Supplemental Oil and Gas Disclosures | 12 Months Ended |
Dec. 31, 2013 |
Extractive Industries [Abstract] | ' |
Supplemental Oil and Gas Disclosures | ' |
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Supplemental Oil and Gas Disclosures |
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(Unaudited) |
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The following disclosures for the Company are made in accordance with authoritative guidance regarding disclosures about oil and natural gas producing activities. Users of this information should be aware that the process of estimating quantities of proved, proved developed and proved undeveloped crude oil, NGL and natural gas reserves is very complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The data for a given reservoir may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. Consequently, material revisions to existing reserve estimates occur from time to time. Although every reasonable effort is made to ensure that reported reserve estimates represent the most accurate assessments possible, the significance of the subjective decisions required and variances in available data for various reservoirs make these estimates generally less precise than other estimates presented in connection with financial statement disclosures. |
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Proved reserves are those quantities of oil, NGL and natural gas which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulation before the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether the estimate is a deterministic estimate or probabilistic estimate. |
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Proved developed reserves are proved reserves that can be expected to be recovered (a) through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared with the cost of a new well or (b) through installed extraction equipment and infrastructure operational at the time of the reserve estimate if the extraction is by means not involving a well. |
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Proved undeveloped reserves are reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances. Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances justify a longer time. Estimates for proved undeveloped reserves are not attributed to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, or by other evidence using reliable technology establishing reasonable certainty. |
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Estimates of proved developed and proved undeveloped reserves as of December 31, 2013 are based on estimates made by the Company’s engineers and audited by the Company’s independent engineers, Netherland, Sewell & Associates, Inc. (“NSAI”). The Company’s primary reserves estimator is the Company’s Vice President of Corporate Reserves and Technical Services, who has over 36 years of experience in the petroleum industry spent almost entirely in the evaluation of reserves and income attributable to oil and natural gas properties. He holds a Bachelor of Science in Mechanical Engineering from Texas A&M University. He is a licensed Professional Engineer in the State of Texas and is a member of the Society of Petroleum Engineers. The Company makes representations to the independent engineers that it has provided all relevant operating data and documents, and in turn the Company reviews these reserve reports provided by the independent engineers to ensure completeness and accuracy. NSAI performs petroleum engineering consulting services under the Texas Board of Professional Engineers. NSAI’s President and Chief Operating Officer is a licensed professional engineer with more than 35 years of experience, and the engineer and geologist charged with the Company’s audit are both licensed professionals with more than 50 years of experience combined. |
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The preparation of the Company’s reserve estimates are completed in accordance with the Company’s prescribed internal control procedures, which include verification of input data into a reserve forecasting and economic evaluation software, as well as management review. The technical persons responsible for preparing the reserve estimates meet the required standards regarding qualifications and objectivity. Additionally, the Company engages qualified, independent reservoir engineers to audit the internally generated reserve report in accordance with all SEC reserve estimation guidelines. |
