Market Overview

Unit Corporation Reports 2018 First Quarter Results

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Unit Corporation (NYSE - UNT) today reported its financial and
operational results for the first quarter 2018. First quarter results
and recent highlights include:

  • Net income of $7.9 million; adjusted net income of $11.1 million, a
    47% increase over first quarter 2017 adjusted net income.
  • The company completed the sale of 50% of the ownership interests in
    Superior Pipeline Company LLC (Superior) to SP Investor Holdings, LLC
    for cash consideration of $300 million. The effective date of the sale
    was April 1st.
  • Termination of the At-The-Market common stock program initiated in
    February 2017.
  • Oil and natural gas segment placed its third drilling rig into service
    in mid-January and its fourth rig into service during March.
  • Proceeds from the sale of non-core oil and natural gas assets were
    $21.7 million.
  • Contract drilling segment constructing its 11th BOSS
    drilling rig under long-term contract.
  • Midstream segment operating profit increased 11% over the fourth
    quarter of 2017.
  • April redetermination of Unit's borrowing base amount resulted in a
    decrease from $475 million to $425 million due to the sale of the 50%
    interest in Superior and the release of Superior as a borrower and
    co-obligor under the credit agreement.

FIRST QUARTER 2018 FINANCIAL RESULTS

Unit recorded net income of $7.9 million for the quarter, or $0.15 per
diluted share, compared to net income of $15.9 million, or $0.31 per
share, for the first quarter of 2017. Adjusted net income (which
excludes the effect of non-cash commodity derivatives) for the quarter
was $11.1 million, or $0.21 per diluted share, as compared to $0.15 per
diluted share for the same quarter for 2017, a 40% increase (see
Non-GAAP financial measures below). Total revenues for the quarter were
$205.1 million (50% oil and natural gas, 23% contract drilling, and 27%
midstream), compared to $175.7 million (50% oil and natural gas, 21%
contract drilling, and 29% midstream) for the first quarter of 2017.
Adjusted EBITDA was $89.1 million, or $1.71 per diluted share (see
Non-GAAP financial measures below).

MIDSTREAM TRANSACTION

On April 3, 2018, Unit closed the sale of fifty percent (50%) interest
in its wholly owned midstream subsidiary, Superior, to SP Investor
Holdings, LLC, which is jointly owned by OPTrust and funds managed
and/or advised by Partners Group, a global private markets investment
manager. The cash proceeds at closing were $300 million. Proceeds from
the sale were used to pay down the outstanding amount under the
company's credit agreement. The balance will be used to accelerate the
drilling program of Unit's upstream subsidiary, make additional capital
investments in the now jointly owned midstream subsidiary, and for
general corporate purposes.

Larry Pinkston, Unit's Chief Executive Officer and President, said: "Our
goal has been to grow the cash flow of our midstream segment to maximize
the segment's value. With the association of our new partners, we
believe we are now in a better position to accelerate the realization of
that goal. Unit will continue to serve as managing partner of the
segment and continue to reap a portion of the synergies from having
Superior as part of our corporate economics. The transaction also
highlighted the current value of Superior. The sale was also beneficial
to Unit in other ways. We were able to pay the entire outstanding
balance on our bank credit facility, which, following our most recent
redetermination, now provides for a $425 million borrowing base, all of
which is available for future use, if needed. The available amount of
our borrowing base, coupled with the cash on hand, positions Unit with
the liquidity necessary to carry out its focus on growing all of its
segments. We intend to accelerate the growth within our oil and natural
gas segment by adding another drilling rig later this year to its well
drilling program. But in doing so, consistent with our practice, we will
be deliberate with our capital spending, focusing on maximizing the
value received for the capital expended."

TERMINATION OF AT-THE-MARKET COMMON STOCK PROGRAM

Because of the liquidity created by the Superior transaction, Unit has
elected to terminate the At-The-Market Common Stock Program initiated in
February 2017. Under that program, the company could offer and sell,
occasionally, shares of its common stock up to an aggregate offering
price of $100.0 million. To date under the program, Unit sold 787,547
shares of its common stock resulting in proceeds of approximately $18.6
million.

