Unit is a diversified oilfield services firm that also operates a natural gas exploration and production segment. The company owns 129 land drilling rigs, operates 676 miles of petroleum-transporting pipeline, and owns half a trillion cubic feet of natural gas reserves - all in the southern United States. Rising natural gas prices are driving up both revenues and margins for the company's E&P segment, though its onshore oilfield services operations don't feel the benefits quite like the offshore segments of other companies, since land rigs are far more abundant and, therefore, less in demand. Unit has achieved a reserve replacement ratio of over 150% for 24 years, causing its holdings to grow faster than production, and with 48% of its reserves in the gas-swollen Anadarko Basin, the company is set to keep producing for many years to come. Unit competes with Cabot Oil & Gas, Oneok, Kinder Morgan Energy Partners, L.P. (KMP), Atmos Energy, National Fuel Gas Company, and Nabors Industries.
|Natural Gas Production (MMcf)||43,464||44,169||34,058|
|Average Sales Price ($/Mcfe)||6.30||6.17||7.64|
|Oil Production (MBbls)||1,091||1,012||847|
|Average Sales Price ($/Bbl)||70.61||63.39||54.47|
|Liquid Natural Gas Production (MBbls)||785||441||237|
|Average LNG Price ($/Bbl)||45.03||36.08||34.69|
|Total Number of Drilling Rigs at End of Period||129||117||112|
|Average Dayrate ($/day)||18,663||18,767||12,431|
|Number of Processing Plants||8||6||5|
|Gas Liquids Sold through Midstream Operations (Gallons/day)||129,421||66,902||61,665|
Note: Prices are before hedging
In 2007, Unit saw revenues of $1.159 billion, down from $1.162 billion in 2006; net income was $266 million, down from $312 million.
Unit estimates that for every $0.10/Mcf the price of natural gas rises, the company sees a $339,000 per month increase in its pre-tax operating cash flow, while a $1.00 increase in oil prices would cause a $85,000 per month increase. Furthermore, as the price of natural gas fluctuates a lot, the cost of extracting it doesn't, so when prices rise, margins grow. Oil and gas prices have fluctuated heavily over the past few years, though since mid-2007, the trend has been up. Oil traded on international markets for $120/bbl in early May, while natural gas traded at over $10/Mcf. While Unit benefits from high prices, the profitability of a high-price market will cause E&P companies to try and increase production; if they are successful, prices will fall.
With oil prices so high, E&P companies are desperate to ramp up production, causing demand for drilling rigs to skyrocket. Rates rise much faster in the offshore segment, however, as 71% of the Earth is covered in water but there are far fewer offshore rigs around the globe than there are onshore rigs - and, in the U.S., the number of offshore rigs has been falling while the number of land rigs has been growing. As of April 25th 2008, the U.S. had 1,842 land rigs, an increase of 95 from April 25th 2007, whereas the U.S. offshore rig count dropped by six, to 67. In 2007, Unit's average dayrate was $18,663; the average dayrate for an offshore platform rig, the cheapest, simplest, and most abundant of the offshore drilling vessels, is twice that, at $37,009.38, while floating offshore rigs can go as high as $292,000 - and that's not even counting deepwater oil exploration rigs, which can contract above $800,000 per day. Furthermore, offshore dayrates for rigs not in the declining shallow Gulf of Mexico have nearly tripled since the beginning of 2005, while Unit's dayrates grew by about 50% from 2005 to 2006 and then stagnated going into 2007, even decreasing by $104 from 2006. By operating only onshore, Unit Drilling Company is missing out on the segments of the oilfield services industry that are benefiting most from rising oil prices.
One of Unit's company goals is to achieve a reserve replacement ratio of over 150% every year, and it has done so for 24 years, culminating with 2007's ratio of 171%. A reserve replacement target above 100% means the company grows its holdings no matter how much production increases; having 48% of its reserves in the Anadarko Basin, which, with over 100 Tcf in natural gas reserves, is one of the largest basins in the country, increases the chances of future exploratory success. At the end of 2007, Unit's average reserve life (reserves over production) was around 9 years; this may seem short, but if the firm continues to imitate its past success at keeping reserve replacement above 150%, reserve life will continue to grow.
Whether it’s because of the desire for energy independence, the rising price of oil, or fears of climate change, people are attracted to the search for alternatives to petroleum. Environmentalists have been calling for a shift to renewable energy for years, and though the river of change is running slow, it is running deep. The Energy Independence and Security Act of 2007 is the first step towards a grander series of changes. By forcing automakers to achieve 35 mpg by 2020 and setting a Renewable Fuel Standard of 36 billion gallons of biofuels in 2022, the Act has potential to get the ball rolling to greatly reduce American dependence on hydrocarbons - and environmentalists, who have deemed climate change to be "Our Generation’s Defining Moral Challenge", will continue to push for greater change. Already, 26 states across the country have adopted Renewable Energy Standards to increase the share of renewables in their energy mixes, while both Democratic candidates for President have pledged to reduce carbon emissions by 80% below 1990 levels by 2050. While the Republican candidate isn't so tough on climate action, he still supports a strong cap-and-trade system. In emerging markets like China and India, the drive for economic growth supersedes environmental concerns, but since Unit operates only in the U.S., a changing American environmental and energy paradigm will be disastrous to Unit's business without the development of some effective carbon sequestration technology.
There are scores of oil and gas companies operating drilling, exploration, and transportation businesses in the U.S., many of which are onshore. A few of Unit's main competitors include: