OKLAHOMA CITY, Jan. 8, 2015 /PRNewswire/ -- American Energy – Permian Basin, LLC (AEPB), an affiliate of American Energy Partners, LP, today provided an operational and financial update outlining substantial production growth, adjustments to its planned drilling activity levels in response to a lower oil price environment and evidence of its strong liquidity and hedging position entering 2015.
Production, Drilling Activity and Well Cost Reduction Update
AEPB exited 2014 with a company record of more than 20,000 barrels of oil equivalent (boe) per day of net production and anticipates its net production for the 2014 fourth quarter will be in the range of 15,500 to 16,000 boe per day, an increase of approximately 3,150 boe per day, or 25%, compared to the 2014 third quarter. As a result of adding 23 gross operated Wolfcamp Shale wells to production during the 2014 fourth quarter (approximately twice the number the previous operator added in the 2014 third quarter), AEPB ended 2014 with 106 gross operated horizontal Wolfcamp wells on production, exceeding its goal of more than 100 gross operated wells.
The company entered 2015 with a five operated horizontal drilling rig program targeting the Wolfcamp Shale formation in Reagan County, Texas. Given the substantial decline in oil prices over the past few months, the company is electing to maintain rather than increase this five rig program to its previously planned nine rig program until oil prices improve. Notably, AEPB has implemented a well cost reduction initiative that has resulted in initial cost savings of approximately $1.0 million per well compared to wells drilled by the prior operator and AEPB is targeting additional reductions of approximately $1.0 million per well by year-end 2015. The company will continue to monitor market conditions and adjust activity levels accordingly with a key focus on maintaining adequate liquidity and delivering attractive returns.
Hedging Position Update
AEPB's current hedging position for 2015 oil production includes downside protection through swaps and purchased puts at a weighted average price of $91.68 per barrel (including gains from closed positions) on approximately 4.7 million barrels of oil, or approximately 70% of the company's anticipated oil production during 2015. Additionally, the company has secured basis protection between Midland, Texas and Cushing, Oklahoma markets through financial swaps and term sales at a weighted average discount to Cushing, Oklahoma of $2.41 per barrel on approximately 2.6 million barrels of oil, or approximately 38% of AEPB's anticipated oil production during 2015.
The company's hedging position for natural gas includes downside protection through swaps at a weighted average price of $4.62 per thousand cubic feet on a total of 502 million cubic feet, or approximately 29% of the company's anticipated natural gas production during the 2015 first quarter.
The mark-to-market value of these closed and open positions as of December 31, 2014 was approximately $160 million.
Year-End Liquidity and Revolving Credit Facility Update
AEPB exited 2014 with $100 million of borrowings outstanding under its $650 million revolving credit facility and more than $50 million of cash, resulting in more than $600 million of total liquidity entering 2015. The company anticipates utilizing its credit facility from time to time during 2015 to fund ongoing capital expenditures and for general corporate purposes. Additionally, to provide greater financial flexibility in 2015, AEPB and its lending group have amended the maintenance covenants in the company's revolving credit facility. The primary changes to the credit facility include:
- Suspending the leverage ratio requirement (consolidated debt to consolidated EBITDAX) for the 2014 fourth quarter;
- Increasing the leverage ratio requirement to 5.75 times (from 5.25) in the 2015 first quarter, and lowering the required ratio 0.25 times each subsequent quarter until the 2016 first quarter, when the ratio would remain constant at 4.75 times (no change from current) until maturity of the facility; and
- Adjusting the annualization formula for the calculation of consolidated EBITDAX for purposes of the leverage ratio test: 1) for the 2015 first quarter, consolidated EBITDAX will be annualized by multiplying the 2015 first quarter by four; 2) for the 2015 second quarter, the consolidated EBITDAX for the six-month period ending June 30, 2015 will be annualized by multiplying by two; and 3) for the 2015 third quarter, consolidated EBITDAX for the nine-month period ending September 30, 2015 will be annualized by multiplying by 1.333. Consolidated EBITDAX for the subsequent quarters will then revert to the standard last twelve month methodology.