OIL AND NATURAL GAS SEGMENT INFORMATION

For the quarter, per day equivalent production was 46.5 thousand barrels
of oil equivalent (MBoe), a decrease of less than 1% from the fourth
quarter of 2017. Oil and natural gas liquids (NGLs) production
represented 46% of total equivalent production. Oil production was 8,178
barrels per day, an increase of 4% over the fourth quarter of 2017. NGLs
production was 13,275 barrels per day, a decrease of 3% from the fourth
quarter of 2017. Natural gas production was 150 million cubic feet
(MMcf) per day, a decrease of 1% from the fourth quarter of 2017. The
slight decrease in daily production from fourth quarter 2017 to first
quarter 2018 was due to the timing of completions on a multi-well pad in
the Texas Panhandle and a two-week delay in drilling operations in the
Gulf Coast area.

Unit's average realized per barrel equivalent price for the quarter was
$24.18, a 4% increase over the fourth quarter of 2017. Unit's average
natural gas price was $2.62 per Mcf, an increase of 10% over the fourth
quarter of 2017. Unit's average oil price was $55.10 per barrel, an
increase of 1% over the fourth quarter of 2017. Unit's average NGLs
price was $21.08 per barrel, a decrease of 4% from the fourth quarter of
2017. All prices in this paragraph include the effects of derivative
contracts.

In the Wilcox area, Unit continued its exploration and recompletion
programs during the quarter. In the Wing prospect area, the Wing #18 was
drilled and completed in the BP Fee "C" sand, resulting in a successful
discovery of a new pay interval. Unit is currently drilling the Wing #20
to further delineate this discovery. Unit's first exploration well in
the Cherry Creek prospect area, the Trinity #1 well, has continued to
perform well, and the company will drill its first Cherry Creek
delineation well later in the second quarter. Also, eight recompletions
and two workover wells were completed throughout the Wilcox play during
the quarter.

In the Buffalo Wallow area of the Granite Wash, Unit continued its "C1"
zone development efforts. The Francis three-well pad was drilled and
completed and started first sales in February. The wells continue to
clean up and are expected to meet or exceed the "C1" type curve. The
Carr three-well pad was drilled and completed in late March and the
wells are in the early flowback stages. Unit will possibly add an
additional rig later this year.

In the Southern Oklahoma Hoxbar Oil Trend (SOHOT) area, during the
quarter, Unit completed three new Marchand horizontal wells, the Schenk
Trust #1-17HXL, with an IP30 of 2,318 barrels of oil equivalent (Boe)
per day, the McConnell #1-11H with an IP30 of 1,426 Boe per day, and the
Livingston Land #1-33/4, which is in the early stages of clean up.
Unit's plan is to continue running one rig throughout the remainder of
the year.

In western Oklahoma, Unit spud its initial well in the STACK play, the
Irwin #1-4H, in Dewey County, Oklahoma during March and also
participated in seven non-operated wells during the first quarter.

Pinkston said: "Our oil and natural gas segment placed its third
drilling rig into service in mid-January and its fourth rig into service
during March. Our focus on drilling and completing multi-well pads
results in an uneven production growth profile. Our well results
continue to meet or exceed expectations. Our production guidance remains
unchanged, with 2018 production anticipated to grow to 17.1 to 17.4
MMBoe, or 7% to 9% year over year from 2017. During the quarter, we sold
non-core oil and natural gas assets, net of related expenses, for $21.7
million."