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A twelve-month first-day-of-the-month historical average price as of December 31, 2013, 2012 and 2011 was used for future sales of oil and natural gas. Future operating costs, production and ad valorem taxes and capital costs were based on current costs as of each year end, with no escalation. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting the future rates of production and timing of development expenditures. Reserve data represent estimates only and should not be construed as being exact. Moreover, the standardized measure should not be construed as the current market value of proved oil, NGL and natural gas reserves or the costs that would be incurred to obtain equivalent reserves. A market value determination would include many additional factors including (a) anticipated future changes in oil, NGL and natural gas prices, production and development costs, (b) an allowance for return on investment, (c) the value of additional reserves, not considered proved at present, which may be recovered as a result of further exploration and development activities, and (d) other business risk. |
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Capitalized Costs Relating to Oil, NGL and Gas Producing Activities |
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The following table sets forth the capitalized costs relating to the Company’s oil, NGL and natural gas producing activities at December 31, 2013, 2012 and 2011: |
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| | 2013 | | | 2012 | | | 2011 | | | | | |
| | (In thousands) | | | | | |
Proved properties | | $ | 3,951,397 | | | $ | 2,829,431 | | | $ | 2,297,312 | | | | | |
Unproved properties | | | 755,438 | | | | 95,540 | | | | 141,016 | | | | | |
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Total | | | 4,706,835 | | | | 2,924,971 | | | | 2,438,328 | | | | | |
Less: Accumulated depletion | | | (2,003,893 | ) | | | (1,797,203 | ) | | | (1,649,403 | ) | | | | |
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Net capitalized costs | | $ | 2,702,942 | | | $ | 1,127,768 | | | $ | 788,925 | | | | | |
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Net capitalized costs include asset retirement costs of $22.2 million, $15.1 million and $18.0 million as of December 31, 2013, 2012 and 2011, respectively. |
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Costs Incurred in Oil, NGL and Natural Gas Property Acquisition, Exploration and Development Activities |
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The following table sets forth costs incurred related to the Company’s oil, NGL and natural gas producing activities for the years ended December 31, 2013, 2012 and 2011: |
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| | Year Ended December 31, | | | | | |
| | 2013 | | | 2012 | | | 2011 | | | | | |
| | (In thousands) | | | | | |
Acquisition costs | | | | | | | | | | | | | | | | |
Proved | | $ | 290,273 | | | $ | — | | | $ | — | | | | | |
Unproved | | | 672,634 | | | | 18,753 | | | | 10,605 | | | | | |
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Subtotal | | | 962,907 | | | | 18,753 | | | | 10,605 | | | | | |
Exploration costs | | | 534,881 | | | | 93,542 | | | | 98,781 | | | | | |
Development costs | | | 338,882 | | | | 531,957 | | | | 369,865 | | | | | |
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Total | | $ | 1,836,670 | | | $ | 644,252 | | | $ | 479,251 | | | | | |
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Results of Operations for Oil, NGL and Natural Gas Producing Activities |
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| | Year Ended December 31, | | | | | |
| | 2013 (1) | | | 2012 (1) | | | 2011 (1) | | | | | |
| | (In thousands) | | | | | |
Oil, NGL and natural gas producing revenues | | $ | 821,113 | | | $ | 572,954 | | | $ | 427,537 | | | | | |
Production costs | | | 155,749 | | | | 110,977 | | | | 69,289 | | | | | |
Depreciation, depletion and amortization | | | 218,571 | | | | 154,223 | | | | 123,244 | | | | | |
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Income before income taxes | | | 446,793 | | | | 307,754 | | | | 235,004 | | | | | |
Income tax provision | | | 159,505 | | | | 115,716 | | | | 83,896 | | | | | |
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Results of operations | | $ | 287,288 | | | $ | 192,038 | | | $ | 151,108 | | | | | |
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-1 | Excludes the effects of derivative losses of $7.1 million, and gains of $40.5 million and $18.7 million, respectively, for the years ended December 31, 2013, 2012 and 2011. | | | | | | | | | | | | | | | |
