2017 SUMMARY ANNUAL REPORT

Transcription

1 2017 SUMMARY ANNUAL REPORT ENERGEN CORPORATION 605 Richard Arrington Jr. Blvd. N. Birmingham, Alabama

2 CORPORATE PROFILE Energen Corporation is an independent oil and gas exploration and production company operating in the Permian Basin of west Texas and southeast New Mexico. The company is focused on bringing forward the value of its high-quality asset base by drilling and developing multiple horizontal shale formations in the Delaware and Midland basins, further reducing costs and increasing operating efficiencies, and maintaining a strong balance sheet that supports growth, capital flexibility, and value creation. Energen s proved reserves increased 40 percent in 2017 to 444 million barrels of oil equivalents (BOE), and the company has net undeveloped resource potential at yearend 2017 of approximately 2.7 billion BOE in conjunction with over 4,000 net potential drilling locations. More than 60 percent of Energen s 400 employees work in the company s Midland, Texas, office. Corporate headquarters are in Birmingham, Alabama. PROVED RESERVES YEAR-END 2017 (MMBOE) Midland Basin 294 Delaware Basin 108 Platform/Other 42 TOTAL 444 ABOUT THE COVER The majority of the company s wells are being drilled in multi-zone patterns and completed in batches at original reservoir pressure utilizing the Generation 3 frac design. Here in the northern Midland Basin, Energen is targeting five zones for development. Forward-Looking Statements All statements, other than statements of historical fact, appearing in this summary report constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of These forward-looking statements include, among other things, statements about our expectations, beliefs, intentions or business strategies for the future, statements concerning our outlook with regard to the timing and amount of future production of oil, natural gas liquids and natural gas, price realizations, the nature and timing of capital expenditures for exploration and development, plans for funding operations and drilling program capital expenditures, the timing and success of specific projects, operating costs and other expenses, proved oil and natural gas reserves, liquidity and capital resources, outcomes and effects of litigation, claims and disputes and derivative activities. Forward-looking statements may include words such as anticipate, believe, could, estimate, expect, forecast, foresee, intend, may, plan, potential, predict, project, seek, will, or other words or expressions concerning matters that are not historical facts. These statements involve certain risks and uncertainties that may cause actual results to differ materially from expectations as of the date of this document. Except as otherwise disclosed, forward-looking statements do not reflect the impact of possible or pending acquisitions, investments, divestitures or restructurings. The absence of errors in input data, calculations and formulas used in estimates, assumptions and forecasts cannot be guaranteed. We base our forward-looking statements on information currently available to us, and we undertake no obligation to correct or update these statements whether as a result of new information, future events or otherwise. Additional information regarding our forward-looking statements and related risks and uncertainties that could affect future results of Energen, can be found in the Company s periodic reports filed with the Securities and Exchange Commission. Oil and Gas Quantities: Cautionary Statement The SEC permits oil and gas companies to disclose in SEC filings only proved, probable and possible reserves that meet the SEC s definitions for such terms, and price and cost sensitivities for such reserves, and prohibits disclosure of resources that do not constitute such reserves. Outside of SEC filings, we use the terms estimated ultimate recovery or EUR, reserve or resource potential, contingent resources and other descriptions of volumes of non-proved reserves or resources potentially recoverable through additional drilling or recovery techniques. These estimates are inherently more speculative than estimates of proved reserves and are subject to substantially greater risk of actually being realized. We have not risked EUR estimates, potential drilling locations, and resource potential estimates. Actual locations drilled and quantities that may be ultimately recovered may differ substantially from estimates. We make no commitment to drill all of the drilling locations that have been attributed these quantities. Factors affecting ultimate recovery include the scope of our ongoing drilling program, which will be directly affected by the availability of capital, drilling, and production costs, availability of drilling and completion services and equipment, drilling results, lease expirations, regulatory approvals, and geological and mechanical factors. Estimates of unproved reserves, type/decline curves, per-well EUR, and resource potential may change significantly as development of our oil and gas assets provides additional data. Additionally, initial production rates are subject to decline over time and should not be regarded as reflective of sustained production levels.

