Rosetta Resources Inc.("Rosetta" or the "Company") reported second quarter 2013 net income of $75.4 million, or $1.27 per diluted share, versus net income of $77.0 million, or $1.46 per diluted share, for the same period in 2012. Adjusted net income (non-GAAP) for the quarter was $52.3 million, or $0.88 per diluted share, versus $30.6 million, or $0.58 per diluted share in 2012. The increase in non-GAAP net income was primarily due to production growth in core areas. A summary of the adjustments made to calculate adjusted net income is included in the attached "Non-GAAP Reconciliation Disclosure" table.
"Rosetta's results in the second quarter exhibit our ongoing success in developing our portfolio of unconventional resource assets. Successful execution of our business and operational plan is one of our key strategic focus areas and we continue to deliver on that long-term charge," said Jim Craddock, Rosetta's Chairman, CEO and President. "On July 31st, we assumed full operations of our recently acquired Permian Basin position and the current quarter includes results since the transaction close date on May 14th. Rosetta has core asset positions in two of the premier unconventional resource basins in the U.S. which will allow us to further expand our project inventory and efficiently execute our development plans to generate favorable growth and returns in 2013 and beyond."
2013 Second Quarter Results
Rosetta's total production for the quarter averaged 48.8 thousand barrels of oil equivalent per day ("MBoe/d"), up 46 percent from the same period in 2012 and four percent from the prior quarter. The increase was a result of continued production growth from the Eagle Ford assets and the addition of newly acquired Permian assets at mid-quarter. Total production for the quarter was 62 percent liquids, up from 59 percent in 2012. Natural gas liquids ("NGLs") production reached an all-time high level for the quarter. Oil production was 12.2 thousand barrels ("MBbls") per day, an increase of 52 percent from the prior year and down two percent from the first quarter daily oil production rate.
Second quarter production was impacted by curtailment due to a facilities constraint at Gates Ranch. Temporary curtailment associated with this facility is expected to continue through August. In addition, production volumes and mix were affected by a temporary shut-in of producing oil wells as a result of fracture stimulation operations offsetting the Klotzman lease. Currently, those Klotzman wells are back on-line and production has been restored. A summary of the Company's production results and average sales prices by commodity is included in the attached "Summary of Operating Data" table.
For the second quarter of 2013, revenues were $236.5 million compared to $198.0 million for the same period in 2012. Second quarter revenues including realized derivatives were $193.8 million in 2013 and $125.5 million in 2012. During the period, 53 percent of revenue was generated from oil sales, including the effects of realized derivatives, as compared to 52 percent a year ago.
Lease operating expense ("LOE") for the second quarter was $3.31 per barrel of oil equivalent ("BOE"), a two percent decrease versus the prior year on a per-unit basis. LOE includes the cost of direct LOE, workovers, insurance, and ad valorem tax. The Company's total cash costs for the second quarter, including interest expense, was $15.25 per BOE on a per-unit basis, an increase of seven percent from the quarter a year ago. Lower LOE was offset by higher production taxes and additional interest expense related to the Permian acquisition. A summary of the Company's production and operating costs on a per-unit basis is included in the attached "Summary of Operating Data" table.
In the second quarter of 2013, Rosetta made capital investments of approximately $188 million, drilling 30 gross operated wells and completing 22 wells.
The Company operated five to six rigs in the Eagle Ford area during the quarter. At the end of the quarter, 45 drilled wells were awaiting completion up from 38 in the prior quarter. In Live Oak County, Rosetta completed the Lopez Unit 1 well on acreage acquired through a farm-in. The well is located on 505 acres in the oil window and was brought on-line in April 2013. The well was completed with a 5,185-foot lateral and 15 frac stages and tested at a seven-day gross stabilized rate of 901 Bbls/d of oil, 3,550 Mcf/d of residue gas, 473 Bbls/d of NGLs for an equivalent rate of 1,966 Boe/d. Seven locations remain to be drilled and completed on the lease. Rosetta has a 100 percent working interest and 75 percent net revenue interest until payout and then reverts to a 65 percent working interest and 48.75 percent net revenue interest after payout.
In northern LaSalle County, Rosetta successfully tested its Tom Hanks Eagle Ford acreage, a 3,500-acre tract. Rosetta is the operator and holds a 100 percent working interest in the delineation well. The Tom Hanks EF 1 well is located in the oil window and was completed with a 6,264-foot lateral and 19 frac stages. The well was brought on-line on July 3, 2013 and tested at a seven-day gross stabilized rate of 599 Bbls/d of oil, 192 Mcf/d of residue gas, 26 Bbls/d of NGLs for an equivalent rate of 657 Boe/d. A second Tom Hanks EF well has been drilled and is currently awaiting completion.
At Gates Ranch, Rosetta acquired an additional 10 percent working interest in 46 gross producing wells and the leasehold associated with 170 future gross (17 net) drilling locations for $126 million. The net production associated with the acquisition was approximately 1,800 Boe/d as of the June 5, 2013 closing date. The Company now owns a 100 percent working interest in the entire Gates Ranch asset.
Since beginning operations in the Eagle Ford area, Rosetta has completed 160 horizontal Eagle Ford wells as of June 30, 2013. Approximately 83 percent of the Company's identified Eagle Ford inventory locations remain to be drilled and completed. During the third quarter of 2013, the Company expects to complete 15 to 20 Eagle Ford wells and operate five rigs in the play, including two to three rigs in the Gates Ranch area.
During the second quarter, Rosetta tested the Tom Hanks 1 well, an exploratory Pearsall well originally completed during the first quarter. The well tested at a gross un-stabilized rate of 5.0 MMcf/d of natural gas with one percent hydrogen sulfide gas ("H2S"), at a flowing casing pressure of 5,400 psi.
On May 14, 2013, Rosetta closed on the previously announced Permian Basin asset acquisition from Comstock Resources, Inc. The Transition Services Agreement period ended on July 31, 2013 and the Company has assumed full operations in this new core area. Rosetta operated three to four rigs in the Delaware Basin area during the second quarter. The fourth rig was added in early June. During the quarter, five Permian vertical wells were drilled and three vertical wells were completed. Rosetta expects to complete approximately 12 operated Permian vertical wells and one operated horizontal well during the third quarter.
Financing and Derivatives Update
As of June 30, 2013, the Company had outstanding borrowings of $190 million under Rosetta's Senior Revolving Credit Facility ("Credit Facility"). As of July 31, 2013, Rosetta had $220 million outstanding with $580 million available for borrowing under the Credit Facility. During the quarter, Rosetta executed additional derivative transactions for 2014 and 2015 gas production and 2015 oil production. The attached "Derivatives Summary" table outlines the Company's overall commodity derivatives position as of July 31, 2013.
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