-- Warren still plans to drill 16 wells during 2011 to leverage on its past
success. Combined with DOGGR progress expected during 2011, this should
have a positive impact for 2012 production.
-- Additional drilling, along with the flexibility of our recently
purchased drilling rig, should result in meaningful future additions to
our reserves from our development inventory.
-- A second drilling rig may be added at the NWU to commence drilling in
If the California regulatory authorities begin processing permit applications faster or the Company is able to find an alternative method to handle the excess produced water in the WTU during 2011, the oil production guidance shown above could increase.
This news release contains 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. Warren believes that its expectations are based on reasonable assumptions. No assurance, however, can be given that such expectations will prove to have been correct. A number of factors could cause actual results to differ materially from the projections, anticipated results or other expectations expressed in this news release. Some factors that could cause actual results to differ materially from those in the forward-looking statements, include, but are not limited to, the timing and extent of changes in oil and gas prices, possibility of unanticipated operational problems, governmental regulations and permitting, the availability of capital and credit market conditions, reserve and production estimates, the timing and results of drilling and other development activities, planned capital expenditures, the availability and cost of obtaining equipment and technical personnel, agreements with other partners and joint venturers, risks associated with production storage and transportation arrangements and the delays in completing production, treatment and transportation facilities, higher than expected production costs and other expenses, and pipeline curtailments by other parties. All forward-looking statements are made only as of the date hereof and the Company undertakes no obligation to update any such statement. Further information on risks and uncertainties that may affect Warren's operations and financial performance, and the forward-looking statements made herein, is available in the Company's public filings with the Securities and Exchange Commission (www.sec.gov).
About Warren Resources
Warren Resources, Inc. is an independent energy exploration, development and production company that uses advanced technologies to systematically explore, develop and produce domestic on-shore oil and natural gas reserves. Warren's activities are primarily focused on oil in the Wilmington field in California and natural gas in the Washakie Basin in Wyoming. The Company is headquartered in New York, New York, and its exploration and development subsidiary, Warren E&P, Inc., has offices in Casper, Wyoming and Long Beach, California. For more information about Warren Resources, please visit our website at www.warrenresources.com.
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SOURCE: Warren Resources, Inc.
CONTACT: Warren Resources, Inc.
Media Contact: David Fleming, 212-697-9660