Jeffrey L. Mobley, AEPB's Chief Financial Officer, stated, "We appreciate the support of our lending group in amending terms under our revolving credit facility to provide greater flexibility to manage the company in a lower oil price environment. Our strong oil and natural gas hedging position for 2015, which combined with our cost reduction initiatives underway, will enable us to deliver attractive drilling returns to our stakeholders. We are pleased to enter 2015 with more than $600 million of liquidity and we plan to closely monitor market conditions before resuming our previously planned acceleration of operated drilling in our Wolfcamp Shale play beyond the five rigs we are utilizing today. We continue to be pleased with the performance of our asset base, and even at a steady rig count of five operated rigs in 2015, we anticipate 2015 production to exceed 2014 production by approximately 125%."
This press release contains forward-looking statements. Forward-looking statements express views regarding future plans and expectations. They include statements that include words such as "may," "could," "would," "should," "believe," "expect," "anticipate," "plan," "estimate," "target," "project," "intend" and similar words or expressions, although not all forward-looking statements contain such identifying words.
Forward-looking statements in this press release include, but are not limited to, statements regarding future operations and operating costs, liquidity and leverage expectations, business strategy and future production. These statements are based on numerous assumptions and are subject to known and unknown risks and uncertainties, many of which are beyond our control. These risks include, but are not limited to, commodity price volatility, inflation, lack of availability of drilling and production equipment and services, environmental risks, drilling and other operating risks, regulatory changes and the uncertainty inherent in projecting future rates of production, cash flow and access to capital. Actual future results may vary materially from those expressed or implied in these forward-looking statements, and AEPB's business, financial condition and results of operations could be materially and adversely affected by numerous factors, including such known and unknown risks and uncertainties. As a result, forward-looking statements should be understood to be only predictions and statements of our current beliefs, and not as guarantees of performance.
All of the forward-looking statements in this press release are qualified by risks, including those risks related to our ability to: successfully transition acquired businesses and assets to the management and control of AEPB; access the capital markets on terms acceptable to us or at all; execute on future drilling plans; hold our leasehold by production and convert reserves into production on an economic basis; manage rapid growth; to realize attractive oil, NGLs and natural gas prices; develop a successful marketing plan for the oil, NGLs and natural gas produced by AEPB; successfully identify and acquire additional productive leasehold; recruit and retain appropriately qualified personnel; effectively utilize technology, to execute our drilling program; obtain sufficient time and attention of AEPB Services, LLC, which manages AEPB's business; mitigate credit risk posed by significant customers; respond to intense competition in the onshore E&P industry; respond to shifting and increasing government regulatory requirements with respect to unconventional resource recovery, including hydraulic fracture stimulation; accurately predict the timing of infrastructure development (including long-haul pipelines) and tie-in of wells; accurately predict the timing and amount of future production of oil, NGLs and natural gas; access water, sourcing, distribution and disposal systems; generate sufficient cash flow to pay fixed charges; control our operating expenses and other costs; execute on our financial strategy and access the capital required for our development program; implement our hedging strategy and deliver expected results; navigate through general credit market and economic conditions; and to avoid material legal or environmental liabilities.
About American Energy – Permian Basin, LLC:
American Energy – Permian Basin, LLC is an independent oil and natural gas company affiliated with American Energy Partners, LP focused on the acquisition, development and production of unconventional oil and natural gas reserves in the Wolfcamp Shale play in Central Midland Basin of the Permian Basin in West Texas.
About American Energy Partners, LP:
American Energy Partners, LP was founded by Aubrey K. McClendon in April 2013 to capitalize on opportunities available in unconventional resource plays onshore in the U.S. For additional information, please visit www.americanenergypartners.com.
SOURCE American Energy Partners, LP