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Unit Corp. Reports Operating Results (10-Q)

November 03, 2009 | About:
10qk

10qk

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Unit Corp. (UNT) filed Quarterly Report for the period ended 2009-09-30.

UNIT CORP. is engaged in the land contract drilling of oil and natural gas wells the development acquisition and production of oil and natural gasproperties and the marketing of natural gas. Its principal areas ofoperations are located in the Anadarko and Arkoma Basins which coverportions of Oklahoma Texas Kansas and Arkansas and has additionalproducing properties located in other states including but not limited toNew Mexico Louisiana North Dakota Colorado Wyoming Montana Alabama and Mississippi. Unit Corp. has a market cap of $1.89 billion; its shares were traded at around $39.86 with a P/E ratio of 9 and P/S ratio of 1.4. Unit Corp. had an annual average earning growth of 29.9% over the past 10 years. GuruFocus rated Unit Corp. the business predictability rank of 2.5-star.

Highlight of Business Operations:

Our third quarter 2009 utilization rate was 26%, compared to 24% and 85% in the second quarter 2009 and third quarter 2008, respectively. Dayrates for the third quarter of 2009 averaged $15,360, a decrease of 11% from the second quarter of 2009 and a decrease of 18% from the third quarter of 2008. Direct profit (contract drilling revenue less contract drilling operating expense) increased by 1% from the second quarter of 2009 and decreased 77% from the third quarter of 2008. The increase from the second quarter 2009 was primarily due to contract termination revenue we received in the third quarter of 2009 and the decrease from the third quarter of 2008 was primarily due to the decrease in utilization. Operating cost per day decreased 10% from the second quarter of 2009 and increased 15% from the third quarter of 2008. The decrease from the second quarter 2009 was primarily due to reduced workers compensation costs and indirect drilling costs being spread over more utilization days and the increase from the third quarter of 2008 was primarily attributable to certain indirect drilling costs being spread over fewer utilization days. In the third and fourth quarter of 2008, prices for oil and natural gas decreased substantially and natural gas prices continued to be at low levels during the third quarter of 2009. Commodity prices remain volatile and without a sustained increase, dayrates and utilization will continue to be adversely affected.

Oil and natural gas revenues decreased 1% from the second quarter of 2009 and decreased 42% from the third quarter of 2008. From the second quarter of 2009, our oil and natural gas prices, including hedges, in the third quarter of 2009 increased by 9% and 3%, respectively, while NGL prices decreased 4%. Our oil, natural gas and NGL prices, including hedges, decreased 42%, 31% and 63%, respectively, from the third quarter of 2008. Direct profit (oil and natural gas revenues less oil and natural gas operating expense) decreased 6% from the second quarter of 2009 and 43% from the third quarter of 2008. The decrease in operating profit from the second quarter 2009 primarily occurred as gross production taxes return to more normal levels after being lower in the second quarter of 2009 due to the recognition of high cost gas production tax credits and the decrease from the third quarter 2008 primarily resulted from the impact of commodity prices. Operating cost per Mcfe produced increased 27% from the second quarter of 2009 due primarily from the recognition of high cost gas production tax credits received in the second quarter of 2009. Operating cost per Mcfe produced decreased 30% from the third quarter of 2008 primarily due to reduced production taxes resulting from the large decrease in commodity prices.

For the remainder of 2009, we have hedged approximately 77% of our average daily oil production (based on our third quarter 2009 production) and approximately 80% of our average daily natural gas production (based on our third quarter 2009 production). Currently, for 2010, we have hedged approximately 77% of our average daily oil production (based on our third quarter 2009 production) and approximately 71% of our average daily natural gas production (based on our third quarter 2009 production). In the third quarter of 2009, we entered into agreements to hedge approximately 77% of our average daily NGL production (based on our third quarter 2009 production) for 2009.

Third quarter 2009 liquids sold per day increased 5% from the second quarter of 2009 and increased 26% from the third quarter of 2008. Liquids sold per day increased primarily as the result of upgrades and expansions to existing plants. Gas processed per day increased 3% over the second quarter of 2009 and increased 9% over the third quarter of 2008, respectively. Gas gathered per day decreased 5% from the second quarter of 2009 and decreased 9% from the third quarter of 2008 primarily from our Southeast Oklahoma gathering system experiencing natural production declines associated with connected wells.

NGL prices in the third quarter of 2009 increased 11% from the price received in the second quarter of 2009 and decreased 54% over the price received in the third quarter of 2008. The price of liquids as compared to natural gas affects the revenue in our mid-stream operations and determines the fractionation spread which is the difference in the value received for the NGLs recovered from natural gas in comparison to the amount received for the equivalent MMBtu s of natural gas if unprocessed. In 2008, we had hedged approximately 50% of our average

Direct profit (mid-stream revenues less mid-stream operating expense) increased 54% from the second quarter of 2009 and decreased 29% from the third quarter of 2008, primarily from changes in commodity prices which resulted in changes in processing margins. Total operating cost for our mid-stream segment increased 4% from the second quarter of 2009 and decreased 56% from the third quarter of 2008. Our anticipated capital expenditures for 2009 for this segment are $13.0 million. Commodity prices declined substantially in the third and fourth quarters of 2008 and natural gas prices continued to be at low levels through the third quarter of 2009. In the third quarter of 2009, we saw favorable fractionation spreads due to low natural gas prices and higher liquids prices; however, prices remain volatile and without a sustained increase, we could be adversely affected by fewer wells being connected to existing gathering systems and lower fractionation spreads resulting in future declines in volumes or margins.

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