Unit Corp. Reports Operating Results (10-Q)
Unit Corp. has a market cap of $1.88 billion; its shares were traded at around $38.69 with a P/E ratio of 14.7 and P/S ratio of 2.5. Unit Corp. had an annual average earning growth of 4.2% over the past 10 years.UNT is in the portfolios of Chuck Royce of Royce& Associates, John Buckingham of Al Frank Asset Management, Inc., Bruce Kovner of Caxton Associates, John Keeley of Keeley Fund Management, Steven Cohen of SAC Capital Advisors, Jeremy Grantham of GMO LLC.
Highlight of Business Operations: For 2010, we hedged approximately 61% of our average daily oil production, approximately 73% of our average natural gas production and approximately 12% of our average natural gas liquids production (percentages based on our third quarter 2010 production) to help manage our cash flow and capital expenditure requirements. Of the oil hedges, 60% are under swap contracts at an average price of $61.36 per barrel and 40% are under collar contracts with a floor of $67.50 per barrel and a ceiling of $81.53 per barrel. The natural gas production is hedged under swap contracts at a comparable average NYMEX price of $6.95. The average basis differential for the swaps is ($0.66). The natural gas liquids production is hedged under swap contracts at an average price of $41.13 per barrel.
Demand for drilling rigs in the 1,000 to 1,500 horsepower range has increased over the past year as more of our customers shift to drilling horizontal wells, which are suited for this horsepower range. Availability of drilling rigs in this range will also have a larger impact on dayrates in the future. For the first nine months of 2010, our average dayrate was $15,037 per day compared to $17,335 per day for the first nine months of 2009. The average number of our drilling rigs used in the first nine months of 2010 was 58.2 drilling rigs (47%) compared with 39.6 drilling rigs (30%) in the first nine months of 2009. Based on the average utilization of our drilling rigs during the first nine months of 2010, a $100 per day change in dayrates has a $5,820 per day ($2.1 million annualized) change in our pre-tax operating cash flow.
Our contract drilling segment provides drilling services for our exploration and production segment. Depending on their timing some of the drilling services performed on our properties are also deemed to be associated with the acquisition of an ownership interest in the property. Revenues and expenses for such services are eliminated in our income statement, with any profit recognized as a reduction in our investment in our oil and natural gas properties. The contracts for these services are issued under the same conditions and rates as the contracts entered into with unrelated third parties. We eliminated revenue of $28.3 million and $9.5 million for the nine months of 2010 and 2009, respectively from our contract drilling segment and eliminated the associated operating expense of $23.6 million and $8.3 million during the nine months of 2010 and 2009, respectively, yielding $4.7 million and $1.2 million during the nine months of 2010 and 2009, respectively, as a reduction to the carrying value of our oil and natural gas properties.
Based on our first nine months of 2010 production, a $0.10 per Mcf change in what we are paid for our natural gas production, without the effect of hedging, would result in a corresponding $316,000 per month ($3.8 million annualized) change in our pre-tax operating cash flow. The average price we received for our natural gas production, including the effect of hedging, during the first nine months of 2010 was $5.71 compared to $5.53 for the first nine months of 2009. Based on our first nine months of 2010 production, a $1.00 per barrel change in our oil price, without the effect of hedging, would have a $105,000 per month ($1.3 million annualized) change in our pre-tax operating cash flow and a $1.00 per barrel change in our NGL prices, without the effect of hedging, would have a $121,000 per month ($1.5 million annualized) change in our pre-tax operating cash flow. In the first nine months of 2010, our average oil price per barrel received, including the effect of hedging, was $67.05 compared with an average oil price, including the effect of hedging, of $54.77 in the first nine months of 2009 and our first nine months of 2010 average NGLs price per barrel received was $35.91 compared with an average NGL price per barrel of $21.80 in the first nine months of 2009.
miles of pipeline. Superior operates in Oklahoma, Texas, Kansas, Pennsylvania and West Virginia and has been in business since 1996. This segment enhances our ability to gather and market not only our own natural gas but also that owned by third parties and serves as a mechanism through which we can construct or acquire existing natural gas gathering and processing facilities. During the first nine months of 2010 and 2009, our mid-stream operations purchased $30.5 million and $19.7 million, respectively, of our oil and natural gas segments production and provided gathering and transportation services to it of $3.2 million and $3.6 million, respectively. Intercompany revenue from services and purchases of production between our mid-stream segment and our oil and natural gas exploration segment has been eliminated in our condensed consolidated financial statements.
Our existing Credit Facility has a maximum credit amount of $400.0 million and matures on May 24, 2012. The lenders current commitment under the Credit Facility is $325.0 million. Our borrowings are limited to the commitment amount that we elect. As of September 30, 2010, the commitment amount was $325.0 million. We are charged a commitment fee ranging from 0.375 to 0.50 of 1% on the amount available but not borrowed. The rate varies based on the amount borrowed as a percentage of the amount of the total borrowing base. To date we have paid $1.2 million in origination, agency and syndication fees under the Credit Facility. We are amortizing these fees over the life of the agreement. The average interest rate for both the first nine months of 2010 and the first nine months of 2009, which includes the effect of our two interest rate swaps, was 3.8%. At September 30, 2010 and October 29, 2010, borrowings were $135.0 million.
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