First Quarter 2009 Results
Revenues from the sale of oil and natural gas together with hedge settlements but apart from unrealized hedging gains and losses for the first quarter 2009 were down 30% to $21.3 million when compared with the first quarter 2008. Oil revenue decreased $10.6 million because of lower prices and was partly offset by a $5.4 million increase from higher production volumes, which was mainly driven by a 173% increase in oil production volumes in the Williston basin. Natural gas revenue decreased $8.4 million because of lower prices and fell an additional $3.1 million because of lower production volumes, which was attributable to the company’s shift in our capital expenditure program from the natural gas-weighted onshore Gulf Coast to the oil-weighted Williston Basin. Hedge settlement gains increased oil and natural gas revenues by $7.6 million. The monetization of a portion of our natural gas hedges that would have settled from May to September 2009 accounted for $3.2 million of the increase in hedge settlement gains. The company’s average net daily production volumes for the first quarter 2009 were 32 MMcfe per day, roughly equal to the first quarter 2008.
During the first quarter 2009, the company’s average realized price for oil was $40.53 per barrel, which incorporated a $6.24 per barrel gain due to the settlement of our oil derivative contracts. This compared with an average realized price in the first quarter 2008 of $90.48 per barrel, which incorporated a $5.02 per barrel loss due to the settlement of our oil derivative contracts. The company’s average realized price for natural gas in the first quarter 2009 was $7.76 per Mcf, which included a $3.49 per Mcf gain associated with the settlement of our natural gas derivative contracts. This compares to an average realized price in the first quarter 2008 of $9.07 per Mcf, which included a $0.24 per Mcf gain due to the settlement of our natural gas derivative contracts.
The company’s first quarter 2009 production costs, which comprise costs for operating and maintaining (O&M expense) our producing wells, expensed workovers, ad valorem taxes and production taxes, were $1.61 per Mcfe compared to $1.47 per Mcfe in the first quarter 2008. A $0.36 per Mcfe increase in O&M expense resulted from higher salt water disposal, compressor rental and maintenance and electricity expenses. This increase in O&M expense was partly offset by a $0.16 per Mcfe decrease in production taxes due to the aforementioned decrease in prices.
Per unit general and administrative (G&A) expense for the first quarter 2009 down by 18% to $0.74 per Mcfe from the first quarter 2008 as a result of the company’s previously announced cost reduction measures. Lower employee compensation costs accounted for the bulk of the decrease in per unit G&A expense.
The company’s depletion expense for the first quarter 2009 was $9.8 million ($3.41 per Mcfe) compared with $12.4 million ($4.30 per Mcfe) in the first quarter 2008. The company’s lower depletion rate, which was a result of our fourth quarter 2008 ceiling test write-down, accounted for the $2.6 million decrease in depletion expense.
The downward trend in natural gas prices experienced in the second half of 2008 continued into the first quarter of 2009 and was partly responsible for a first quarter 2009 before tax ceiling test write-down of $114.8 million. On December 31, 2008, Henry Hub natural gas was $5.71 per MMbtu as compared with $3.63 per MMbtu on March 31, 2009. Lower natural gas prices, combined with the impact from the deferred tax asset added to our full cost pool associated with our year-end 2008 ceiling test write-down, resulted in the capitalized costs of the company’s oil and gas properties, net of accumulated depreciation, exceeding the discounted present value of our estimated proved reserves using a 10% discount rate by $114.8 million.
The company’s net interest expense for the first quarter 2009 was $0.7 million higher than that in the first quarter 2008 because of a $0.9 million increase in interest expense associated with the higher level of outstanding debt under our senior credit facility. This increase was partially offset by a lower weighted average cost of debt because of lower LIBOR rates in the first quarter 2009 as compared to that in the first quarter 2008. The company’s weighted average debt outstanding for the first quarter 2009 was $315.1 million as compared with $182.8 million for the comparable period last year.
The company recorded no deferred income taxes in the first quarter 2009 compared with deferred income tax expense of $1 million in the first quarter 2008.
The company after-tax earnings in the first quarter 2009 apart from the effect of its ceiling test write-down, unrealized mark-to-market hedging losses, and a $2 million non-cash write-down of the carrying value of our inventory were $0.6 million ($0.01 per diluted share) as compared with our after-tax earnings in the first quarter 2008 excluding unrealized mark-to-market hedging losses of $4.8 million ($0.11 per diluted share).
Second Quarter 2009 Forecasts
For the second quarter 2009, lease operating expenses are expected to be $1.46 per Mcfe based on the mid-point of the company’s production guidance, production taxes are projected to be about 6.50% to 7% of pre-hedge oil and natural gas revenues, and G&A expenses are projected to be $1.9 million ($0.78 to $0.68 per Mcfe).
Management Comments
Gene Shepherd, Brigham Exploration’s chief financial officer, commented, As previously discussed, we have taken significant steps, such as reducing cap-ex and overhead and closing on our Mountrail county, ND mineral sale, which have enhanced the company’s liquidity position. Further, we are optimistic about our ability to close on one or more of the larger liquidity enhancing initiatives that will allow us to benefit from the improved economics in the Williston Basin, namely lower service costs and differentials and higher commodity prices, which will position the company to resume our Bakken and Three Forks drilling and completion activities in the second half of 2009.
