SOURCE: Venoco, Inc.

Venoco, Inc.

October 11, 2010 07:01 ET

Venoco, Inc. Announces 2011 Guidance and Updates 2010

DENVER, CO--(Marketwire - October 11, 2010) -  Venoco, Inc. (NYSE: VQ) announced updated guidance for 2010 along with guidance for 2011 and provided an update on its onshore Monterey Shale program. 

2010 Guidance

Venoco's full-year 2010 capital expenditures are estimated to be $220 million. The company expects to spend $108 million, or 49% of its 2010 capital expenditures, in the Sacramento Basin, where it will drill approximately 100 wells, perform approximately 250 recompletions/workovers, and complete 10 fracs. The company will spend approximately $50 million, or 23%, in its legacy Southern California properties, primarily focused on projects at its Sockeye and West Montalvo fields. The remaining $62 million, or 28%, will be spent on the company's onshore Monterey Shale program, where the company expects to finish the year having drilled 6 evaluation wells and 5 horizontal wells.

The company's updated guidance based on barrels of oil equivalent (BOE) for 2010 is as follows:

Production   18,600 BOE/day
Lease Operating Expenses   $13.00 per BOE
General & Administrative Expenses   $4.70 per BOE
Production & Property Taxes   $1.15 per BOE
DD&A Expense   $12.00 per BOE
     
Capital Expenditures   $220 million

"The Sac Basin continues to be a very valuable asset in our portfolio; however, as a result of continued depressed natural gas prices, along with our activity in the onshore Monterey Shale, we have reduced our focus in the area for the time being," commented Tim Marquez, Venoco's Chairman and CEO. "Our drilling program in 2010 will be more back-end loaded than we originally planned, and as a result, we'll see lower production from the Basin than originally forecast for the year. The drilling program in the Sac Basin has been very successful over the years and we look forward to resuming an active exploitation program when natural gas prices rebound," continued Mr. Marquez. 

"We have reduced guidance in most expense categories, which more than offsets the three percent reduction in forecast production for 2010. The net effect of our updated guidance is cash flow positive," said Mr. Marquez.

2011 Guidance

The company's 2011 exploration, exploitation and development capital expenditures are forecast to be $200 million. Approximately $100 million, or 50% of the capital budget, will be deployed in the company's onshore Monterey Shale program, $60 million or 30% in the Sacramento Basin, and $40 million or 20% in Southern California.

"2011 will be a transformational year for Venoco as we accelerate our efforts in the onshore Monterey Shale," commented Mr. Marquez. "In 2010 we took our first steps into developing the onshore Monterey, and I am excited about the program we've designed for 2011. We have heavily risked the onshore Monterey production included in our 2011 production guidance, so we believe there will be opportunity to outperform," Mr. Marquez continued.

The company's guidance for 2011 is as follows:

Production   19,500 BOE/day
Lease Operating Expenses   $14.25 per BOE
General & Administrative Expenses   $4.75 per BOE
Production & Property Taxes   $1.20 per BOE
DD&A Expense   $13.00 per BOE
     
Capital Expenditures   $200 million

The 2011 production guidance of 19,500 represents a 7.5% increase over estimated 2010 pro forma production (after giving consideration to the sale of the company's Texas properties in the second quarter of 2010) of approximately 18,140 BOE/d. The company's onshore Monterey Shale program is expected to represent approximately 2,000 BOE/d of the 2011 production guidance.

The company plans to drill a total of 30 wells (8 evaluation wells and 22 development wells) in its onshore Monterey Shale program, and drill approximately 40 wells, perform 220 recompletions and perform 20 fracs in the Sacramento Basin. The company's focus in its legacy Southern California properties will be in the West Montalvo and South Ellwood fields in 2011. 

Monterey Shale Update

The company has secured two drilling rigs, both with top drives capable of drilling horizontal wells, and is working to secure a third rig in order to execute on its 2011 capital expenditure program in its onshore Monterey Shale program. The company expects to finish 2010 having drilled 6 evaluation wells and 5 horizontal wells.

