Parallel Petroleum Corporation has announced its fourth quarter 2007 average and February 1, 2008 estimated net daily production, work-in-progress, 2008 capital investment budget, 2007 reserves and field operations update.
The Company's net daily production for the fourth quarter ended December 31, 2007 averaged 6,707 equivalent barrels of oil per day (BOEPD), an increase of 4% when compared to an average of 6,460 BOEPD during the third quarter ended September 30, 2007. Based on information available at the time of this press release, Parallel estimates that its net daily production was approximately 7,400 BOEPD as of February 1, 2008, which is a 10% increase over fourth quarter 2007 average net daily production. During the fourth quarter 2007, production from the Company's New Mexico Wolfcamp gas project increased 24% from 1,251 to 1,551 BOEPD, due to better, and more consistent, well results and timing of completions, and as of February 1, 2008, the Company estimates that its Wolfcamp production has increased an additional 10% to approximately 1,700 BOE per day due to new wells. Production from the Barnett Shale gas project increased only 1%, from 1,669 to 1,678 BOEPD, during the fourth quarter 2007 due to limited take-away capacity; however, as of February 1, 2008, the Company estimates that its Barnett Shale production has increased an additional 37% to approximately 2,300 BOE per day due to the completion of new wells and increased take-away capacity related to pipeline expansion and additional compression. The fourth quarter 2007 increases were partially offset by a 1% decrease in the Company's long-life Permian Basin oil projects, from 3,014 to 2,995 BOEPD, due to normal decline on base production, and an 8% decrease in its South Texas gas properties from 526 to 483 BOEPD due to normal decline. Due to uncertainties associated with initial decline rates of new wells and uncertainties associated with timing of take-away capacity and related pipeline expansion and compression, management cautions investors not to place undue reliance on February 1, 2008 estimated net daily production for the purpose of estimating the Company's future net daily production.
Work-in-Progress Well Operations
As of February 1, 2008, the Company had 22 gross (8.74 net) wells in progress. Of the 22 gross wells, 18 gross (7.27 net) wells were shut-in awaiting pipeline, completing or awaiting completion, and 4 gross (1.47 net) wells were drilling. Of the 18 wells that were shut-in awaiting pipeline, completing or awaiting completion, 15 gross (4.56 net) wells were in the Barnett Shale and 3.0 gross (2.71 net) wells were in the Wolfcamp. Of the 4 wells that were drilling, 3 gross (0.54 net) wells were drilling in the Barnett Shale and 1 gross (0.93 net) well was drilling in the Wolfcamp.
2008 Capital Investment Budget
Parallel's 2008 capital investment budget is approximately $127.2 million, which includes approximately $108.8 million for the drilling and completion of approximately 108 gross (63.6 net) new wells and the workover or conversion-to-injection of 67 gross (49.4 net) existing wells and approximately $18.4 million for the purchase of leasehold and seismic data. On a project basis, approximately $100.0 million, or 79%, of the 2008 capital investment budget is expected to be invested in the Company's two horizontal drilling gas projects. Parallel has budgeted approximately $60.0 million for its Barnett Shale Gas project and approximately $40.0 million for its New Mexico Wolfcamp Gas project. Additionally, the Company expects to invest approximately $24.5 million, or 19%, of the 2008 budget in its long-life, shallow oil properties located in the Permian Basin of West Texas. The remainder of the 2008 budget will be allocated to the Company's other projects. Parallel anticipates that the $127.2 million 2008 capital investment budget will be funded from its operating cash flow and revolving credit facility. At December 31, 2007, approximately $140.0 million was available under the Company's revolving credit facility.
Proved Reserves as of December 31, 2007
As estimated by its independent engineers as of December 31, 2007, Parallel's proved developed producing (PDP) reserves were approximately 20.5 million equivalent barrels of oil (MMBOE). This is a 12% increase of approximately 2.2 MMBOE when compared to PDP reserves as of December 31, 2006, and includes PDP reserve additions of approximately 4.5 MMBOE, less production run-off of approximately 2.3 MMBOE. Proved developed non-producing (PDNP) reserves decreased approximately 0.6 MMBOE to approximately 0.8 MMBOE during 2007 primarily due to transfers to PDP reserves. Proved undeveloped (PUD) reserves decreased approximately 2.1 MMBOE to approximately 16.7 MMBOE during 2007.
