Petrohawk Energy Corp. (HK, Financial) filed Quarterly Report for the period ended 2010-09-30.
Petrohawk Energy Corp. has a market cap of $5.31 billion; its shares were traded at around $17.54 with a P/E ratio of 39 and P/S ratio of 5. HK is in the portfolios of David Williams of Columbia Value and Restructuring Fund, John Keeley of Keeley Fund Management, Steven Cohen of SAC Capital Advisors, Louis Moore Bacon of Moore Capital Management, LP, NWQ Managers of NWQ Investment Management Co, Ruane Cunniff of Ruane & Cunniff & Goldfarb Inc, Bruce Kovner of Caxton Associates, George Soros of Soros Fund Management LLC.
Our goal in 2010 is to strengthen our balance sheet by completing asset dispositions, including a transaction involving our midstream assets, divesting our interest in the Terryville Field in Northwest Louisiana, divesting our interest in the West Edmond Hunton Lime Unit (WEHLU) in Central Oklahoma as well as divesting other non-core assets. To date, we have sold approximately $640 million in properties, including $155 million for the sale of our WEHLU Field in Oklahoma County, Oklahoma, $320 million for the sale of our Terryville Field in Lincoln and Claiborne Parishes, Louisiana, approximately $123 million for certain Mid-Continent properties in Texas, Oklahoma and Arkansas and approximately $38 million for other various non-core properties. We also formed a joint venture, on May 21, 2010, discussed in greater detail below, in which we received approximately $921 million (including approximately $46 million in closing adjustments) for a 50% interest in our Haynesville Shale gathering and treating business in North Louisiana. During the remainder of 2010 we intend to market our upstream and midstream assets in the Fayetteville Shale in Arkansas. A divestment will only occur if we receive bids that we determine are favorable.
We are obligated to deliver minimum annual quantities of natural gas to KinderHawk equal to 50% of our annual projected production from Petrohawk operated wells located on certain dedicated acreage from the Haynesville and Bossier Shales in North Louisiana for the next five years, 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 Mcf of natural gas delivered at KinderHawks 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.
Our future capital resources and liquidity depend, in part, on our success in developing our leasehold interests. Cash is required to fund capital expenditures necessary to offset inherent declines in our production and proven reserves, which is typical in the capital-intensive oil and natural gas industry. Future success in growing reserves and production will be highly dependent on our capital resources and our success in finding additional reserves. During 2008 and 2009, we raised $1.3 billion of debt (net of discounts and expenses) and $2.7 billion of equity capital (net of discounts and expenses) and we refinanced $775 million of debt in 2010. We expect to fund our future capital requirements through internally generated cash flows, borrowings under our Senior Credit Agreement, asset dispositions, and accessing the capital markets, if necessary. The Senior Credit Agreement provides for a $2.0 billion facility. Effective as of September 30, 2010, the borrowing base was approximately $1.1 billion, $1.0 billion of which relates to our oil and natural gas properties and $100 million of which relates to our midstream assets (currently limited as described below). The portion of the borrowing base which relates to our oil and natural gas properties will be redetermined on a semi-annual basis (with the Company 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 related to our midstream assets is limited to the lesser of $100 million or 3.5 times midstream EBITDA, is calculated quarterly and is currently limited to approximately $53 million based on the EBITDA limitation. We are currently undergoing a redetermination of the borrowing base under our Senior Credit Agreement and we expect to finalize the redetermination during the fourth quarter of 2010. Our ability to utilize the full amount of our borrowing capacity is influenced by a variety of factors, including semi-annual
Net cash provided by operating activities decreased in 2010 primarily due to the decrease in realized gains on our derivative contracts from $287.6 million for the nine months ended September 30, 2009 to $155.7 million for the same period in 2010. This decrease was offset by a 38% increase in our average daily production volumes due to our drilling successes in the Haynesville, Fayetteville and Eagle Ford Shales. Our natural gas equivalent price increased $0.82 per Mcfe to $4.65 per Mcfe from $3.83 per Mcfe in the prior year. Production for the first nine months of 2010 averaged 645 Mmcfe/d compared to 469 Mmcfe/d during the same period of 2009. As a result of our 2010 and 2011 capital budget programs, we expect to continue to increase our production volumes throughout 2010 and 2011. However, we are unable to predict future production levels or future commodity prices with certainty, and, therefore, we cannot provide any assurance about future levels of net cash provided by operating activities.
On May 21, 2010, our wholly owned subsidiary, Hawk Field Services, and Kinder Morgan entered into a joint venture arrangement to create a new entity, KinderHawk, which engages in the natural gas midstream business in Northwest Louisiana, focused on the Haynesville Shale formation. Hawk Field Services contributed to KinderHawk our Haynesville Shale gathering and treating business in Northwest Louisiana, and Kinder Morgan contributed approximately $921 million in cash ($875 million for a 50% membership interest in KinderHawk and $46 million for certain closing adjustments including 2010 capital expenditures through the closing date) to KinderHawk. We, along with Kinder Morgan, own a 50% membership interest in KinderHawk. KinderHawk distributed the approximate $921 million to us. During the first nine months of 2010, we have made contributions of $11.0 million to KinderHawk to partially fund the 2010 capital program and have received distributions of $13.2 million, which are recorded in cash flows from operating activities.
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Petrohawk Energy Corp. has a market cap of $5.31 billion; its shares were traded at around $17.54 with a P/E ratio of 39 and P/S ratio of 5. HK is in the portfolios of David Williams of Columbia Value and Restructuring Fund, John Keeley of Keeley Fund Management, Steven Cohen of SAC Capital Advisors, Louis Moore Bacon of Moore Capital Management, LP, NWQ Managers of NWQ Investment Management Co, Ruane Cunniff of Ruane & Cunniff & Goldfarb Inc, Bruce Kovner of Caxton Associates, George Soros of Soros Fund Management LLC.