The company's first horizontal well -- which was drilled in the San Joaquin Valley to a total measured depth of 14,000' -- is testing with a very high water cut and will probably be uneconomic. The company is currently flowing back the well to ensure full recovery of the acid load and to assess the ultimate oil cut from the formation. The company recently TD'd its second horizontal well, which is in the Santa Maria Basin. The well is not expected to be completed and tested until early November. The drilling rig is moving to a second location in the Santa Maria Basin and will spud the company's third horizontal well this month. The fourth horizontal could spud in the San Joaquin around the same time as the third is spud. The fifth horizontal well, planned to spud in the Salinas Valley before year-end, will use the drilling rig now in the Santa Maria Basin.

Venoco's fifth vertical well, a non-op producing well in the San Joaquin, was completed using a single-stage hydraulic fracture in one target zone. Results from this zone are expected by the end of the month but appear to be encouraging. Additional zones were identified uphole which the company expects to complete and evaluate later. 

A second drilling rig is nearing TD on the company's sixth vertical well, which, like four of the five previous verticals, is in the San Joaquin Valley. The company has cut cores and will be evaluating the well for a subsequent horizontal completion.

"While the results from the first horizontal Monterey Shale well were disappointing, it's one well in a much larger program and we remain excited about the future of our Monterey program," said Mr. Marquez. "We will utilize what we learned from this well to advance our efforts throughout the play. We're looking forward to results from our fifth vertical well and are cautiously optimistic about future development in the area," continued Mr. Marquez

The company has entered into a JV on one of its prospect areas in the San Joaquin Basin covering approximately 3,000 acres. In addition, the company has received offers and continues to discuss joint venture opportunities with third parties in certain of its other prospect areas. 

Other

On September 30 and October 8, 2010, the company entered into transactions to modify certain of its existing hedging contracts. The first set of transactions lowered the ceiling on the company's 2011 oil collars on 5,000 barrels per day from $140 per barrel to $100 per barrel. In the second set of transactions, the company settled natural gas puts on 12,000 MMBtu per day at $7.50 per MMBtu and settled a $5.75 by $7.12 natural gas collar on 12,000 MMBtu per day. After completing these transactions the company entered into natural gas swaps at $4.44 per MMBtu on 24,000 MMBtu per day. The company will receive total proceeds of approximately $24 million as a result of these transactions.

The company received notice from the Internal Revenue Service that the company's federal income tax refunds of approximately $8.6 million have been approved for disbursement. The company expects to receive the refunds in October. 

Proceeds from the hedging transactions and income tax refund will be used to pay down the company's revolving credit facility, which, after applying such proceeds, will have a balance of approximately $20 million.

Forward-looking Statements

Statements made in this news release relating to Venoco's future production, expenses and future capital projects and expenditures, and all other statements except statements of historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based on assumptions and estimates that management believes are reasonable based on currently available information; however, management's assumptions and the company's future performance are both subject to a wide range of business risks and uncertainties and there is no assurance that these goals and projections can or will be met. Any number of factors could cause actual results to differ materially from those in the forward-looking statements, including, but not limited to, the timing and extent of changes in oil and gas prices, the timing and results of drilling and other development and exploration activities, the availability and cost of obtaining drilling equipment and technical personnel, risks associated with the availability of acceptable transportation arrangements and the possibility of unanticipated operational problems, delays in completing production, treatment and transportation facilities, higher than expected production costs and other expenses, and pipeline curtailments by third parties. The company's activities with respect to the onshore Monterey Shale and other projects are subject to numerous operating, geological and other risks and may not be successful. The company's results in the onshore Monterey Shale will be subject to greater risks than in areas where it has more data and drilling and production experience. Results from the company's onshore Monterey Shale project will depend on, among other things, its ability to identify productive intervals and drilling and completion techniques necessary to achieve commercial production from those intervals. All forward-looking statements are made only as of the date hereof and the company undertakes no obligation to update any such statement. Further information on risks and uncertainties that may affect the company's operations and financial performance, and the forward-looking statements made herein, is available in the company's filings with the Securities and Exchange Commission, which are incorporated by this reference as though fully set forth herein.

About the Company 

Venoco is an independent energy company primarily engaged in the acquisition, exploitation and development of oil and natural gas properties primarily in California. Venoco operates three offshore platforms in the Santa Barbara Channel, has non-operated interests in three other platforms, operates four onshore properties in Southern California, and has extensive operations in Northern California's Sacramento Basin.

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