The 11% decrease in PUD reserves was due to three factors: 1) transfers to PDP reserves due to development during 2007; 2) PUD reserves revisions resulting primarily from the Company's change in its method of recognizing proved undeveloped reserves related to its horizontal drilling gas projects, as was announced in its July 18, 2007 press release; and 3) a decrease in new PUD bookings because of the horizontal PUD methodology adopted by the Company at mid-year 2007. As of December 31, 2007, PUD reserves consisted of 198 locations, of which 5 were Barnett Shale locations, 11 were New Mexico Wolfcamp locations, and 182 were West Texas Permian Basin locations. Comparatively, as of December 31, 2006, PUD reserves consisted of 213 locations, of which 15 were Barnett Shale locations, 31 were New Mexico Wolfcamp locations, and 167 were West Texas Permian Basin locations. Parallel anticipates that development of these PUD reserves will require, over the next three years, approximately $111.4 million of capital investment.
The Company's total proved reserves as of December 31, 2007 decreased 1% to 38.0 MMBOE, as compared to 38.5 MMBOE as of December 31, 2006. The 2007 year-end proved reserves were 54% PDP, 2% PDNP, and 44% PUD, compared to 2006 year-end proved reserves, which were 47% PDP, 4% PDNP, and 49% PUD. The 2007 year-end proved reserves by volume were 75% oil and 25% natural gas.
Parallel's Standardized Measure of Discounted Future Net Cash Flows as of December 31, 2007 increased 89% to approximately $634.4 million, compared to year-end 2006. This increase was primarily the result of pricing. The NYMEX price per barrel of oil increased from $61.06 to $96.01, and the NYMEX price per Mcf of natural gas increased from $5.47 to $7.46, when comparing December 31, 2006 to December 31, 2007. The Company's Permian Basin long-life oil projects represented approximately 87% of its proved reserves value, and its two emerging resource gas projects represented approximately 11% of the value. Please refer to Table 5 at the end of this press release for detail of proved reserves on a property basis and the estimated Standardized Measure of Future Net Cash Flows as of December 31, 2007.
Management Comments
Larry C. Oldham, Parallel's President, commented, "Our bank lenders increased our borrowing base to $200.0 million in December 2007 as a result of our increase in proved developed producing (PDP) reserves. This borrowing base increase, combined with our $150.0 million senior notes and $52.5 million equity offerings during 2007, positions the Company with a strong balance sheet."
Oldham further commented, "Because of our strong balance sheet and increased borrowing base, we can accelerate the exploitation of our drilling inventory based on sustained performance. Given our extensive drilling inventory in the Barnett Shale, New Mexico Wolfcamp and our long-life Permian Basin properties, our primary focus for 2008 is to increase our daily production volumes and PDP reserves."
In a final comment, Oldham stated, "We are excited to have already realized an increase in production volumes in the Barnett Shale as of February 1, 2008 due to the completion of new wells and increased take-away capacity related to pipeline expansion and additional compression. We anticipate future Barnett Shale production increases for the same reasons. We had 18 Barnett Shale wells in progress as of February 1, 2008 and expect to drill 53 gross (20.0 net) wells in the project this year. Additionally, we have improved our New Mexico Wolfcamp results by focusing in the Northern Area, where we are realizing better and more consistent well results and are experiencing lower drilling and completion costs directly related to improved operating efficiencies. To complement the growth in our two resource gas projects, we began the 2008 development drilling program on our Diamond M Canyon Reef oil project during the first week of February and by the end of May 2008, we expect to have drilled the first 6 of the budgeted twelve-well program."
OPERATIONS BY AREA/PROPERTY
Summarized below are Parallel's more significant current projects, including its planned operations and capital investment budget for these projects in 2008.
Resource Gas Projects
Parallel has two resource gas projects in varying stages of development, which are the Barnett Shale gas project in the Fort Worth Basin of North Texas and the Wolfcamp gas project in the Permian Basin of New Mexico.
Fort Worth Basin of North Texas - Barnett Shale Gas Project, Tarrant County, Texas
Leasehold acreage in Parallel's Barnett Shale gas project consists of approximately 28,700 gross (8,500 net) acres located in and around the Trinity River flood plain, east and west of downtown Fort Worth. At present, the project controls approximately 75 multi-well pad sites. Based on current industry practices, Parallel anticipates development drilling on 40-acre spacing.