3 TO OUR SHAREHOLDERS 2017 was a breakout year for Energen highlighted by outstanding execution, growth, and financial strength. We not only delivered on our substantial drilling and development plans, we also exceeded expectations for oil and total production and further improved key operating metrics such as lease operating expense (LOE) and net salaries and general and administrative expenses (SG&A) on a per-unit basis. Our 2017 drilling and development success exceeded our expectations in many ways, most notably in the results of our Generation 3 frac designs for the Delaware and Midland basins. These completions utilized more sand, shorter frac stage spacing, and tighter clusters than did previous designs. Energen resumed an active drilling and completion cadence in 2017 following a year of limited activity due to low oil prices. We jump-started 2017 by bringing into the year some 60 wells that had been drilled but were still uncompleted; together with new drilling, we ultimately placed on production 102 net horizontal wells. All of them were completed with our Gen 3 frac designs. Our well-executed, enhanced activity level along with superior performance from our Gen 3 completions drove a 39 percent increase in production year-over-year as well as a 34 percent increase in oil production. An increase in drilling and development in the Delaware Basin helped drive a 150 percent increase in production in that basin, which is home to the highest returning assets in our portfolio. At the same time, we continued to improve our cost structure to be even more competitive with industry peers. Per-unit LOE (including marketing and transportation costs) declined 16 percent year-over-year, while per-unit net SG&A decreased 29 percent. Note: Except for proved reserves, prior period data exclude asset sales. Complete 2017 financials can be found in Energen s Form 10-K filed with the Securities and Exchange Commission and available at

4 PROVED RESERVES (MMBOE) PRODUCTION (MBOEPD) : An Execution Success Story The primary horizontal well targets of our $902 million drilling and development program in 2017 were the Wolfcamp A and B zones across our entire Permian Basin footprint as well the Jo Mill, Middle Spraberry and Lower Spraberry zones in the northern Midland Basin. More than 65 percent of the wells placed on production in 2017 were multi-zone pattern wells completed in batches at original reservoir pressure. Our largest patterns are in the northern Midland Basin, where we are targeting five zones at the same time. We believe our superior performance in 2017 demonstrates that using this approach in many of the Permian Basin shale plays allows each well to perform to stand-alone well type curves and maximizes the productivity of the reservoir. This is in contrast to offset pattern well development wherein the reservoir pressure drops as the original well produces thus impairing the productivity of offset wells drilled at a later time. Due to the success of our 2017 drilling and development program, we generated excellent internal rates of return by either increasing estimated ultimate recoveries (EUR) and/or by accelerating production. In the Delaware Basin, for example, the EUR for a 10,000-foot lateral length well in the Wolfcamp A and B now stands at 2.2 million barrels of oil equivalent (MMBOE), with oil recoveries alone of 1.3 million barrels. Development and Operational Focus Support Increased Reserves and Inventory Our year-end total proved reserves increased more than 40 percent to 444 MMBOE. Reserve additions of MMBOE replaced production by approximately 415 percent and reflected the increased activity levels in 2017 as well as the success of our Gen 3 frac design in our horizontal drilling program. Proved reserves in the Delaware Basin alone rose 177 percent. The pre-tax value of our proved developed producing reserves increased from $1.1 billion at the end of 2016 to $2.7 billion at year-end Meanwhile, Energen estimates that its net undeveloped resource potential at year-end 2017 is 2.7 billion BOE supported by an inventory of more than 4,000 unrisked potential drilling locations. This inventory was enhanced by our bolt-on acquisition program and the identification of additional drilling opportunities in other Delaware Basin zones. 2

5 Continued Execution to Drive Success In 2018, we estimate that we will invest $1.1 billion to $1.3 billion of capital for drilling and development activities. Our plans include running an average of 9 drilling rigs and 4.5 frac crews to drill approximately 120 net horizontal wells and complete 113 net horizontal wells. Energen s production in 2018 is estimated to range from thousand barrels of oil equivalent per day (MBOEPD), reflecting a 25 percent increase from 2017 at midpoint. We estimate that production will exceed 100 MBOEPD by year-end 2018 for the first time in company history. Looking ahead, Energen s management believes the quality of its deep inventory in the Permian Basin supports a 3-year compound annual production growth rate of more than 28 percent a year ( ) that is supported by capital investment of $1.4-$1.6 billion in 2019 and $1.6-$1.8 billion in Our 3-year outlook sees production growing to more than 160 MBOEPD in Throughout this period, we plan to maintain a very strong balance sheet that supports growth, capital flexibility, and value creation. Commitment to Creating Long-term Value Unchanged Energen has begun 2018 with a portfolio of high quality, oil-focused assets in the Delaware and Midland basins. We plan to deliver strong returns and significant production growth with the continued implementation of our Generation 3 frac designs. At the same, we remain focused on cost reductions and operating efficiencies and financial strength and flexibility. As we look out over the next three years, Energen is well-positioned to continue delivering strong results and creating shareholder value by leveraging the superior economics of our Permian Basin assets. Sincerely, James T. McManus, II Chairman and Chief Executive Officer March 16,

6 BOARD OF DIRECTORS Jonathan Z. Cohen (47) C Chief Executive Officer, Osprey Energy Acquisition Corp., New York, NY, 2018* Kenneth W. Dewey (64) A,C Co-founder and board member, Caymus Capital Partners, LLC, Key Largo, FL, 2007 Laurence M. Downes (60) A,C Chairman and CEO, New Jersey Resources Corporation, Princeton Junction, NJ, 2017 M. James Gorrie (55) A,C Chief Executive Officer, Brasfield & Gorrie, LLC, Birmingham, AL, 2014 Jay Grinney (67) B,C Retired President and CEO, Encompass Health Corporation, Birmingham, AL, 2012 William G. Hargett (68) A,B Retired Chairman, President and CEO, Houston Exploration Company, Florence, AL, 2015 Frances Powell Hawes (63) A,B Independent Financial Consultant, Houston, TX, 2013 Vincent J. Intrieri (61) A President and CEO, VDA Capital Management LLC, Miami, FL, 2018 Alan A. Kleier (64) A,B Retired Vice President, Chevron s Mid-Continent Business Unit, Redington Shores, FL, 2015 Lori A. Lancaster (48) A Former E&P Investment Banker, New York, NY, 2017 James T. McManus, II (59) Chairman and CEO, Energen and all subsidiaries, 2006 Committee assignments: A. Audit Committee B. Governance and Nominations Committee C. Compensation Committee OFFICERS Energen Corporation James T. McManus, II (59) Chairman and Chief Executive Officer, Energen and all subsidiaries, 1986* Cynthia T. Dillard (54) Vice President Administration, Energen and all subsidiaries, 1988 Edwin D. Lynn Lovelady, II (54) Vice President Information Technology, Energen and all subsidiaries, 1999 Russell E. Lynch, Jr. (44) Vice President and Controller, Energen and all subsidiaries, 2001 John K. Molen (65) Vice President, General Counsel, and Secretary, Energen and all subsidiaries, 2017 Charles W. Porter, Jr. (53) Vice President, Chief Financial Officer, and Treasurer, Energen and all subsidiaries, 1989 Julie S. Ryland (59) Vice President Investor Relations, 1985 Energen Resources Corporation John S. Richardson (60) President and Chief Operating Officer, 1985* Michael F. Allison (63) Vice President Reservoir Engineering, 2006 David W. Bolton (49) Vice President - Land, 2014 David A. Godsey (63) Senior Vice President Exploration and Geology, 2012 Joe D. Niederhofer (58) Vice President Permian Basin Operations, 1986 Davis E. Richards (62) Senior Vice President Operations, 2013 * Year initially began service to the company 4

7 SHAREHOLDER INFORMATION Corporate Headquarters Energen Corporation 605 Richard Arrington Jr. Blvd. N. Birmingham, AL Investor Hotline Common Stock Listing New York Stock Exchange: EGN Annual Meeting May 3, 2018, at 8:30 a.m. CDT Corporate Headquarters Conference Center Forms 10-K and 10-Q Energen s annual and quarterly reports to the Securities and Exchange Commission are available from the Energen Investor Relations Department at Corporate Headquarters. Investor Relations Analysts, investment professionals, and shareholders should direct their inquiries to the Energen Investor Relations Department at Corporate Headquarters. Vice President Investor Relations: Julie S. Ryland julie.ryland@energen.com Director Investor Relations: Teresa B. Odom teresa.odom@energen.com Investor Relations Coordinator: Michelle A. Speed or michelle.speed@energen.com Energen on the Web Corporate information, including news releases, may be accessed at Transfer Agent and Registrar Computershare Trust Company, N.A. P.O. Box Louisville, KY URL: Dedicated Toll Free Number: An automated voice response system is available around the clock. Customer service representatives are available to assist shareholders Monday through Friday, 8 a.m. to 8 p.m. ET. TDD/TTY for the Hearing Impaired: Direct Stock Purchase and Reinvestment Plan Through Computershare Trust Company, N.A., Energen offers its shareholders and first-time investors a convenient and economical method of buying and selling Energen common stock. A prospectus and application are available by calling or Outside of the U.S. and Canada, Enrollment material also is available on the Web at Independent Auditors PricewaterhouseCoopers LLP Colonial Brookwood Center 569 Brookwood Village, Suite 851 Birmingham, AL Legal Counsel Bradley Arant Boult Cummings, LLP One Federal Place 1819 Fifth Avenue North Birmingham, AL 35203

8 2017 SUMMARY ANNUAL REPORT ENERGEN CORPORATION 605 Richard Arrington Jr. Blvd. N. Birmingham, Alabama