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The results of operations for oil, NGL and natural gas producing activities exclude other income and expenses, interest charges and general and administrative expenses. Sales are based on market prices. |
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Net Proved and Proved Developed Reserve Summary |
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The following table provides a rollforward of the total proved reserves (all within the United States) for the years ended December 31, 2013, 2012 and 2011, respectively, as well as proved developed and proved undeveloped reserves at the end of each respective year. |
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| | Oil | | | Natural gas | | | Natural gas | | | Equivalents | |
(MBbls) (1) | liquids | (MMcf) | (MBoe) |
| (MBbls) | | |
Net proved reserves at December 31, 2010 | | | 12,401 | | | | 19,326 | | | | 288,927 | | | | 79,819 | |
Revisions of previous estimates (2) | | | 4,839 | | | | 7,192 | | | | 60,712 | | | | 22,212 | |
Purchases in place | | | — | | | | — | | | | — | | | | — | |
Extensions, discoveries and other additions (3) | | | 21,027 | | | | 26,344 | | | | 210,292 | | | | 82,420 | |
Sales in place | | | (34 | ) | | | — | | | | (80,582 | ) | | | (13,464 | ) |
Production | | | (1,863 | ) | | | (2,643 | ) | | | (33,393 | ) | | | (10,072 | ) |
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Net proved reserves at December 31, 2011 | | | 36,370 | | | | 50,219 | | | | 445,956 | | | | 160,915 | |
Revisions of previous estimates (4) | | | (4,947 | ) | | | 4,923 | | | | (10,107 | ) | | | (1,709 | ) |
Purchases in place | | | 70 | | | | 104 | | | | 744 | | | | 298 | |
Extensions, discoveries and other additions (5) | | | 16,737 | | | | 22,440 | | | | 158,788 | | | | 65,641 | |
Sales in place | | | (309 | ) | | | (1,641 | ) | | | (52,075 | ) | | | (10,629 | ) |
Production | | | (3,497 | ) | | | (4,472 | ) | | | (33,853 | ) | | | (13,611 | ) |
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Net proved reserves at December 31, 2012 | | | 44,424 | | | | 71,573 | | | | 509,453 | | | | 200,905 | |
Revisions of previous estimates (6) | | | (8,945 | ) | | | (65 | ) | | | (9,580 | ) | | | (10,606 | ) |
Purchases in place (7) | | | 10,972 | | | | 5,857 | | | | 36,523 | | | | 22,916 | |
Extensions, discoveries and other additions (8) | | | 25,010 | | | | 28,342 | | | | 180,570 | | | | 83,447 | |
Sales in place | | | — | | | | — | | | | — | | | | — | |
Production | | | (4,999 | ) | | | (6,398 | ) | | | (40,343 | ) | | | (18,121 | ) |
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Net proved reserves at December 31, 2013 | | | 66,462 | | | | 99,309 | | | | 676,623 | | | | 278,541 | |
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Proved Developed Reserves | | | | | | | | | | | | | | | | |
December 31, 2010 | | | 3,687 | | | | 6,471 | | | | 183,954 | | | | 40,817 | |
December 31, 2011 | | | 11,766 | | | | 16,635 | | | | 177,278 | | | | 57,947 | |
December 31, 2012 | | | 19,321 | | | | 25,068 | | | | 178,214 | | | | 74,092 | |
December 31, 2013 | | | 22,560 | | | | 31,542 | | | | 217,328 | | | | 90,324 | |
Proved Undeveloped Reserves | | | | | | | | | | | | | | | | |
December 31, 2010 | | | 8,714 | | | | 12,855 | | | | 104,973 | | | | 39,002 | |
December 31, 2011 | | | 24,604 | | | | 33,584 | | | | 268,678 | | | | 102,968 | |
December 31, 2012 | | | 25,103 | | | | 46,505 | | | | 331,239 | | | | 126,813 | |
December 31, 2013 | | | 43,902 | | | | 67,767 | | | | 459,295 | | | | 188,217 | |
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-1 | Includes crude oil and condensate. As of December 31, 2013, 2012, 2011 and 2010, approximately 65%, 92%, 97%, and 95%, respectively, of our proved oil reserves consisted of condensate, which the Company defines as oil with an API gravity higher than 55 degrees. | | | | | | | | | | | | | | | |
-2 | Upward revision of 22,212 MBoe resulting from positive performance revisions primarily due to an increase in the estimated ultimate recovery of hydrocarbons on 35 Gates Ranch wells. Twenty-two of these Gates Ranch wells have greater than 12 months of production history and some of these wells have been producing for over two years. The decline profiles on wells with significant production history indicate that the estimated ultimate recovery is much more likely to increase or remain constant than to decline. | | | | | | | | | | | | | | | |
-3 | The Company added 82,420 MBoe in the Eagle Ford area by drilling and completing 13 wells and adding 91 proved undeveloped locations. | | | | | | | | | | | | | | | |
-4 | The downward revision of 1,709 MBoe was primarily due to two factors in the Eagle Ford area. The first factor was a downward oil revision of 4,947 MBbls, partially offset by an upward NGL revision of 4,923 MBbls, which was due to condensate stabilization that is required before transportation of condensate to the market. The stabilization process separates NGLs from the Company’s oil production which resulted in a reclassification of some of the Company’s reserves from oil to NGLs. The second factor was a downward natural gas revision of 10,107 MMcf, which was due largely to a decrease in the twelve-month first-day-of-the-month historical average commodity price for natural gas from $4.12 per MMBtu in 2011 to $2.76 per MMBtu in 2012 and an increase in treating and transportation costs. | | | | | | | | | | | | | | | |
-5 | The Company added 65,641 MBoe primarily in the Eagle Ford area by drilling and completing 37 wells and adding 54 proved undeveloped locations. | | | | | | | | | | | | | | | |
-6 | The downward revision of 10,606 MBoe is primarily due to lower than expected condensate yields from the Company’s 2013 completions in the north central portion of Gates Ranch. | | | | | | | | | | | | | | | |
-7 | The Company added 22,916 MBoe primarily due to the Permian Acquisition. | | | | | | | | | | | | | | | |
-8 | The Company added 83,447 MBoe, of which 70,626 MBoe and 12,821 MBoe was from the Eagle Ford and Permian Basin areas, respectively. In the Eagle Ford area, the Company added reserves through the drilling and completion of 79 wells and the addition of 106 proved undeveloped locations. In the Permian Basin area, the Company added reserves through the drilling and completion of 30 wells and the addition of 84 proved undeveloped locations. | | | | | | | | | | | | | | | |
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Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil, NGL and Natural Gas Reserves |
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The following information has been developed utilizing procedures prescribed by authoritative guidance and based on oil, NGL and natural gas reserves and production volumes estimated by internal reserves engineers and audited by independent petroleum engineers. This information may be useful for certain comparison purposes but should not be solely relied upon in evaluating the Company or its performance. In accordance with SEC requirements, the estimated discounted future net revenues from proved reserves are generally based on average first-day-of-the-month oil and natural gas prices in effect for the prior twelve months in 2013, 2012 and 2011 and costs as of the date of the estimate. Actual future prices and costs may be materially higher or lower than the average prices and costs as of the date of the estimate. Further, information contained in the following table should not be considered as representative of realistic assessments of future cash flows, nor should the standardized measure of discounted future net cash flows be viewed as representative of the current value of the Company’s oil and natural gas assets. |
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The future cash flows presented below are based on sales prices, cost rates and statutory income tax rates in existence as of the date of the projections. It is expected that material revisions to some estimates of oil, NGL and natural gas reserves may occur in the future, development and production of the reserves may occur in periods other than those assumed, and actual prices realized and costs incurred may vary significantly from those used. Income tax expense has been computed using expected future tax rates and giving effect to tax deductions and credits available, under current laws, and which relate to oil and natural gas producing activities. |
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Management does not rely upon the following information in making investment and operating decisions. Such decisions are based upon a wide range of factors, including estimates of probable as well as proved reserves and varying price and cost assumptions considered more representative of a range of possible economic conditions that may be anticipated. |
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The following table sets forth the standardized measure of discounted future net cash flows from projected production of the Company’s reserves for the years ended December 31, 2013, 2012 and 2011: |
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| | Year Ended December 31, 2013 | | | | | |
| | Proved | | | Proved | | | Total | | | | | |
Developed | Undeveloped | | | | |
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Future cash inflows | | $ | 3,826 | | | $ | 7,770 | | | $ | 11,596 | | | | | |
Future production costs | | | (1,224 | ) | | | (2,188 | ) | | | (3,412 | ) | | | | |
Future development costs | | | (20 | ) | | | (1,990 | ) | | | (2,010 | ) | | | | |
Future income taxes | | | (641 | ) | | | (892 | ) | | | (1,533 | ) | | | | |
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Future net cash flows | | | 1,941 | | | | 2,700 | | | | 4,641 | | | | | |
Discount to present value at 10% annual rate | | | (982 | ) | | | (1,365 | ) | | | (2,347 | ) | | | | |
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Standardized measure of discounted future net cash flows relating to proved oil, NGL and natural gas reserves | | $ | 959 | | | $ | 1,335 | | | $ | 2,294 | | | | | |
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| | Year Ended December 31, 2012 | | | | | |
| | Proved | | | Proved | | | Total | | | | | |
Developed | Undeveloped | | | | |
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Future cash inflows | | $ | 3,239 | | | $ | 5,013 | | | $ | 8,252 | | | | | |
Future production costs | | | (854 | ) | | | (1,227 | ) | | | (2,081 | ) | | | | |
Future development costs | | | (8 | ) | | | (1,110 | ) | | | (1,118 | ) | | | | |
Future income taxes | | | (652 | ) | | | (733 | ) | | | (1,385 | ) | | | | |
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Future net cash flows | | | 1,725 | | | | 1,943 | | | | 3,668 | | | | | |
Discount to present value at 10% annual rate | | | (859 | ) | | | (968 | ) | | | (1,827 | ) | | | | |
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Standardized measure of discounted future net cash flows relating to proved oil, NGL and natural gas reserves | | $ | 866 | | | $ | 975 | | | $ | 1,841 | | | | | |
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| | Year Ended December 31, 2011 | | | | | |
| | Proved | | | Proved | | | Total | | | | | |
Developed | Undeveloped | | | | |
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Future cash inflows | | $ | 2,527 | | | $ | 4,765 | | | $ | 7,292 | | | | | |
Future production costs | | | (542 | ) | | | (816 | ) | | | (1,358 | ) | | | | |
Future development costs | | | (18 | ) | | | (990 | ) | | | (1,008 | ) | | | | |
Future income taxes | | | (584 | ) | | | (878 | ) | | | (1,462 | ) | | | | |
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Future net cash flows | | | 1,383 | | | | 2,081 | | | | 3,464 | | | | | |
Discount to present value at 10% annual rate | | | (702 | ) | | | (1,056 | ) | | | (1,758 | ) | | | | |
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Standardized measure of discounted future net cash flows relating to proved oil, NGL and natural gas reserves | | $ | 681 | | | $ | 1,025 | | | $ | 1,706 | | | | | |
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Changes in Standardized Measure of Discounted Future Net Cash Flows |
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The following table sets forth the changes in the standardized measure of discounted future net cash flows for the years ended December 31, 2013, 2012 and 2011: |
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| | Year ended December 31 | | | | | |
| | 2013 | | | 2012 | | | 2011 | | | | | |
| | (in millions) | | | | | |
Standardized measure–beginning of year | | $ | 1,841 | | | $ | 1,706 | | | $ | 697 | | | | | |
Sales and transfers of crude oil, NGLs and natural gas produced, net of production costs | | | (665 | ) | | | (462 | ) | | | (358 | ) | | | | |
Revisions to estimates of proved reserves: | | | | | | | | | | | | | | | | |
Net changes in prices and production costs | | | (268 | ) | | | (591 | ) | | | 39 | | | | | |
Extensions, discoveries, additions and improved recovery, net of related costs | | | 849 | | | | 814 | | | | 1,117 | | | | | |
Development costs incurred | | | 275 | | | | 220 | | | | 370 | | | | | |
Changes in estimated future development costs | | | 86 | | | | 54 | | | | (26 | ) | | | | |
Revisions of previous quantity estimates | | | (127 | ) | | | (12 | ) | | | 357 | | | | | |
Accretion of discount | | | 244 | | | | 229 | | | | 143 | | | | | |
Net change in income taxes | | | (113 | ) | | | (17 | ) | | | (549 | ) | | | | |
Purchases of reserve in place | | | 216 | | | | 6 | | | | — | | | | | |
Sales of reserves in place | | | — | | | | (104 | ) | | | (79 | ) | | | | |
Changes in timing and other | | | (44 | ) | | | (2 | ) | | | (5 | ) | | | | |
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Standardized measure–end of year | | $ | 2,294 | | | $ | 1,841 | | | $ | 1,706 | | | | | |
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