Second-quarter net losses abound for US E&P firms

Reports of second-quarter losses continued this week for US exploration and production firms, following suit as both ConocoPhillips and Hess Corp. published net losses a week ago (OGJ Online, July 31, 2015).

Houston independent Apache Corp. posted a second-quarter net loss of $5.6 billion, which includes an aftertax ceiling-test writedown of $3.7 billion resulting from current low commodity-price levels and $1.9 billion of other items, mostly aftertax losses and tax expense associated with the company’s assets sold during the quarter. When adjusted for certain items that impact the comparability of results, Apache’s second-quarter net income totaled $82 million.

The company’s worldwide production for the second quarter was 564,000 boe/d. Including 35,000 boe/d of production associated with discontinued operations in Australia, Apache’s total production was 599,000 boe/d. Its full-year international and offshore production guidance has been lifted to 164,000-168,000 boe/d, and overall production guidance has been lifted to 305,000-308,000 boe/d.

During the quarter, Apache closed the sales of its LNG business (OGJ Online, Apr. 7, 2015), and remaining oil and gas assets in Australia (OGJ Online, June 5, 2015). “Exiting these businesses eliminated our exposure to projects with large capital-spending commitments and uncertain project timing,” said John J. Christmann IV, Apache chief executive officer.

“We deployed a portion of the proceeds from these sales to pay down debt, leaving our balance sheet in excellent shape and positioning us for success in this low-commodity-price environment,” Christmann explained. “Importantly, during the first half of 2015, we quickly and cost effectively reduced our drilling and completion activity, commensurate with the deteriorating oil-and-gas price environment. We have also restructured our operational organization to better align with and support our more focused asset base.”

Apache in June announced plans to restructure the company into three “super regions” following a series of acquisitions and divestitures over the last 5 years (OGJ Online, June 1, 2015). The company also says it’s “tightening” its 2015 capital-budget guidance range from to $3.6-3.9 billion from $3.4-3.9 billion.

Oklahoma E&Ps lose billions

Chesapeake Energy Corp., Oklahoma City, recorded a second-quarter net loss of $4.15 billion, down from net income of $145 million in second-quarter 2014. Items typically excluded by securities analysts in their earnings estimates reduced second-quarter 2015 net income by $4.025 billion on an aftertax basis.

The primary source of the reduction was an impairment in the carrying value of the company’s oil and natural gas properties largely resulting from significant decreases in trailing 12-month average first-day-of-the-month oil and natural gas prices. Adjusting for that and other items, the second quarter net loss was $126 million, which compares with adjusted net income of $235 million in second-quarter 2014.

Chesapeake’s production for the quarter averaged 703,000 boe/d, a year-over-year increase of 13%, adjusted for asset sales. Average production consisted of 119,500 bo/d, 3 bcf of natural gas, and 79,200 b/d of NGLs, which represent year-over-year increases of 11%, 11%, and 24%, respectively, adjusted for asset sales.

“We are currently expecting a stronger production trajectory as we enter 2016 and, as a result, we have raised our 2015 production guidance by 4%,” said Doug Lawler, Chesapeake chief executive officer. “We currently expect our 2015 exit rate to be approximately 660,000 [boe/d], despite our voluntary curtailment of 50,000 net [boe/d] and the sharply reduced 2015 drilling activity.”

The company is maintaining a 2015 capital guidance of $3.5–4 billion. Lawler added that Chesapeake is “reviewing opportunities in multiple operating areas to create additional value through strategic asset sales, joint-venture agreements and participation, or farmout agreements.” He said potential deal proceeds could go toward additional drilling in 2016 and improving the company’s capital structure.

Devon Energy Corp., also of Oklahoma City, reported a second-quarter net loss of $2.8 billion due to a noncash, full-cost ceiling charge. This compares with second-quarter 2014 reported net earnings of $675 million. The company, however, posted core earnings of $320 million, up from first-quarter core earnings of $89 million.

Devon’s total oil production averaged 270,000 b/d, up 32% compared with second-quarter of 2014. This result surpassed the midpoint of guidance by 5,000 b/d, marking the fourth consecutive quarter the company has exceeded oil production expectations.

The most significant growth came from Devon’s US operations, where oil production averaged a record 172,000 b/d, 35% higher than the year-ago quarter and surpassing the top end of guidance expectations by 2,000 b/d. The company attributes growth in US production largely to its Eagle Ford and Delaware basin assets.

Given the strong year-to-date production performance, the company says it’s positioned to deliver on its 2015 oil growth target of 25-35%. Devon also remains on track to increase top-line production by 5-10%.

“With current industry conditions, we are focused on maintaining flexibility in our capital programs,” said Dave Hager, Devon’s newly elected president and chief executive officer (OGJ Online, Aug. 3, 2015). “To ensure this optionality, we have minimal exposure to long-term service contracts, no long-term project commitments and negligible leasehold expiration issues. This allows us to dynamically allocate capital to our highest-returning areas while balancing investment with cash flow.”

Production’s upward revision

Houston-based Newfield Exploration Co. posted a second-quarter net loss of $992 million, primarily related to a full-cost ceiling test impairment of $1.5 billion. After adjusting for the effect of impairments, unrealized derivative losses, long-term debt redemption related costs, and restructuring related costs, net income would have been $75 million, the company says.

Newfield's total net production in the quarter was 14.1 million boe, comprised of 51% oil, 14% NGLs, and 35% natural gas. US production was 12.4 million boe. The company estimates that weather issues and third-party midstream curtailments in the SCOOP play during the quarter negatively impacted net production by 200,000 boe.

The company increased its 2015 domestic production guidance to 48.5–50 million from a previous midpoint of 48.5 million boe. Total company net production guidance is expected to be 53.5–55 million boe.

The company’s 2015 capital budget was increased to $1.4 billion from $1.2 billion, relating to the recent addition of 20,000 net acres in the Anadarko basin, the quickening pace of drilling in the SCOOP and STACK plays and the planned drilling and completion of 15 additional wells in STACK. Outside of the Anadarko, the company’s planned investments remain unchanged. Newfield in April reported plans to close its Denver and North Houston offices during this month (OGJ Online, Apr. 29, 2015).

Linn Energy LLC, Houston, reported a second-quarter net loss of $379 million, which includes noncash losses related to changes in fair value of unsettled commodity derivatives of $455 million. During second-quarter 2014, the company reported a net loss of $208 million, which includes noncash losses related to changes in fair value of unsettled commodity derivatives of $393 million.

Linn’s production increased 8% to 1.22 bcfd of gas equivalent, compared with 1.13 bcfed for second-quarter 2014. The rise was primarily attributable to operational outperformance from Linn’s capital program and base optimization efforts. Linn has increased its full-year production guidance by 4% and decreased its lease operating expenses guidance by 6%.

Irving, Tex.-based Pioneer Natural Resources Co. recorded a second-quarter net loss of $218 million. Without the effect of noncash derivative mark-to-market losses and other unusual items, adjusted income for the second quarter was $15 million after tax.

The company during the quarter produced 197,000 boe/d, of which 51% was oil, reflecting strong Spraberry-Wolfcamp production growth driven by the PNR’s successful horizontal drilling program partially offset by lower-than-expected production in the Eagle Ford and West Panhandle field. PNR says it has seen a 20-25% decrease in drilling and completion costs compared with 2014.

Third-quarter production is forecasted to average 205,000-210,000 boe/d. PNR is maintaining a production growth forecast for 2015 of 10%, reflecting an increase in forecasted Spraberry-Wolfcamp production growth from 20% to 22% to 24% offset by a reduction in the full-year growth rate for the Eagle Ford.

The company also is forecasting compound annual production growth of 15%, with oil growth of 20%, during 2016-18 period based PNR’s planned increase in drilling activity. It notes the increased drilling activity will have a minimal impact on 2015 production due to the time required to drill and complete multiwell pads.

As a result of its plan to increase its horizontal rig count in the northern Spraberry-Wolfcamp over the second half, the company’s capital budget for 2015 has been increased to $2.2 billion from $1.85 billion, excluding acquisitions, asset retirement obligations, capitalized interest, and geological and geophysical general and administrative. The budget includes $1.95 billion for drilling-related activities and $250 million related to the development of the Spraberry-Wolfcamp water infrastructure, vertical integration, and facilities.

Marathon Oil Corp., Houston, reported a second-quarter adjusted net loss of $155 million, excluding the impact of certain items not typically represented in analysts’ earnings estimates and that would otherwise affect comparability of results. The reported net loss was $386 million.

The company’s total net production from continuing operations excluding Libya averaged 407,000 net boe/d, up 6% over the year-ago quarter. US resource play net production of 220,000 net boe/d was up 30% year-over-year. Marathon reaffirms total company and US resource play production growth rates of 5-7% and 20%, respectively, year-over-year.

Marathon is raising the lower end of its full-year 2015 exploration and production guidance range to 375,000-390,000 net boe/d. Full-year guidance for the total company production growth rate remains 5-7%. The company’s 2015 capital, investment, and exploration program is expected at or below $3.3 billion.

Offshore boosts output

Noble Energy Inc., Houston, posted a second-quarter net loss of $109 million. Excluding the impact of certain items that would typically not be considered by analysts in published earnings estimates, the company’s adjusted income for the quarter totaled $101 million.

The company says its total organic capital spend in 2015 remains unchanged at $2.9 billion for legacy assets plus $165 million incremental capex allocated to Eagle Ford-Delaware assets taken in the Rosetta Resources Inc. acquisition (OGJ Online, May 11, 2015).

In the DJ basin and Marcellus shale, combined production was up 28% during the quarter. Horizontal production in the plays increased 45% compared with the second quarter of last year. Assets sold in 2014, including production from the Piceance basin and China, accounted for a 10,000 boe/d decrease from second-quarter 2014.

“Looking forward, our production is ramping through the remainder of the year, while capital continues to trend lower each quarter,” explained David L. Stover, Noble’s chairman, president, and chief executive officer. “Production increases are driven from our onshore assets and major project startups in the Gulf of Mexico.”

Stover said, “In addition, we have two material offshore exploration wells currently drilling—one in the Falkland Islands and one in Cameroon—which provide substantial new resource potential.”

El Dorado, Ark.-based Murphy Oil Corp. recorded a second-quarter net loss of $73.8 million, down from net income of $129.4 million in the second quarter a year ago. The net loss from continuing operations in the quarter was $89 million, compared with a profit of $142.7 million earned in the second quarter a year ago.

The company’s adjusted earnings, which excludes both the results of discontinued operations and certain other items that affect comparability of results between periods, in the second quarter showed a loss of $83.1 million, a decrease of $244.8 million compared with the prior year’s quarter primarily attributed to significantly lower realized sales prices in the current quarter compared to a year ago.

Murphy’s second-quarter production averaged 201,952 boe/d, ahead of the company’s guidance of 197,000 boe/d, primarily attributed to new well performance in the Eagle Ford and risked startup of the Medusa expansion project.

Production for the third quarter is estimated at 200,000 boe/d, and the company has increased its full-year production guidance to 200,000-208,000 boe/d. Murphy’s capital expenditures remain unchanged from previous guidance and are currently forecast at $2.3 billion for the year.

“We remain focused on organizational efficiency, capital allocation and reducing operating expenses,” explained Roger W. Jenkins, Murphy president and chief executive officer, adding that the company “addressed general and administrative costs” by reducing its workforce by 7%.

Contact Matt Zborowski at matthewz@ogjonline.com.

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