Seeking Alpha
Oil & gas
Profile| Send Message| ()  

Unit Corporation (UNT) is a diversified energy company engaged through its subsidiaries in the exploration for and production of oil and natural gas, the acquisition of producing oil and natural gas properties, the contract drilling of onshore oil and natural gas wells, and the gathering and processing of natural gas. The company is celebrating its 50th Anniversary in 2013.

On December 4, 2013, Unit hosted an analyst day webcast and presentation in New York City and discussed its 2014 plan to drill 125 net wells based upon an expected capital expenditures program of $600 million to $725 million in its upstream segment. Overall, the company sees upside potential in its core plays consisting of 1,600 to 2,100 gross wells with 564 MMBOE to 726 MMBOE of reserves, with 47% liquids. Working interest in these areas is approximately 73% and management mentioned there is no active effort to pursue a joint venture within its core plays next year. The Board of Directors will meet later in December to formally determine the allocation of its 2014 corporate budget, which is estimated to be between $800 million and $900 million.

2014 Plans Build upon 2013 Achievements

Unit's 2013 accomplishments include a 22% increase in year-to-date production compared to 2012 despite lowering its capital expenditures budget during 2013. The company is preparing to deploy its BOSS rig in 2014, and experienced cash flow growth of 34% in its midstream segment. UNT plans on operating 12 rigs in 2014 and expects its production guidance for 2014 to reach 15% to 18%, largely due to organic growth. UNT's previous growth expectation was 13% to 16%, but Larry Pinkston, President and CEO of Unit Corp., said, "We have never had an inventory like this."

Historically, Unit Corporation had limited running room in its upstream division but the company diligently worked to high-grade and add to its drilling prospect inventory. Following the $617 million Noble Acquisition in 2012, and the focus next year on expanding operations in some of its existing core areas, Unit management believes the company has, for the first time in its history, demonstrated the visible growth inventory of drilling locations for the next few years. Unit's familiarity with the areas is a major asset, says Brad Guidry, Executive Vice President of Exploration and Production. "The places we were most efficient in were the places we had the most history in."

Operations Overview

(click to enlarge)

The Buffalo Wallow was discussed at length and management believes its resource potential of 2.1 to 2.7 Tcfe is a conservative estimate. All resource potential wells are mapped and currently 80 wells are producing, so the area is believed to be adequately de-risked. Results from testing are expected in late Q1'14 or early Q2'14.

UNT expects to operate two rigs in the Marmaton next year. UNT is utilizing the extended lateral drilling technique on its infill wells, which should reduce costs by 25% as the company produces higher volumes. The company expects drilling about one to three wells per section, but the natural fracturing in the Marmaton produces varying results between the Upper and Lower Marmaton levels.

(click to enlarge)

UNT described an emerging Anadarko Basin play in its portfolio during the analyst day within an area where the company is actively adding to its acreage position. The company currently holds 15,000 acres and will run two rigs with 12 net wells in 2014. Five to seven zones are expected to be prospective and three have been drilled with success to date. The majority of the play is held by production.

UNT expects to increase production in its Wilcox play (the Gilly Field) by as much as 49% in 2014. UNT believes nine pay zones are in the region and a total of 8 to 10 wells are scheduled to be drilled in Q4'13 in order to expedite production growth. Initial rates are between $5 million to $10 million a day equivalent, with EURs in the range of 15 Bcfe to 20 Bcfe.

Other Assets Compliment UNT's Reserve Growth

UNT wholly-owned pipeline company, Superior Pipeline Co., LLC (SPC), expects to exit 2013 with a company-record segment operating cash flow of $49 million. Its current operations consist of 39 gathering systems and three treatment plants for a total capacity of 345 MMcf/d. SPC may consider expanding its services to the Permian in 2015 or 2016. Significantly, approximately 68% of SPC's business in 2013 was through third parties, contrary to a commonly-held investor view that Superior is mainly processing hydrocarbons produced by Unit's upstream segment.

(click to enlarge)UNT Rig Fleet

UNT also continues to monetize its non-core assets and re-invest into its core rigs. Approximately $90 million of non-core assets were sold by Q3'13 and an additional $100 million is anticipated to be sold in 2014. The company continues to be active in the marketing of its under-utilized rigs and has sold 19 rigs since 2009. An additional 20 rigs are expected to be sold in the next few years, with the majority perhaps destined for Mexico. A total of $90 million was invested in upgrading 48 rigs in 2009, and these upgrade costs were mainly absorbed within the contract terms negotiated for the upgraded rigs.

(click to enlarge)UNT management was excited to describe the company's entry into the high-spec rig market through the development of the BOSS rig. The BOSS rig design excels in horizontal drilling and will be the prototype for the future expansion of Unit's fleet, representing Unit's first foray into the advanced purpose-built rig market. In its Q3'13 earnings release call, UNT disclosed that it will deploy the first BOSS rig to the Granite Wash to drill Unit wells, which will allow the company to demonstrate the proof-of-concept before building and deploying BOSS rigs for third party customers. Two additional rigs are expected to be placed into service in March and August of 2014. The efficiency of each BOSS rig efficiency projects to save operators up to $693,000 per year. UNT can build up to six such rigs per year, dependent on industry interest.

Source: Unit Corporation 2013 Analyst Day Takeaways