Petrohawk declared its second quarter 2010 financial and operating results, including quarterly production above expectations; a liquidity update based on $1.4 billion in divestitures closed during the quarter; an update on Haynesville Shale activities, as well as positive developments in the condensate and oil-prone areas of the Eagle Ford Shale.

Petrohawk produced an average of 625 million cubic feet natural gas equivalent per day (Mmcfe/d) during the second quarter, above the high end of its guidance range of 610 to 620 Mmcfe/d. Total production for the quarter was 56.9 billion cubic feet of natural gas equivalent (Bcfe), which included 54.5 billion cubic feet (Bcf) of natural gas (96%), 225 thousand barrels (MBbls) of oil (2%) and 179 MBbls of natural gas liquids (2%). Quarter over quarter production was flat due to the sales of properties producing approximately 34 Mmcfe/d during the quarter, and increased 29% over second quarter 2009. For the third quarter 2010, average daily production is expected to be between 650 and 660 Mmcfe/d.

Revenues for the quarter were $354 million before taking into account the effect of hedges. Hedging played an important role in improving realized pricing during the quarter, which brought revenues to $424 million, approximately 30% higher compared to the second quarter 2009. Second quarter revenues were approximately 9% lower than the first quarter due to lower natural gas prices. Before the effect of derivatives, the Company realized $3.97 per Mcf of natural gas, or 97% of NYMEX, and $74.55 per barrel of oil, or 96% of NYMEX, during second quarter. Taking into account the effect of hedges, Petrohawk realized $5.26 per Mcf of natural gas and $76.58 per barrel of oil for the quarter. Additionally, Petrohawk realized $36.30 per Bbl for natural gas liquids, or approximately 47% of NYMEX pricing for oil, during the second quarter.

Cash flows from operations before changes in working capital (a non-GAAP measure) were $163 million for the quarter, or $0.54 per fully diluted common share. Petrohawk reported net income for the quarter of $0.04 per fully diluted common share, or $13.5 million. After adjusting for selected items, the Company's quarterly net income was $0.09 per fully diluted common share (see Selected Item Review and Reconciliation table for additional information).

During the second quarter, per unit lease operating costs were $0.29 per thousand cubic feet of natural gas equivalent (Mcfe), or approximately $16 million, compared to $0.43 per Mcfe one year ago – a 33% improvement. Lease operating costs were lowered by favorable operating costs in the Haynesville and Eagle Ford Shales as well as the effect of divesting higher cost properties in late 2009 and throughout 2010. Total cash operating costs (including lease operating, gathering and transportation, production taxes, workover, general and administrative, and interest expense), including approximately $7.5 million in fees paid to advisors on transactions that closed during the quarter, were $157 million, or $2.75 per Mcfe, for the second quarter. Gathering, transportation and other expenses, included in cash operating costs above, were $0.61 per Mcfe. The increase over prior periods was due to accounting treatment whereby Haynesville Shale gathering expenses are no longer eliminated in consolidation as a result of the KinderHawk transaction.

The Company added significantly to its 2011 and 2012 hedge position during the quarter, bringing total hedged gas volumes for 2011 to 520 Mmcf/d, or 68% of expected natural gas production, hedged at an average floor of $5.55 per million British thermal unit (MMbtu) and an average ceiling of $9.66 per MMbtu. Total hedged oil volumes for 2011, representing approximately 30% of expected oil production, are hedged at an average floor of $78.75 per BBl and an average ceiling of $100.34 per Bbl. For 2012, approximately 23% of total expected production is hedged at an average floor of $5.00 MMbtu and an average ceiling of $7.55 MMbtu for natural gas and an average floor of $80.00 BBl and an average ceiling of $102.18 per Bbl for oil.

Tags: Petrohawk Energy Corporation