This table illustrates certain comparative production, realized prices,
and operating profit for the periods indicated:

      Three Months Ended     Three Months Ended
     

Mar 31,
2018

 

Mar 31,
2017

  Change    

Mar 31,
2018

 

Dec 31,
2017

  Change
Oil and NGLs Production, MBbl     1,931     1,740     11 %     1,931     1,986     (3 )%
Natural Gas Production, Bcf     13.5     12.2     10 %     13.5     13.9     (3 )%
Production, MBoe     4,181     3,777     11 %     4,181     4,310     (3 )%
Production, MBoe/day     46.5     42.0     11 %     46.5     46.8     (1 )%
Avg. Realized Natural Gas Price, Mcf (1)     $ 2.62     $ 2.68     (2 )%     $ 2.62     $ 2.38     10 %
Avg. Realized NGL Price, Bbl (1)     $ 21.08     $ 17.81     18 %     $ 21.08     $ 21.88     (4 )%
Avg. Realized Oil Price, Bbl (1)     $ 55.10     $ 48.68     13 %     $ 55.10     $ 54.45     1 %
Realized Price / Boe (1)     $ 24.18     $ 22.13     9 %     $ 24.18     $ 23.25     4 %
Operating Profit Before Depreciation, Depletion, & Amortization (MM) (2)     $ 67.1     $ 58.4     15 %     $ 67.1     $ 66.6     1 %
(1)   Realized price includes oil, natural gas liquids, natural gas, and
associated derivatives.
(2) Unit calculates operating profit before depreciation by taking
operating revenues for this segment less operating expenses
excluding depreciation, depletion, amortization, and impairment.
(See non-GAAP financial measures below.)
 
 

CONTRACT DRILLING SEGMENT INFORMATION

Unit's average number of drilling rigs working during the quarter was
31.7, an increase of 2% over the fourth quarter of 2017. Per day
drilling rig rates averaged $17,038, a 2% increase over the fourth
quarter of 2017. Average per day operating margin for the quarter was
$5,179 (before elimination of intercompany drilling rig profit of $0.4
million). This margin compares to first quarter 2017 average operating
margin of $3,474 (before elimination of intercompany drilling rig profit
of $0.6 million), an increase of 49%, or $1,705.

Pinkston said: "Our contract drilling segment continues to show solid
results. The BOSS rig continues to set new performance records for
several operators. We were able to negotiate a new long-term contract
for our 11th BOSS rig, which is under construction. All 10 of
our BOSS rigs are under contract, and we currently have a total of 32
drilling rigs operating. Long-term contracts (contracts with original
terms ranging from six months to two years in length) are in place for
six of our drilling rigs. Of the six contracts, one is up for renewal in
the second quarter of 2018, two in the third quarter, two in the fourth
quarter and one in 2019."

This table illustrates certain comparative results for the periods
indicated:

    Three Months Ended     Three Months Ended
   

Mar 31,
2018

 

Mar 31,
2017

  Change    

Mar 31,
2018

 

Dec 31,
2017

  Change
Rigs Utilized   31.7     25.5     24 %     31.7     31.2     2 %
Operating Profit Before Depreciation (MM)(1)   $ 14.3     $ 8.0     80 %     $ 14.3     $ 15.3     (6

)%

(1)   Unit calculates operating profit before depreciation by taking
operating revenues for this segment less operating expenses
excluding depreciation and impairment. (See non-GAAP financial
measures below.)
 
 

MIDSTREAM SEGMENT INFORMATION

For the quarter, gas processed volumes per day increased 2%, while gas
gathered and liquids sold volumes per day decreased 3% and 1%,
respectively, from the fourth quarter of 2017. Operating profit (as
defined in the footnote below) for the quarter was $14.4 million, an
increase of 11% over the fourth quarter of 2017.

This table illustrates certain comparative results for the periods
indicated:

      Three Months Ended     Three Months Ended
     

Mar 31,
2018

 

Mar 31,
2017

  Change    

Mar 31,
2018

  Dec 31,
2017
  Change
Gas Gathering, Mcf/day     372,862     390,384     (4 )%     372,862     383,319     (3 )%
Gas Processing, Mcf/day     151,039     126,559     19 %     151,039     148,422     2 %
Liquids Sold, Gallons/day     577,560     497,862     16 %     577,560     581,874     (1 )%
Operating Profit Before Depreciation & Amortization (MM) (1)     $ 14.4     $ 13.2     9 %     $ 14.4     $ 13.1     11 %
(1)   Unit calculates operating profit before depreciation by taking
operating revenues for this segment less operating expenses
excluding depreciation, amortization, and impairment. (See non-GAAP
financial measures below.)
 
 

Pinkston said: "Gas processing volumes continued to improve due to
increased throughput from third-party operators primarily at our Bellmon
and Cashion plants. With our new partners, we are actively seeking
opportunities to accelerate growth in this segment."

FINANCIAL INFORMATION

Unit ended the quarter with long-term debt of $790.5 million, comprised
of $642.8 million of senior subordinated notes (net of unamortized
discount and debt issuance costs) and $147.7 million of borrowings under
the company's credit agreement. On April 2, 2018, Unit signed a Fourth
Amendment to its credit agreement in connection with its sale of the 50%
ownership interest in Superior. One condition of the sale was the
release of Superior from the credit agreement. The Fourth Amendment also
provides for, among other things, a maximum credit amount, a borrowing
base, and an elected commitment all of $425 million. The sale
transaction closed on April 3rd, and the outstanding borrowings on the
credit facility were paid that same day.

WEBCAST

Unit uses its website to disclose material nonpublic information and for
complying with its disclosure obligations under Regulation FD. The
website includes those disclosures in the 'Investor Information'
sections. So, investors should monitor that portion of the website,
besides following the press releases, SEC filings, and public conference
calls and webcasts.

Unit will webcast its first quarter earnings conference call live over
the Internet on May 3, 2018 at 10:00 a.m. Central Time (11:00 a.m.
Eastern). To listen to the live call, please go to http://www.unitcorp.com/investor/calendar.htm
at least fifteen minutes before the start of the call to download and
install any necessary audio software. For those who are not available to
listen to the live webcast, a replay will be available shortly after the
call and will remain on the site for 90 days.

Unit Corporation is a Tulsa-based, publicly held energy company engaged
through its subsidiaries in oil and gas exploration, production,
contract drilling, and gas gathering and processing. Unit's Common Stock
is listed on the New York Stock Exchange under the symbol UNT. For more
information about Unit Corporation, visit its website at http://www.unitcorp.com.

_____________________________________________________

FORWARD-LOOKING STATEMENT

This news release contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act. All statements, other
than statements of historical facts, included in this release that
address activities, events, or developments that the company expects,
believes, or anticipates will or may occur are forward-looking
statements. Several risks and uncertainties could cause actual results
to differ materially from these statements, including changes in
commodity prices, the productive capabilities of the company's wells,
future demand for oil and natural gas, future drilling rig utilization
and dayrates, projected rate of the company's oil and natural gas
production, the amount available to the company for borrowings, its
anticipated borrowing needs under its credit agreement, the number of
wells to be drilled by the company's oil and natural gas segment, the
potential productive capability of its prospective plays including the
STACK play, and other factors described occasionally in the company's
publicly available SEC reports. The company assumes no obligation to
update publicly such forward-looking statements, whether because of new
information, future events, or otherwise.

Unit Corporation
Selected Financial Highlights
(In
thousands except per share amounts)

   
Three Months Ended
March 31,
      2018   2017
Income Statements:  
Revenues:
Oil and natural gas $ 103,099 $ 87,598
Contract drilling 45,989 37,185
Gas gathering and processing 56,044   50,941  
Total revenues 205,132   175,724  
Expenses:
Operating costs:
Oil and natural gas 35,962 29,204
Contract drilling 31,667 29,227
Gas gathering and processing 41,604   37,704  
Total operating costs 109,233 96,135
Depreciation, depletion, and amortization 57,066 46,932
General and administrative 10,762 8,954
Gain on disposition of assets (161 ) (824 )
Total operating expenses 176,900   151,197  
 
Income from operations 28,232   24,527  
 
Other income (expense):
Interest, net (10,004 ) (9,396 )
Gain (loss) on derivatives (6,762 ) 14,731
Other 6   3  
Total other income (expense) (16,760 ) 5,338  
 
Income before income taxes 11,472 29,865
 
Income tax expense:
Deferred 3,607   13,936  
Total income taxes 3,607   13,936  
 
Net income $ 7,865   $ 15,929  
 
Net income per common share:
Basic $ 0.15 $ 0.32
Diluted $ 0.15 $ 0.31
 
Weighted average shares outstanding:
Basic 51,730 50,293
Diluted 52,272 50,861
 
 
    March 31,     December 31,
      2018     2017
Balance Sheet Data:
Current assets $ 108,035 $ 119,672
Total assets $ 2,599,591 $ 2,581,452
Current liabilities $ 210,719 $ 181,936
Long-term debt $ 790,522 $ 820,276
Other long-term liabilities and non-current derivative liability $ 104,450 $ 100,203
Deferred income taxes $ 136,600 $ 133,477
Shareholders' equity $ 1,357,300 $ 1,345,560
 
 
    Three Months Ended March 31,
      2018   2017
Statement of Cash Flows Data:  
Cash flow from operations before changes in operating assets and
liabilities
$ 79,966 $ 64,949
Net change in operating assets and liabilities (41,320 ) 703  
Net cash provided by operating activities $ 38,646   $ 65,652  
Net cash used in investing activities $ (23,243 ) $ (29,028 )
Net cash used in financing activities $ (15,352 ) $ (29,047 )
 
 

Non-GAAP Financial Measures

Unit Corporation reports its financial results under generally accepted
accounting principles ("GAAP"). The Company believes certain non-GAAP
measures provide users of its financial information and its management
additional meaningful information to evaluate the performance of the
company.

This press release includes net income and earnings per share excluding
impairment adjustments and the effect of the cash-settled commodity
derivatives, its reconciliation of segment operating profit, its
drilling segment's average daily operating margin before elimination of
intercompany drilling rig profit and bad debt expense, its cash flow
from operations before changes in operating assets and liabilities, and
its reconciliation of net income to adjusted EBITDA.

Below is a reconciliation of GAAP financial measures to non-GAAP
financial measures for the three months ended March 31, 2018 and 2017.
Non-GAAP financial measures should not be considered by themselves or a
substitute for results reported under GAAP. This non-GAAP information
should be considered by the reader in addition to, but not instead of,
the financial statements prepared under GAAP. The non-GAAP financial
information presented may be determined or calculated differently by
other companies and may not be comparable to similarly titled measures.

Unit Corporation
Reconciliation of Adjusted Net
Income and Adjusted Diluted Earnings per Share

   
Three Months Ended
March 31,
2018   2017

(In thousands except
earnings per share)

Adjusted net income:
Net income $ 7,865 $ 15,929
(Gain) loss on derivatives (net of income tax) 4,636 (7,793 )
Settlements during the period of matured derivative contracts (net
of income tax)
(1,421 ) (613 )
Adjusted net income $ 11,080   $ 7,523  
 
Adjusted diluted earnings per share:
Diluted earnings per share $ 0.15 $ 0.31
Diluted earnings per share from (gain) loss on derivatives 0.09 (0.15 )
Diluted earnings per share from settlements of matured derivative
contracts
(0.03 ) (0.01 )
Adjusted diluted income per share $ 0.21   $ 0.15  
 
 

________________

The Company has included the net income and diluted earnings per share
including only the cash settled commodity derivatives because:

  • It uses the adjusted net income to evaluate the operational
    performance of the company.
  • The adjusted net income is more comparable to earnings estimates
    provided by securities analysts.

Unit Corporation
Reconciliation of Segment
Operating Profit

   
Three Months Ended
December 31,     March 31,
2017 2018   2017
(In thousands)
Oil and natural gas $ 66,587 $ 67,137 $ 58,394
Contract drilling 15,274 14,322 7,958
Gas gathering and processing 13,062   14,440   13,237  
Total operating profit 94,923 95,899 79,589
Depreciation, depletion and amortization (57,712 ) (57,066 ) (46,932 )
Total operating income 37,211 38,833 32,657
General and administrative (11,185 ) (10,762 ) (8,954 )
Gain (loss) on disposition of assets (826 ) 161 824
Interest, net (9,527 ) (10,004 ) (9,396 )
Gain (loss) on derivatives (6,287 ) (6,762 ) 14,731
Other 7   6   3  
Income before income taxes $ 9,393   $ 11,472   $ 29,865  
 
 

_________________

The Company has included segment operating profit because:

  • It considers segment operating profit to be an important supplemental
    measure of operating performance for presenting trends in its core
    businesses.
  • Segment operating profit is useful to investors because it provides a
    means to evaluate the operating performance of the segments and
    company on an ongoing basis using the criteria used by management.

Unit Corporation
Reconciliation of Average Daily
Operating Margin Before Elimination of Intercompany Rig Profit

and Bad Debt Expense

 
Three Months Ended
December 31,     March 31,
2017 2018   2017

(In thousands except for operating
days and
operating margins)

 
Contract drilling revenue $ 46,661 $ 45,989 $ 37,185
Contract drilling operating cost 31,387   31,667   29,227
Operating profit from contract drilling 15,274 14,322 7,958
Add:
Elimination of intercompany rig profit and bad debt expense 642   434  
Operating profit from contract drilling before elimination of
intercompany rig profit and bad debt expense
15,916 14,756 7,958
Contract drilling operating days 2,868   2,849   2,291
Average daily operating margin before elimination of intercompany
rig profit and bad debt expense
$ 5,550   $ 5,179   $ 3,474
 
 

________________

The Company has included the average daily operating margin before
elimination of intercompany rig profit and bad debt expense because:

  • Its management uses the measurement to evaluate the cash flow
    performance of its contract drilling segment and to evaluate the
    performance of contract drilling management.
  • It is used by investors and financial analysts to evaluate the
    performance of the company.

Unit Corporation
Reconciliation of Cash Flow From
Operations Before Changes in Operating Assets and Liabilities

   
Three Months Ended March 31,
2018   2017
(In thousands)
 
Net cash provided by operating activities $ 38,646 $ 65,652
Net change in operating assets and liabilities 41,320   (703 )
Cash flow from operations before changes in operating assets and
liabilities
$ 79,966   $ 64,949  
 
 

________________

The Company has included the cash flow from operations before changes in
operating assets and liabilities because:

  • It is an accepted financial indicator used by its management (and by
    other companies in the industry) to measure the company's ability to
    generate cash used to internally fund its business activities.
  • It is used by investors and financial analysts to evaluate the
    performance of the company.

Unit Corporation
Reconciliation of Adjusted EBITDA

   
Three Months Ended
March 31,
2018   2017

(In thousands except
earnings per share)

 
Net income $ 7,865 $ 15,929
Income taxes 3,607 13,936
Depreciation, depletion and amortization 57,066 46,932
Interest expense 10,004 9,396
(Gain) loss on derivatives 6,762 (14,731 )
Settlements during the period of matured derivative contracts (2,073 ) (1,159 )
Stock compensation plans 6,609 3,704
Other non-cash items (532 ) 785
Gain on disposition of assets (161 ) (824 )
Adjusted EBITDA $ 89,147   $ 73,968  
 
Diluted income per share $ 0.15 $ 0.31
Diluted earnings per share from income taxes 0.07 0.27
Diluted earnings per share from depreciation, depletion and
amortization
1.09 0.92
Diluted earnings per share from interest expense 0.19 0.19
Diluted earnings per share from (gain) loss on derivatives 0.13 (0.29 )
Diluted earnings per share from settlements during the period of
matured derivative contracts
(0.04 ) (0.02 )
Diluted earnings per share from stock compensation plans 0.13 0.07
Diluted earnings per share from other non-cash items (0.01 ) 0.02
Diluted earnings per share from gain on disposition of assets   (0.02 )
Adjusted EBITDA per diluted share $ 1.71   $ 1.45  

________________

The Company has included the adjusted EBITDA excluding gain or loss on
disposition of assets and including only the cash-settled commodity
derivatives because:

  • It uses the adjusted EBITDA to evaluate the operational performance of
    the Company.
  • The adjusted EBITDA is more comparable to estimates provided by
    securities analysts.
  • It provides a means to assess the ability of the Company to generate
    cash sufficient to pay interest on its indebtedness.

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