Energen Affirms 2006 Earnings Guidance
Birmingham, Alabama
Energen Corporation (NYSE: EGN) announced today that it has completed its 2006 budget process and is affirming its 2006 earnings guidance range of $3.25-$3.60 per diluted share.
"Energen has solid base-business operations, a hedge position that helps protect earnings from falling commodity prices while leaving room for upside potential in today's price environment, and a solid strategic plan with a proven track record," said Mike Warren Energen's chairman and chief executive officer.
"The driver of Energen's near- and long-term earnings growth will continue to be our oil and gas acquisition and development company, Energen Resources Corporation," Warren said. "We look forward in 2006 to the start of development drilling on our soon-to-be-finalized acquisition of oil properties in the Permian Basin ; we also are pleased with a new coalbed methane drilling program in the Black Warrior Basin , and work continues on more fully developing our extensive San Juan Basin holdings in New Mexico and Colorado.
"Meanwhile," Warren added, "we continue to rely on Alagasco, our strong natural gas utility, to contribute modest earnings growth and provide the majority of dividend income for our shareholders."
2006 Hedge Position
Energen Resources utilizes derivative hedge instruments to help mitigate the earnings impact of commodity price volatility. Energen Resources' current hedge position with respect to its estimated 2006 production is as follows:
|
Commodity |
Hedge Vols. |
Estimated 2006 Production |
% Hedged |
NYMEX-equiv. price |
|
Natural Gas |
38.2 Bcf |
59.9 Bcf |
64% |
$7.96 per Mcf |
|
Oil |
2.8 MMBbl |
3.7 MMBbl |
77% |
$53.02 per barrel |
|
NGL |
30.2 MMgal |
68.5 MMgal |
44% |
$0.56 per gallon |
Energen Resources' 2006 natural gas hedge position by hedge type is as follows:
|
Hedge Type |
Volumes (Bcf) |
Assumed Basis Difference |
Price/Mcf (NYMEX equiv) |
|
NYMEX Hedges |
16.3 |
- |
$8.08 |
|
San Juan Basin-specific |
21.0 |
$1.40 |
$7.79 |
|
Permian Basin-specific |
0.5 |
$1.00 |
$9.53 |
|
Houston Ship Channel |
0.4 |
$0.53 |
$9.50 |
Energen Resources' 2006 oil hedge position by hedge type is as follows:
|
Hedge Type |
Volumes (MBbl) |
Assumed Sour Oil Difference |
Price/Barrel (NYMEX equiv) |
|
NYMEX Hedges |
929 |
- |
$51.74 |
|
Sour Oil (WTS) |
1,915 |
$5.22 |
$53.65 |
Realized prices for Energen Resources' production associated with NYMEX contracts as well as for unhedged production will reflect the impact of basis differentials. For production associated with basin-specific contracts, Energen Resources will receive the contracted hedge price, regardless of basis differentials. In the tables above, the basin-specific contract prices were converted for comparability purposes to a NYMEX-equivalent price by adding to them Energen Resources' assumed basis differentials. Realized NGL prices will reflect transportation and fractionation fees.
A breakdown of Energen Resources' estimated 2006 production and hedge position by region and commodity is shown below.
|
|
San Juan Basin |
Permian Basin |
Black Warrior Basin |
Other |
|
|
Volumes |
% Hedged |
Volumes |
% Hedged |
Volumes |
% Hedged |
Volumes |
% Hedged |
|
Gas (Bcf) |
33.1 |
63% |
4.5 |
12% |
14.6 |
88% |
7.7 |
49% |
|
Oil (MMBbl) |
0.1
|
74% |
3.6 |
77% |
- |
- |
0.1 |
- |
|
NGL (MMgal) |
53.9 |
56% |
14.6 |
- |
- |
- |
- |
- |
|
|
|
|
|
|
|
Total (Bcfe) |
41.3 |
62% |
28.1 |
61% |
14.6 |
88% |
8.0 |
48% |
Earnings Sensitivities to Commodity Price Changes
While there are many factors that affect Energen Resources' financial results, the largest influences typically are the commodity prices applicable to the company's unhedged production. The Company's guidance for 2006 earnings assumes that NYMEX prices applicable to Energen Resources' unhedged production in 2006 will average $10.00 per thousand cubic feet (Mcf) for gas and $58.00 per barrel for oil and that NGL prices will average $0.90 per gallon.
Given Energen Resources' current hedge position for 2006 and assuming prices as outlined above for its unhedged production, the sensitivities to pricing changes applicable to Energen's earnings guidance for 2006 are as follows:
- Every 10-cent change in the average NYMEX price of gas from $10.00 per Mcf represents an estimated net income impact of approximately $1 million (1.4 cents per diluted share).
- Every $1.00 change in the average NYMEX price of oil from $58.00 per barrel represents an estimated net income impact of approximately $400,000 (0.5 cents per diluted share).
- Every 1-cent change in average price of NGL from $0.90 per gallon represents an estimated net income impact of approximately $175,000 (0.2 cents per diluted share).
Price-related events such as substantial basis differential changes could cause earnings sensitivities to , be materially different from those outlined, above.
CAPITAL SPENDING PLANS
Energen Resources is planning to invest in 2006 approximately $146 million in development capital related to its existing properties.
- Approximately $54 million is slated for development activities in the Permian Basin , including the drilling of 109 water injection and producing wells and 5 pay adds.
- Approximately $50 million is estimated for development activities in the San Juan Basin , including the drilling of 71 wells, 30 compression projects, and 15 pay adds.
- Approximately $32 million is slated for drilling 87 wells in the Black Warrior.
- Approximately $10 million is expected to be employed in North Louisiana/East Texas to drill 22 wells and perform numerous recompletions.
Energen Resources' exploration spending in 2006 is estimated to total approximately $7 million.
Capital spending at Alagasco is estimated to be approximately $60-$65 million.
Other key assumptions that support Energen's new guidance include:
- Average diluted shares outstanding of 74 million,
- Alagasco's earning a return on average equity of approximately 13 percent on average equity of approximately $285 million, and
- A DD&A rate at Energen Resources of approximately $1.00-$1.05 per Mcf equivalent (subject to determination of year-end reserves) and LOE including production taxes of approximately $2.05 per Mcf equivalent.
Energen Corporation is a diversified energy holding company with headquarters in Birmingham, Alabama . Its two lines of business are the acquisition and development of natural gas, oil and natural gas liquids onshore in North America and natural gas distribution in central and north Alabama . Additional information on Energen is available at www.energen.com.
FORWARD-LOOKING STATEMENTS
This release contains statements expressing expectations of future plans, objectives and performance that constitute forward-looking statements made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Except as otherwise disclosed, the Company's forward-looking statements do not reflect the impact of possible or pending acquisitions, divestitures or restructurings. We undertake no obligation to correct or update any forward-looking statements, whether as a result of new information, future events or otherwise. All statements based on future expectations rather than on historical facts are forward-looking statements that are dependent on certain events, risks and uncertainties that could cause actual results to differ materially from those anticipated. In addition, the Company cannot guarantee the absence of errors in input data, calculations and formulas used in its estimates, assumptions and forecasts. A discussion of risks and uncertainties, which could affect future results of Energen and its subsidiaries, is included in the Company's periodic reports filed with the Securities and Exchange Commission.
Contact: Julie S. Ryland, (205) 326-8421
