Warren Resources, Inc. (WRES)
Q3 2010 Earnings Call
November 03, 2010 10:00 a.m. ET
Norman Swanton - President & CEO
Tim Larkin - EVP & CFO
Ken Gobble - President & COO
Leo Mariani - RBC Capital Markets
Previous Statements by WRES
» Warren Resources, Inc. Q2 2010 Earnings Call Transcript
» Warren Resources Inc. Q1 2010 Earnings Call Transcript
» Warren Resources, Inc. Q4 2009 Earnings Call Transcript
» Warren Resources Inc., Q3 2009 Earnings Call Transcript
As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today Mr. Norman Swanton Chairman and CEO of Warren Resources. Please proceed.
Welcome ladies and gentlemen to the Warren Resources third quarter 2010 financial and operating results conference call. I am pleased to be here with Tim Larkin, our Executive Vice President and CFO, Ken Gobble our COO and President of our Operating Subsidiary Warren E&P is also joining us to discuss our operating results. Before I turn the microphone over to Tim to cover the financial results and Ken to discuss our operating results, I would like to briefly review some third quarter 2010 highlights.
Not only do we have an excellent financial third quarter but also had some important operational developments during the quarter. During the third quarter of 2010 our oil and gas production hit a record 2.8 Bcfe and revenue increased 41% to 23.1 million compared to the third quarter of 2009.
Our net earnings per share were $4.3 million for the quarter or $0.06 per diluted share compared to net income of 2.2 million for the third quarter of 2009 or $0.04 per diluted share representing a 99% increase in comparative earnings.
This is especially notable since net income for the third quarter of 2010 was decreased by a non-cash, mark to market derivative flaws of 2.4 million or $0.03 per diluted share. Warren's third quarter oil production volumes exceeded by 10,000 barrels, the high end range of our previously provided production guidance of 255,000 barrels of oil.
Our third quarter oil and gas revenue was 23.1 million of which 18.3 million or approximately 80% was from oil production.
Our continued focus of managing our operating costs along with improved oil prices allowed us to generate a gross margin of approximately $53 per barrel after LOEs during the current quarter. I'm also very pleased with our drilling results in our California Wilmington Townlot Unit or WTU which showed significant over the prior year's seven-spot water flood drilling program in the upper terminal formation.
Our new successful 3D geological reservoir of modeling combined with a high tech horizontal and sinusoidal drilling is translating into building a large horizontal and sinusoidal oil drilling inventory with strong economics, production growth and reserve bookings.
For example recent results from drilling our first proof of concept sinusoidal horizontal well which targeted the J sand in the upper terminal formation in the WTU, should outperform an average vertical well conceded in the same formation by a factor of five to one or better and an all in drilling and completion cost of about $1.8 million for the sinusoidal well.
Should these results continue to unfold favorably, and I believe they will, the company should be able to expand its rates of production and reserve booking significantly in the Wilmington field. Since the resumption of drilling at the WTU in April 2010, the company has drilled and completed seven new horizontal producing wells and one water injection well in the Tar formation, one proof of concept sinusoidal horizontal well in the J sand in the upper terminal formation and one proof of concept sinusoidal horizontal well in the Asia Pac's sand in the upper terminal formation.
The seven new Tar wells and one upper terminal sinusoidal well completed earlier this year are currently producing approximately 768 barrels of oil per day in the aggregate. I'm also pleased to report that on August 26, 2010 we purchased an all electric, sound proofed oil drilling rig which was specially designed with air bearings for rapid rig moves in the WTU. The rig is currently being shipped and will be assembled at the WTU.
Under the purchase agreement, the Company paid $7.0 million, consisting of a cash payment of $3.5 million and a balance of $3.5 million will be payable over 15 equal monthly payments commencing in September 30th, 2010.
Since the new rig will not be available for drilling at the WTU until approximately January the 2nd, 201, we have moved the additional four WTU wells that were planned to drill during the fourth quarter of 2010 to 2011.
Therefore during the first quarter of 2011, the company plans to drill and complete 4 gross, 3.9 net additional wells in the WTU that we originally planned for the last two months of 2010. It will consist of two sinusoidal wells targeting the J sand and Hx sands respectively in the upper terminal formation, one sinusoidal proof of concept well in the ranger formation and one additional Tar horizontal well.
On the natural gas side of our business, even though we have not drilled any new wells in 2010 in our Atlantic Rim, Coalbed Methane Natural Gas Project in Wyoming, our fracture stimulation program and well optimization increased our natural gas production by 23% to a record 1.3 billion cubic feet equivalent or Bcfe compared to 1.0 Bcfe in the third quarter 2009.