As of February 1, 2008, Parallel's Barnett Shale gas project had 57 gross (16.09 net) producing wells. Parallel estimates that daily production from these 57 wells was approximately 70,000 gross (14,000 net) Mcf of gas, or 2,300 net BOE, per day. As of February 1, 2008, production volumes have increased approximately 37% when compared to fourth quarter 2007 daily production, due to the completion of new wells and increased take-away capacity related to pipeline expansion and additional compression. In addition to the producing wells, as of February 1, 2008, 8 wells were being completed, 5 wells were awaiting completion, 2 wells were shut-in awaiting pipeline, and 3 wells were drilling. Based on information currently available, Parallel expects the operator, Chesapeake Energy Corporation (NYSE: CHK), to maintain a 4-rig drilling program for the foreseeable future.
As of February 1, 2008, Chesapeake was continuing to install additional compression and pipeline in order to provide sufficient take-away capacity as new wells are drilled and completed and production volumes continue to increase.
Parallel's 2008 budget for its Barnett Shale project is approximately $60.0 million. The amount budgeted will be used to fund the drilling and completion of an estimated 53 gross (20.0 net) wells, pipeline construction and leasehold acquisition.
Permian Basin of New Mexico - Wolfcamp Gas Project, Eddy and Chaves Counties, New Mexico
The New Mexico Wolfcamp horizontal resource gas play, as defined by Parallel, encompasses approximately 300,000 gross acres in portions of Eddy and Chaves Counties in southeastern New Mexico. Parallel currently owns an interest in approximately 106,000 gross (77,000 net) acres acquired specifically for the Wolfcamp, with the majority of the acreage being in the Northern and Southern Areas of the project. Parallel's operations in its Wolfcamp project currently consist of a 1-rig development drilling program in the Northern Area and the acquisition of a 3-D seismic survey in the Southern Area.
As of February 1, 2008, Parallel operated 42 gross (30.37 net) producing gas wells in the New Mexico Wolfcamp gas project. In addition, the Company had ownership in another 28 gross (2.97 net) wells operated by other companies, primarily EOG Resources, Inc. (NYSE: EOG). On a combined basis, these 70 gross (33.34 net) wells were producing at a combined rate of approximately 28,800 gross (10,200 net) Mcfe, or 1,700 net BOE, per day, which represents an approximate 10% increase over fourth quarter 2007 average net daily production. In addition to the producing wells, as of February 1, 2008, the Company had 2 wells completing, 1 well awaiting completion, and 1 well was drilling.
Northern Area - As of February 1, 2008, 16 gross (12.87 net) wells had been drilled and completed in the Company's Forego/County Line project. Parallel estimates that daily production from these 16 wells as of February 1, 2008, was approximately 13,100 gross (6,800 net) Mcf of gas, or 1,133 net BOE, per day. In addition to the producing wells, as of February 1, 2008, the Company had 1 well drilling, 2 wells completing and 1 well awaiting completion. Parallel anticipates that the Forego/County Line area will be its most active Wolfcamp development area for the foreseeable future.
Parallel's Racehorse project is located approximately four miles east, northeast of its Forego/County Line area and has 6 gross (5.4 net) wells producing at low rates, which were the initial wells drilled in the Northern Area. There is currently no drilling activity planned for the Racehorse area.
Southern Area - As of February 1, 2008, Parallel's Southern Area had 22 gross (12.1 net) producing wells. The Company estimates that daily production from these 22 wells was approximately 5,900 gross (2,600 net) Mcf of gas, or 433 net BOE, per day. Parallel, in conjunction with a third party pipeline company, continues to modify the field gas gathering system to enhance individual well performance and overall production volumes from the field. The Company began data acquisition of a 3-D seismic survey in late October 2007 and anticipates the completion of data processing and interpretation during 2008.
Central Area - As of February 1, 2008, Parallel had an interest in 25 gross (2.12 net) EOG-operated horizontal wells. As of February 1, 2008, the wells were producing at a combined rate of approximately 9,200 gross (400 net) Mcf of gas, or 67 net BOE, per day. Parallel has one operated well producing at an estimated 600 gross (400 net) Mcf of gas, or 67 net BOE, per day.
