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Petrohawk Energy Corp. Reports Operating Results (10-K)
Posted by: gurufocus (IP Logged)
Date: February 22, 2011 06:21AM
Petrohawk Energy Corp. (HK) filed Annual Report for the period ended 2010-12-31. Petrohawk Energy Corp. has a market cap of $6.15 billion; its shares were traded at around $20.35 with a P/E ratio of 43.3 and P/S ratio of 5.68.Hedge Fund Gurus that owns HK: Stanley Druckenmiller of Duquesne Capital Management, LLC, Steven Cohen of SAC Capital Advisors, Louis Moore Bacon of Moore Capital Management, LP, Bruce Kovner of Caxton Associates, George Soros of Soros Fund Management LLC. Mutual Fund and Other Gurus that owns HK: John Keeley of Keeley Fund Management, David Williams of Columbia Value and Restructuring Fund, NWQ Managers of NWQ Investment Management Co, Ruane Cunniff of Ruane & Cunniff & Goldfarb Inc, Pioneer Investments, Mario Gabelli of GAMCO Investors.
Highlight of Business Operations:
as co-documentation agents for the Lenders. The Senior Credit Agreement provides for a $2.0 billion facility. As of December 31, 2010, the borrowing base was approximately $1.65 billion, $1.55 billion of which related to our oil and natural gas properties and up to $100 million (currently limited as described below) related to our midstream assets. The portion of the borrowing base relating to our oil and natural gas properties is redetermined on a semi-annual basis (with us and the Lenders each having the right to one annual interim unscheduled redetermination) and adjusted based on our oil and natural gas properties, reserves, other indebtedness and other relevant factors. The component of the borrowing base relating to our midstream assets is limited to the lesser of $100 million or 3.5 times midstream earnings before interest, taxes, depreciation and amortization (EBITDA), and is calculated quarterly. As of December 31, 2010, the midstream component of the borrowing base was limited to approximately $38 million based on midstream EBITDA. Our borrowing base is subject to a reduction equal to the product of $0.25 multiplied by the stated principal amount (without regard to any initial issue discount) of any unsecured senior or senior subordinated notes that we may issue. In January 2011, we issued an additional $400 million aggregate principal amount of our 7.25% senior notes, a portion of the proceeds of which will be used to redeem all of our 7.125% $275 million senior notes, which have been called for redemption. Accordingly, our borrowing base was reduced to approximately $1.6 billion.
On December 22, 2010, we completed the sale of our interest in natural gas properties and other operating assets in the Fayetteville Shale for $575 million in cash, before customary closing adjustments. As part of the transaction, the buyer also assumed certain firm pipeline transportation obligations of approximately $100 million. As of December 31, 2009, we had approximately 299 Bcf of proved reserves associated with the Fayetteville Shale. Production from the Fayetteville Shale as of the sale date was approximately 98 Mmcfe/d. Proceeds from the sale of the natural gas properties were recorded as a reduction to the carrying value of our full cost pool with no gain or loss recorded. In conjunction with the sale of the other operating assets, we recorded a loss of approximately $0.5 million in the year ended December 31, 2010. On January 7, 2011, we completed the sale of our midstream assets in the Fayetteville Shale for $75 million in cash, before customary closing adjustments. As of December 31, 2010, the Fayetteville Shale midstream assets were classified as held for sale on our consolidated balance sheet. Assets held for sale were recorded at the lesser of the carrying amount or the fair value less costs to sell, which resulted in a write down of the carrying amount of approximately $69.7 million before income taxes in the year ended December 31, 2010, which is included in "Loss from discontinued operations net of income taxes" on the consolidated statements of operations. Both transactions had an effective date of October 1, 2010.
We are obligated to deliver to KinderHawk agreed upon minimum annual quantities of natural gas from our operated wells producing from the Haynesville and Lower Bossier Shales, within specified acreage in Northwest Louisiana through May 2015, or in the alternative, pay an annual true-up fee to KinderHawk if such minimum annual quantities are not delivered. We pay KinderHawk negotiated gathering and treating fees, subject to an annual inflation adjustment factor. The gathering fee is equal to $0.34 per thousand cubic feet (Mcf) of natural gas delivered at KinderHawk's receipt points. The treating fee is charged for gas delivered containing more than 2% by volume of carbon dioxide. For gas delivered containing between 2% and 5.5% carbon dioxide, the treating fee is between $0.030 and $0.345 per Mcf, and for gas containing over 5.5% carbon dioxide, the treating fee starts at $0.365 per Mcf and increases on a scale of $0.09 per Mcf for each additional 1% of carbon dioxide content.
During 2010, we completed acquisitions of acreage for a total of approximately $635 million. Leasehold acquisitions for 2010 included approximately $420 million in the Eagle Ford Shale, primarily in the Black Hawk area, approximately $141 million in the Haynesville Shale and approximately $74 million in other areas.
We expect to spend approximately $2.3 billion during 2011, of which $1.9 billion is expected to be allocated for drilling and completions, $200 million is expected to be allocated for midstream operations and $200 million will be allocated for potential leasehold acreage acquisitions. Of the $1.9 billion budget for drilling and completions, $900 million is planned for the Haynesville and Lower Bossier Shales, which will enable us to fulfill our lease capture goals, $900 million is budgeted for the Eagle Ford Shale, and approximately $100 million is budgeted for various other projects. Our 2011 drilling and completion budget contemplates an increase in drilling activity in the Eagle Ford Shale throughout the year and a significant decrease in the Haynesville Shale operated rig count in the second half of the year as our lease-holding activities are fulfilled. Our 2011 program will emphasize the development of our extensive condensate-rich properties, largely in the Eagle Ford Shale, and a shift away from dry gas development. The $1.9 billion drilling and completion budget for 2011 is based on our current view of market conditions, our ability to accelerate certain areas of our Eagle Ford Shale position, and the desire to reduce capital allocated to pure natural gas drilling once the Haynesville Shale lease capture period is effectively completed.
Concentrated portfolio of propertiesWe currently hold a high-quality portfolio of properties within a limited number of core plays, notably the Haynesville, Lower Bossier and Eagle Ford Shales. We believe we have significant exploitation and development opportunities in these plays where we can apply our technical experience and economies of scale to achieve profitable future growth. Currently our portfolio is more heavily weighted toward natural gas; however, in the future we expect our product mix to shift toward a greater percentage of liquids, especially as our Eagle Ford Shale programs increase. Attractive undeveloped reservesWe seek to maintain a portfolio of long-lived properties focused on resource plays within our core operating areas. Resource plays are typically characterized by lower geological risk and a large inventory of identified drilling opportunities. Our current plays include the Haynesville and Lower Bossier Shales in North Louisiana and East Texas and the Eagle Ford Shale in South Texas. We believe these properties have the potential to contribute significant growth in production and reserves over the long term. Reduce operating costsWe focus on reducing the per unit operating costs associated with our properties and have been successful in lowering our unit lease operating expenses from $0.47 Mcfe in 2008 to $0.43 per Mcfe in 2009 and $0.26 per Mcfe in 2010, including $0.22 per Mcfe during the fourth quarter. Divestment of non-core propertiesWe continually evaluate our property portfolio to identify opportunities to divest non-core, higher cost or less productive properties with limited development potential. This highgrading strategy allows us to achieve a more concentrated portfolio of core properties with significant potential to increase our proved reserves and production and reduce our per unit operating costs. To allow us to concentrate on our core properties and further enhance our liquidity position, in 2010 we contributed our Haynesville Shale midstream business to a joint venture, and sold our interest in the Terryville Field in Northwest Louisiana, the WEHLU Field in central Oklahoma, and the Fayetteville Shale in Arkansas, as well as divested other non-core assets in the Mid-Continent region. Total proceeds from 2010 divestitures were approximately $2.1 billion. Maintenance of financial flexibilityWe strive to maintain financial flexibility by balancing our financial resources with our plans to develop our key properties and pursue opportunities for growth and expansion. We intend to maintain substantial borrowing capacity under our Senior Credit Agreement to facilitate drilling on our large undeveloped acreage position in resource plays, selectively expand our position in these and other emerging resource plays and expand our infrastructure projects. We may access capital markets as necessary to maintain substantial borrowing capacity under our Senior Credit Agreement. We hedge a substantial portion of our production to provide downside price protection. Oil and Natural Gas Reserves
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