Rosetta Resources Inc. Announces 2014 First Quarter Financial and Operational Results

Rosetta Resources Inc. Announces 2014 First Quarter Financial and Operational Results    *Increased total daily oil production by 30 percent versus 2013 and 8     percent quarter-over-quarter   *Increased total daily equivalent production by 16 percent versus 2013 and     5 percent quarter-over-quarter   *Achieved 23 percent quarter-over-quarter growth in Permian daily     equivalent production   *Successfully advanced Delaware Basin horizontal well program, doubling net     project inventory   *Reaffirms 2014 capital, volume and expense guidance  HOUSTON, May 5, 2014 (GLOBE NEWSWIRE) -- Rosetta Resources Inc. (Nasdaq:ROSE) ("Rosetta" or the "Company") today reported first quarter 2014 net income of $35.2 million, or $0.57 per diluted share, versus net income of $53.5 million, or $1.01 per diluted share, for the same period in 2013. Adjusted net income (non-GAAP) for the quarter was $45.6 million, or $0.74 per diluted share, excluding an after-tax unrealized loss on derivatives of $10.1 million, versus adjusted net income of $62.5 million, or $1.18 per diluted share in 2013. The decrease in adjusted net income was primarily due to higher operating costs offset by higher production and realized prices. A summary of the adjustments made to calculate adjusted net income is included in the attached "Non-GAAP Reconciliation Disclosure" table.  "Rosetta is off to a great start in 2014 continuing our trend of production growth. Our first quarter results are in line with our expectations and we are on track to deliver on our annual targets," said Jim Craddock, Rosetta's Chairman, CEO and President. "Rosetta made significant progress in the advancement of our Delaware Basin horizontal program as we doubled our inventory of net well locations. Also, during the quarter, our Eagle Ford program was a key driver of our operational success. As the year progresses, we will maintain our focus on program execution and evaluation of various long-term growth catalysts in our core areas."  2014 First Quarter Results  Production for the quarter averaged a record 54 thousand barrels of oil equivalent per day ("MBoe/d"), an increase of 16 percent from the same period in 2013 and 5 percent from the prior quarter. The increase for both periods was attributable to production growth from the Company's Eagle Ford and Permian Basin assets. Oil production in the first quarter averaged 16 thousand barrels ("MBbls") per day, an increase of 30 percent from 2013. Natural gas liquids ("NGLs") daily production also increased by 12 percent compared to the prior year first quarter. Rosetta began the quarter averaging 51 MBoe/d in January. Production in February averaged 55 MBoe/d and the Company ended the quarter producing an average of 57 MBoe/d in March.  Revenues for the first quarter of 2014 were $214.6 million compared to $178.1 million for the same period in 2013. First quarter revenues including realized derivatives were $230.4 million in 2014 and $192.1 million in 2013. A summary of the Company's quarterly production results and average sales prices by commodity is included in the attached "Summary of Operating Data" table.  As anticipated, the addition of the high-margin Permian Basin assets impacted first quarter operating costs. Direct lease operating expense ("LOE") for the first quarter was $3.23 per barrel of oil equivalent ("BOE"), an increase of 24 percent versus the fourth quarter on a per-unit basis. Treating and transportation increased by seven percent versus the prior quarter to $4.23 per BOE. In total, cash production costs, including LOE, treating and transportation and taxes other than income, grew by 14 percent on a per-unit basis compared to the prior quarter, but full year per-unit expense guidance remains intact. A summary of the Company's first quarter operating costs on a per-unit basis is included in the attached "Summary of Operating Data" table.  Operational Update  In the first quarter of 2014, Rosetta made capital investments of approximately $361 million, excluding acquisitions. The Company drilled a total of 47 gross operated wells and completed 54 gross wells, of which 45 were placed on production. The first quarter capital spend included approximately $36 million for central facilities projects.  EAGLE FORD  Daily production from the Eagle Ford was 50 MBoe/d in the first quarter, an increase of seven percent from the prior year and four percent versus the prior quarter. Rosetta operated five to seven rigs in the Eagle Ford area during the first quarter. Capital spending included $258 million for drilling and completion activity in the Eagle Ford shale. During the quarter, 35 wells were drilled and 39 completed, of which 32 were brought online. At the end of the quarter, 57 drilled wells were awaiting completion, down from 61 in the prior quarter.  Since beginning operations in the Eagle Ford area, Rosetta has completed 244 gross horizontal wells as of March 31, 2014. During the second quarter of 2014, the Company expects to complete 25 to 30 Eagle Ford wells and continue to operate four to five rigs in the play, including two to three rigs in the Gates Ranch area.  PERMIAN BASIN  Rosetta's production from the Permian averaged approximately 4 MBoe/d in the first quarter, an increase of 23 percent from the prior quarter. The Company operated five to six rigs in the Delaware Basin area during the first quarter. During the quarter, 12 gross operated wells were successfully drilled including five horizontal and seven vertical wells. A total of 15 gross operated wells were completed, two of which were horizontal wells.  In Reeves County, Rosetta successfully advanced the Company's Wolfcamp horizontal program with the completion of two operated Wolfcamp 'A' wells, as detailed in the table below:                       Rosetta Wolfcamp     # Frac 7-Day IP Well Name             WI, %   Zone/Lateral Stages Boe/d    Oil % Balmorhea Ranch 41-3H 100     A/4,100'     14     987      79 Sam Bass 15-2H        100     A/4,100'     14     *692     54 *unstabilized                                            The Company also participated in five Wolfcamp horizontal wells completed by other operators in Reeves County, including four Wolfcamp 'A' wells and one Wolfcamp 'B/C' well.As Rosetta moves forward with delineation and development in Reeves County, the total horizontal inventory portfolio has doubled to approximately 900 net locations compared to year-end 2013.  During the second quarter of 2014, the Company plans to operate five to six rigs in the play, including four to five rigs dedicated to horizontal drilling. The Company expects to complete four to eight operated gross horizontal wells, including a lower Wolfcamp well, a 3^rd Bone Spring test, and a three-well spacing pilot.Rosetta also plans to spud an upper Wolfcamp horizontal well with a 7,500-foot lateral length.  Financing and Derivatives Update  As of March 31, 2014, the Company's borrowing base and committed amount totaled $800 million under its Senior Revolving Credit Facility ("Credit Facility"), with net borrowings outstanding of $60 million under the Credit Facility.As previously announced on April 2, the Company amended its Credit Facility increasing the borrowing base from $800 million to $950 million. The committed amount under the Credit Facility was reconfirmed at $800 million. On April 30, 2014, Rosetta had $150 million in net borrowings outstanding with $650 million available for borrowing under the Credit Facility.  Following the quarter ended March 31, 2014, Rosetta executed additional derivative transactions for 2016 natural gas production.The attached "Derivatives Summary" table outlines the Company's overall commodity derivatives position as of April 30, 2014.  2014 Outlook  Rosetta's 2014 capital guidance of $1.1 billion, excluding acquisition capital, remains unchanged from the previous estimate.The 2014 capital program is based on a four to five-rig Eagle Ford program in South Texas and a Delaware Basin program averaging six rigs during the year.Based on the planned capital level, Rosetta reiterates the full year 2014 production range of 60 – 65 MBoe/d, which represents approximately 20 – 30 percent year-over-year production growth.The average oil ratio is expected to be approximately 30 percent in 2014 with total liquids estimated at 63 percent.A summary of the Company's cost per-unit expense guidance for full year 2014 is outlined in the attached "Summary of Guidance" table and is also reaffirmed.  Rosetta Resources Inc. is an independent exploration and production company engaged in the acquisition and development of onshore unconventional resource plays in the United States of America.The Company owns positions in the Eagle Ford area in South Texas and in the Permian Basin in West Texas.Rosetta is based in Houston, Texas.  [ROSE-F]  Forward-Looking Statements  This press release includes forward-looking statements, which give the Company's current expectations or forecasts of future events based on currently available information. Forward-looking statements are statements that are not historical facts, such as expectations regarding completion of the proposed acquisition, drilling plans, including the acceleration thereof, production rates and guidance, proven reserves, resource potential, incremental transportation capacity, exit rate guidance, net present value, development plans, progress on infrastructure projects, exposures to weak oil, natural gas, and NGL prices, changes in the Company's liquidity, changes in acreage positions, expected expenses, expected capital expenditures, and projected debt balances. The assumptions of management and the future performance of the Company are subject to a wide range of business risks and uncertainties and there is no assurance that these statements and projections will be met. Factors that could affect the Company's business include, but are not limited to: the risks associated with drilling and completion of oil and natural gas wells; the Company's ability to find, acquire, market, develop, and produce new reserves; the risk of drilling dry holes; oil, liquids and natural gas price volatility; derivative transactions (including the costs associated therewith and the abilities of counterparties to perform thereunder); uncertainties in the estimation of proved, probable, and possible reserves and in the projection of future rates of production and reserve growth; inaccuracies in the Company's assumptions regarding items of income and expense and the level of capital expenditures; uncertainties in the timing of exploitation expenditures; operating hazards attendant to the oil and natural gas business; cyber-attacks; drilling and completion losses that are generally not recoverable from third parties or insurance; potential mechanical failure or underperformance of significant wells; midstream and pipeline construction difficulties and operational upsets; climatic conditions; availability and cost of material, equipment and services; the risks associated with operating in a limited number of geographic areas, including the Permian; actions or inactions of third-party operators of the Company's properties; the Company's ability to retain and hire skilled personnel; diversion of management's attention from existing operations while pursuing acquisitions or dispositions; availability and cost of capital; the strength and financial resources of the Company's competitors; regulatory developments; environmental risks; uncertainties in the capital markets; general economic and business conditions; industry trends; and other factors detailed in the Company's most recent Form 10-K and other filings with the Securities and Exchange Commission.If one or more of these risks or uncertainties materialize (or the consequences of such a development changes), or should underlying assumptions prove incorrect, actual outcomes may vary materially from those forecasted or expected. The Company undertakes no obligation to publicly update or revise any forward-looking statements except as required by law.  References to quantities of oil or natural gas may include amounts that the Company believes will ultimately be produced, but are not yet classified as "proved reserves" under SEC definitions. We use the term "net risked resources" to describe the Company's internal estimates of volumes of natural gas and oil that are not classified as proved developed reserves but are potentially recoverable through exploratory drilling or additional drilling or recovery techniques.Estimates of net risked resources are by their nature more speculative than estimates of proved reserves and accordingly are subject to substantially greater risk of actually being realized by the Company.Estimates of net risked resources may change significantly as development provides additional data, and actual quantities that are ultimately recovered may differ substantially from prior estimates.    Rosetta Resources Inc. Consolidated Balance Sheet (In thousands, except par value and share amounts)                                                                                                                      March 31,    December 31,                                                      2014         2013                                                     (Unaudited)   Assets                                                            Current assets:                                                   Cash and cash equivalents                            $55,115    $193,784 Accounts receivable                                  130,302     122,677 Derivative instruments                               37          4,307 Prepaid expenses                                     7,932       9,860 Deferred income taxes                                18,963      27,976 Other current assets                                 2,164       1,284 Total current assets                                 214,513     359,888                                                                  Oil and natural gas properties using the full cost                method of accounting: Proved properties                                    4,387,172   3,951,397 Unproved/unevaluated properties, not subject to      727,051     755,438 amortization Gathering systems and compressor stations            204,944     168,730 Other fixed assets                                   27,299      26,362                                                     5,346,466   4,901,927 Accumulated depreciation, depletion and              (2,094,737) (2,020,879) amortization, including impairment Total property and equipment, net                    3,251,729   2,881,048 Other assets:                                                     Debt issuance costs                                  24,590      25,602 Derivative instruments                               2,710       5,458 Other long-term assets                               327         4,622 Total other assets                                   27,627      35,682 Total assets                                         $3,493,869 $3,276,618                                                                  Liabilities and Stockholders' Equity                              Current liabilities:                                              Accounts payable and accrued liabilities             $286,397   $190,950 Royalties and other payables                         83,542      78,264 Derivative instruments                               13,738      4,913 Total current liabilities                            383,677     274,127 Long-term liabilities:                                            Derivative instruments                               438         433 Long-term debt                                       1,560,000   1,500,000 Deferred income taxes                                145,998     136,407 Other long-term liabilities                          18,744      17,317 Total liabilities                                    2,108,857   1,928,284                                                                  Stockholders' equity:                                             Preferred stock, $0.001 par value; authorized        --          -- 5,000,000 shares; no shares issued in 2014 or 2013 Common stock, $0.001 par value; authorized 150,000,000 shares; issued 62,200,386 shares and     62          61 62,032,162 shares at March 31, 2014 and December 31, 2013, respectively Additional paid-in capital                           1,186,236   1,182,672 Treasury stock, at cost; 773,061 shares and 724,755 shares at March 31, 2014 and December 31, 2013,      (26,725)    (24,592) respectively Accumulated other comprehensive loss                 (105)       (108) Retained earnings                                    225,544     190,301 Total stockholders' equity                           1,385,012   1,348,334 Total liabilities and stockholders' equity           $3,493,869 $3,276,618     Rosetta Resources Inc. Consolidated Statement of Operations (In thousands, except per share amounts)                                                                                                          Three Months Ended March 31,                                              2014           2013                                              (Unaudited) Revenues:                                                    Oil sales                                     $131,677     $110,052 NGL sales                                     55,295        46,461 Natural gas sales                             51,379        33,576 Derivative instruments                        (23,785)      (11,969) Total revenues                                214,566       178,120 Operating costs and expenses:                                Lease operating expense                       19,521        8,911 Treating and transportation                   20,677        15,087 Taxes, other than income                      10,206        7,655 Depreciation, depletion and amortization      74,775        44,630 General and administrative costs              19,538        15,532 Total operating costs and expenses            144,717       91,815 Operating income                              69,849        86,305                                                             Other expense (income):                                      Interest expense, net of interest capitalized 15,290        6,069 Interest income                               (12)          -- Other expense (income), net                   151           (30) Total other expense                           15,429        6,039                                                             Income before provision for income taxes      54,420        80,266 Income tax expense                            19,177        26,786 Net income                                    $35,243      $53,480                                                             Earnings per share:                                          Basic                                         $0.57        $1.01 Diluted                                       $0.57        $1.01                                                             Weighted average shares outstanding:                         Basic                                         61,380        52,733 Diluted                                       61,547        53,081     Rosetta Resources Inc. Consolidated Statement of Cash Flows (In thousands)                                                                                                                  Three Months Ended March 31,                                                  2014           2013                                                  (Unaudited) Cash flows from operating activities:                            Net income                                        $35,243      $53,480 Adjustments to reconcile net income to net cash                  provided by operating activities: Depreciation, depletion and amortization          74,775        44,630 Deferred income taxes                             18,604        26,060 Amortization of deferred loan fees recorded as    984           538 interest expense Stock-based compensation expense                  3,358         2,664 Loss (gain) due to change in fair value of        15,848        13,971 derivative instruments Change in operating assets and liabilities:                      Accounts receivable                               (7,625)       (2,955) Prepaid expenses                                  1,956         771 Other current assets                              (880)         -- Long-term assets                                  43            (1) Accounts payable and accrued liabilities          3,264         (729) Royalties and other payables                      5,277         4,476 Other long-term liabilities                       377           (1,266) Net cash provided by operating activities         151,224       141,639 Cash flows from investing activities:                            Deposit on Permian acquisition                    --            (38,400) Acquisitions of oil and gas assets                (79,015)      -- Additions to oil and gas assets                   (268,836)     (175,849) Disposals of oil and gas assets                   8             (2,651) Net cash used in investing activities             (347,843)     (216,900) Cash flows from financing activities:                            Borrowings on Credit Facility                     80,000        140,000 Payments on Credit Facility                       (20,000)      (85,000) Proceeds from stock options exercised             61            408 Purchases of treasury stock                       (2,133)       (6,256) Excess tax benefit from share-based awards        22            -- Net cash provided by financing activities         57,950        49,152                                                                 Net decrease in cash                              (138,669)     (26,109) Cash and cash equivalents, beginning of period    193,784       36,786 Cash and cash equivalents, end of period          $55,115      $10,677                                                                 Supplemental disclosures:                                        Capital expenditures included in Accounts payable $206,867     $77,867 and accrued liabilities     Rosetta Resources Inc. Summary of Operating Data                                                                                                                   Three Months Ended March 31,                                                                     % Change                                                 2014      2013     Increase/                                                                     (Decrease)                                                                   Daily production by area (Boe/d):                                  Eagle Ford                                       49,937   46,839  7% Permian                                          4,268    --     100% Other                                            88       159     (45%) Total (Boe/d)                                    54,293   46,998  16%                                                                                                                                     Daily production:                                                  Oil (Bbls/d)                                     16,146   12,421  30% NGLs (Bbls/d)                                    18,551   16,543  12% Natural Gas (Mcf/d)                              117,577  108,205 9% Total (Boe/d)                                    54,293   46,998  16%                                                                                                                                     Average sales prices:                                              Oil, excluding derivatives ($/Bbl)               $90.62  $98.44 (8%) Oil, including realized derivatives ($/Bbl)      88.59    96.54   (8%) NGL, excluding derivatives ($/Bbl)               33.11    31.20   6% NGL, including realized derivatives ($/Bbl)      31.38    32.92   (5%) Natural gas, excluding derivatives ($/Mcf)       4.86     3.45    41% Natural gas, including realized derivatives      4.66     3.61    29% ($/Mcf) Total (excluding realized derivatives) ($/Boe)   $48.78  $44.94 9% Total (including realized derivatives) ($/Boe)   $47.16  $45.41 4%                                                                                                                                     Average costs (per Boe):                                           Direct LOE                                       $3.23   $1.97  64% Workovers                                        0.71     0.08    788% Insurance                                        0.06     0.05    20% Treating and Transportation                      4.23     3.57    18% Taxes, other than income                         2.09     1.81    15% DD&A                                             15.30    10.55   45% G&A, excluding stock-based compensation          3.31     3.04    9% Interest expense                                 3.13     1.43    119%     Rosetta Resources Inc. Derivatives Summary Status as of April 30, 2014                                                                                                  Notional    Average        Average                                       Daily            Settlement Derivative     Volume      Floor Prices    Ceiling                                                                   Prices Product     Period     Instrument     Bbl         per Bbl         per Bbl Crude oil   2014       Costless       3,000       83.33          109.63                        Collar                                                               Crude oil   2014       Swap           6,000       93.13           Crude oil   2015       Swap           10,000      88.58           Crude oil   2016       Swap           1,000       84.40                                                                                                                                                                          Notional                                                          Daily            Settlement Derivative     Volume      Fixed Prices     Product     Period     Instrument     Bbl         per Bbl          NGLs        2014       Swap           10,000      37.10          (Includes                                                                   Ethane) NGLs        2015       Swap           5,000       31.87          (Includes                                                                   Ethane)                                                                                                                                                                Notional    Average        Average                                       Daily            Settlement Derivative     Volume      Floor/Fixed     Ceiling                                                   Prices          Prices Product     Period     Instrument     MMBtu       per MMBtu       per MMBtu Natural gas 2014       Costless       50,000      3.60           4.94                        Collar Natural gas 2015       Costless       50,000      3.60           5.04                        Collar                                                               Natural gas 2014       Swap           30,000      4.07            Natural gas 2015       Swap           40,000      4.18            Natural gas 2016       Swap           30,000      4.04                Rosetta Resources Inc. Non-GAAP Reconciliation Disclosure (In thousands, except per share amounts)                                                           The following table reconciles net income (GAAP) to adjusted net income (non-GAAP) for the three months ended March 31, 2014 and March 31, 2013.Adjusted net income eliminates the unrealized derivative activity from our financial commodity derivative transactions for both periods, and the transaction and financing costs associated with the Company's Permian Acquisition for the quarter ended March 31, 2014, along with the related tax effects.The Company uses this information to analyze operating trends and for comparative purposes within the industry. This measure is not intended to replace the GAAP statistic but rather to provide additional information that may be helpful in evaluating the Company's operational trends and performance.                                                                                               Three months ended March 31,                                     2014                  2013 Net income (GAAP)                    $35,243             $53,480 Unrealized derivative loss           15,848               13,971 Permian Acquisition - transaction    310                  -- and financing costs Tax benefit                          (5,814)              (4,978) Adjusted net income (Non-GAAP)       $45,587             $62,473                                                                                                                                                                               Net income per share (GAAP)                                Basic                                $0.57               $1.01 Diluted                              0.57                 1.01                                                           Adjusted net income per share                              (Non-GAAP) Basic                                $0.74               $1.18 Diluted                              0.74                 1.18     Rosetta Resources Inc. Summary of Guidance                                                                                            2014 Full Year                                                                  MBoe/d                                                            2014 Average Daily Production                 60         --     65                                                                  $/BOE                                                             Direct Lease Operating Expense                $2.85     --       $3.10 Workover Expenses                             0.60       --       0.70 Insurance                                     0.05       --       0.05 Ad Valorem Tax ^ (1)                          0.65       --       0.75 Treating and Transportation                   4.20       --       4.60 Production Taxes ^(1)                         1.30       --       1.40 DD&A                                          14.60      --       16.05 G&A, excluding Stock-Based Compensation       3.40       --       3.70 Interest Expense                              2.55       --       2.80                                                                                                                                   ^(1) Ad Valorem Tax and Production Taxes are components of Taxes, other than income.  CONTACT: Investor Contact:                   Antoinette D. (Toni) Green          Vice President, Investor Relations & Planning          Rosetta Resources Inc.          info@rosettaresources.com  Rosetta Resources Inc. Logo  
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