Parallel's 2008 New Mexico Wolfcamp budget is approximately $40.0 million. The amount budgeted will be used to fund the drilling and completion of an estimated 18 gross (15.3 net) operated wells in the Northern Area, the installation of pipelines and related infrastructure, the acquisition of additional leasehold, and the acquisition of 3-D seismic data in the Southern Area.
Permian Basin of West Texas
Parallel's Permian Basin of West Texas oil properties currently consist of four major project areas. The Diamond M Canyon Reef and Shallow, Carm-Ann San Andres/N. Means Queen, Harris San Andres and Fullerton San Andres projects comprise approximately 18,400 gross (15,000 net) acres, combined. Most of these properties have been added to Parallel's portfolio since June 2002. As of February 1, 2008, Parallel estimates that daily production from its west Texas Permian Basin oil properties was approximately 3,000 net BOE per day.
Diamond M Canyon Reef Unit, Scurry County, Texas
As the Company discussed in previous operations update press releases, interpreted 3-D seismic data has been incorporated with geologic and reservoir engineering data to high-grade the selection of development drilling opportunities in its Diamond M Canyon Reef project. The Company has budgeted approximately $9.6 million for the drilling and completion of approximately 12 gross (7.9 net) new wells and the workover or deepening of approximately 18 gross (11.8 net) existing wells during 2008. Parallel is the operator of this project with an average working interest of approximately 66%.
Diamond M Shallow Leases, Scurry County, Texas
The Company's 2008 budget for the Diamond M Shallow project is approximately $1.3 million for the installation of dual injection strings in approximately 25 gross (16.5 net) existing wells. Parallel is the operator of this project with an average working interest of approximately 66%.
Carm-Ann San Andres Field/N. Means Queen Unit, Andrews & Gaines Counties, Texas
The Company's 2008 budget for the Carm-Ann/N. Means project is approximately $3.3 million for the drilling and completion of 5 gross (4.3 net) wells and the conversion to injection of 6 gross (5.1 net) existing wells. The Company is currently involved in the unitization process prior to waterflood implementation and anticipates unit approval within the next six months. In the interim, the Company will focus on activities which are prerequisite to waterflooding. Parallel is the operator of these properties with an average working interest of approximately 77%.
Harris San Andres Field, Andrews & Gaines Counties, Texas
The Company's 2008 budget for the Harris San Andres project is approximately $5.3 million for the drilling of an estimated 7 gross (6.3 net) wells and the re-frac workover or conversion to injection of 16 gross (14.4 net) existing wells. Also as with Carm-Ann, Parallel has initiated unitization proceedings, prior to waterflood implementation, and anticipates unit operations to commence during the second quarter of 2008. Parallel is the operator of these properties with an average working interest of approximately 90%.
Fullerton San Andres Field, Andrews County, Texas
The Company's 2008 budget for the Fullerton project is approximately $4.0 million for the drilling of an estimated 7 gross (6.2 net) new wells and the conversion to injection of 2 gross (1.6 net) existing wells. Parallel owns an 85% average working interest in these properties.
Onshore Gulf Coast of South Texas
Yegua/Frio/Wilcox and Cook Mountain Gas Projects, Jackson, Wharton and Liberty Counties, Texas
The Company's 2008 budget for the South Texas projects is approximately $0.7 million for the drilling of 2 gross (0.5 net) wells. As of February 1, 2008, Parallel estimates that daily production from its south Texas gas properties was approximately 400 net BOE per day.
Other Projects
Utah/Colorado Conventional Oil & Gas and Heavy Oil Sand Projects, Uinta Basin
Parallel's Utah/Colorado project consists of approximately 163,000 gross (155,000 net) acres. The primary objective is the Weber oil sand, with secondary objectives of conventional gas and heavy oil sands. The Company is currently awaiting drilling permit approval on three conventional oil and gas exploratory prospects, with anticipated spud dates before the fourth quarter of 2008.
Approximately 10,000 gross acres of the Company's leasehold is located on the geologic feature known as Asphalt Ridge. The Company is continuing to evaluate development options for these heavy oil sand deposits.
The Company's 2008 budget for its Utah/Colorado project is approximately $1.5 million for the drilling of 3 gross (2.9 net) wells and the acquisition of additional leasehold. Parallel owns and operates 97.5% of this project.