Highlight of Business Operations:
Capital spending for 2011 is estimated at $2.3 billion, of which $1.9 billion will be allocated for drilling and completions, $200 million will be allocated for midstream operations and $200 million will be allocated for potential acquisitions. Of the $1.9 billion budget for drilling and completions, approximately $900 million is planned for the Haynesville Shale, approximately $900 million is budgeted for the Eagle Ford Shale, and approximately $100 million is budgeted for the Fayetteville Shale. This spending 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, down to approximately seven rigs. Our emphasis in 2011 will be development of condensate-rich properties with a shift away from dry gas development. The $1.9 billion dollar drilling and completion budget for 2011 emphasizes capital spending based on market conditions, opportunities 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 in mid-year 2011. Capital allocated to the Eagle Ford Shale is approximately two and a half times the amount budgeted in 2010. Capital allocated to the Haynesville Shale is expected to decrease by 35% from 2010 levels.Our goal in 2010 is to strengthen our balance sheet by completing asset dispositions, including a transaction involving our midstream assets, divesting our interest in the Terryville Field in Northwest Louisiana, divesting our interest in the West Edmond Hunton Lime Unit (WEHLU) in Central Oklahoma as well as divesting other non-core assets. To date, we have sold approximately $640 million in properties, including $155 million for the sale of our WEHLU Field in Oklahoma County, Oklahoma, $320 million for the sale of our Terryville Field in Lincoln and Claiborne Parishes, Louisiana, approximately $123 million for certain Mid-Continent properties in Texas, Oklahoma and Arkansas and approximately $38 million for other various non-core properties. We also formed a joint venture, on May 21, 2010, discussed in greater detail below, in which we received approximately $921 million (including approximately $46 million in closing adjustments) for a 50% interest in our Haynesville Shale gathering and treating business in North Louisiana. During the remainder of 2010 we intend to market our upstream and midstream assets in the Fayetteville Shale in Arkansas. A divestment will only occur if we receive bids that we determine are favorable.
We are obligated to deliver minimum annual quantities of natural gas to KinderHawk equal to 50% of our annual projected production from Petrohawk operated wells located on certain dedicated acreage from the Haynesville and Bossier Shales in North Louisiana for the next five years, 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 Mcf of natural gas delivered at KinderHawks 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.
Our future capital resources and liquidity depend, in part, on our success in developing our leasehold interests. Cash is required to fund capital expenditures necessary to offset inherent declines in our production and proven reserves, which is typical in the capital-intensive oil and natural gas industry. Future success in growing reserves and production will be highly dependent on our capital resources and our success in finding additional reserves. During 2008 and 2009, we raised $1.3 billion of debt (net of discounts and expenses) and $2.7 billion of equity capital (net of discounts and expenses) and we refinanced $775 million of debt in 2010. We expect to fund our future capital requirements through internally generated cash flows, borrowings under our Senior Credit Agreement, asset dispositions, and accessing the capital markets, if necessary. The Senior Credit Agreement provides for a $2.0 billion facility. Effective as of September 30, 2010, the borrowing base was approximately $1.1 billion, $1.0 billion of which relates to our oil and natural gas properties and $100 million of which relates to our midstream assets (currently limited as described below). The portion of the borrowing base which relates to our oil and natural gas properties will be redetermined on a semi-annual basis (with the Company 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 related to our midstream assets is limited to the lesser of $100 million or 3.5 times midstream EBITDA, is calculated quarterly and is currently limited to approximately $53 million based on the EBITDA limitation. We are currently undergoing a redetermination of the borrowing base under our Senior Credit Agreement and we expect to finalize the redetermination during the fourth quarter of 2010. Our ability to utilize the full amount of our borrowing capacity is influenced by a variety of factors, including semi-annual
Net cash provided by operating activities decreased in 2010 primarily due to the decrease in realized gains on our derivative contracts from $287.6 million for the nine months ended September 30, 2009 to $155.7 million for the same period in 2010. This decrease was offset by a 38% increase in our average daily production volumes due to our drilling successes in the Haynesville, Fayetteville and Eagle Ford Shales. Our natural gas equivalent price increased $0.82 per Mcfe to $4.65 per Mcfe from $3.83 per Mcfe in the prior year. Production for the first nine months of 2010 averaged 645 Mmcfe/d compared to 469 Mmcfe/d during the same period of 2009. As a result of our 2010 and 2011 capital budget programs, we expect to continue to increase our production volumes throughout 2010 and 2011. However, we are unable to predict future production levels or future commodity prices with certainty, and, therefore, we cannot provide any assurance about future levels of net cash provided by operating activities.
On May 21, 2010, our wholly owned subsidiary, Hawk Field Services, and Kinder Morgan entered into a joint venture arrangement to create a new entity, KinderHawk, which engages in the natural gas midstream business in Northwest Louisiana, focused on the Haynesville Shale formation. Hawk Field Services contributed to KinderHawk our Haynesville Shale gathering and treating business in Northwest Louisiana, and Kinder Morgan contributed approximately $921 million in cash ($875 million for a 50% membership interest in KinderHawk and $46 million for certain closing adjustments including 2010 capital expenditures through the closing date) to KinderHawk. We, along with Kinder Morgan, own a 50% membership interest in KinderHawk. KinderHawk distributed the approximate $921 million to us. During the first nine months of 2010, we have made contributions of $11.0 million to KinderHawk to partially fund the 2010 capital program and have received distributions of $13.2 million, which are recorded in cash flows from operating activities.
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