Q3 2019 Earnings Call
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I'd like to hand, the call over to Larry Busnardo. Please go ahead Sir.
Good morning, Thank you for joining us today for the high point resources third quarter 2019 earnings call.
With me today are Scot Woodall, Chief Executive Officer, Tom Gallagher, Chief operating Officer, and Bill Crawford Chief Financial Officer.
Before we begin please review the disclosure statements provided within the forward looking statements of our earnings release.
You can find on our web site at H.P.R.E.S. Dot Com you can also find in review these disclosures as near referenced in our other filings with the FCC or in our 10-Q, which we felt yesterday afternoon.
In addition, we'll be referencing non-GAAP financial measures during our call any reconciliation to GAAP financial statements can be found at the end of our priest press release.
We've also posted an updated corporate presentation to the Investor relations portion of our web site.
We will be referencing on today's call with that I'll turn the call over to Scott for prepared comments.
Good morning, and thank you for joining us today to discuss our very positive third quarter financial and operational results.
Which reflects our strong operational execution and has its on track to meet our full year guidance.
I will provide some overview comments before handing the call over to Bill and Paul for the financial and operational update.
As we've discussed previously our primary objective for the first half of the year, what to execute and complete our optimization program in the hurford field to demonstrate the quality and economic value at the asset.
We have delivered on this goal as recent hurford well results have shown a substantial and continuous improvement and well productivity and performance compared to early program wells.
Today, we provide further Herbert result that show continued improved well performance and builds upon the positive update we provided in early October .
We continue to assess further performance opportunities.
Spacing and increased completion intensity.
This strong performance allowed us to achieve a company record of her for production averaged over 10000 Boe per day during the third quarter, which is a robust increased 41% over the second quarter.
Specifically to continue production performance of the section 16 East wells, coupled with continued reduction in well cost provide a strong future outlook for the economic development of the vast hurford acreage position.
For the third quarter, we achieved production that was at the high end of the guidance range and oil volumes exceeded the high end the guidance.
When combined with a meaningful improvement in cash cost, we generate EBITDAX of 94 million, which was 30% greater than the second quarter and 7% higher than consensus estimates.
We achieved another primary objective by becoming cash flow positive during the quarter. This will continue in the fourth quarter and we will use.
The proceeds to reduce borrowing on our credit facility.
I commend our entire team for an excellent job in helping us reach our economic and operational objectives.
In summary, we continue to meet the financial and operational objectives, we set for the year, we advanced our learnings from Harford, which is delivering sustained improvement and well productivity and performance.
We believe high point to be a compelling value proposition based on strong performance of improved completions at Hartford, and northeast Wattenberg, our fast rule positioning and a solid balance sheet.
I'll now turn the call that were to build to discuss our financial.
Thank you Scott and good morning at all.
Our strong results for the third quarter generally exceeded consensus cell site estimates and were driven by strong quarter over quarter growth in production and a meaningful decrease in cash costs.
Production volumes of 3.4, MMP, we were at the high end of our guidance range, despite being negatively impact impacted by depressed processing yields primary primarily related to third party facilities in their hurford field as well as basin wide ethane rejection.
We estimated that impacted our quarterly volumes by approximately 100000 b.
We expect NGL infrastructure in the yields to improve in the fourth quarter and 2020, but expect to NGL prices will remain weaker than historical levels.
Our first half activity drove strong third quarter growth as total production grew 20% sequentially and 24% year over year. We also delivered very strong growth in oil volumes that increased 25% over the second quarter and 27% year over year.
We remain focused on delivering efficiencies as we had a notable reduction per unit cash.
Give me operating costs of 29% and 30% on a sequential and year over year basis, respectively.
This combination of strong growth in production, particularly in oil and a meaningful reduction in controllable cash costs underpinned an increase in our third quarter EBITDAX to $94 million.
Our only minor challenge to our Q3 EBITDAX was NGL pricing that averaged approximately 10% of W. tie. This was driven by unprecedented weakness in broader markets that resulted in a 76% decline compared to the third quarter of 2018.
The ethane prices were weak and transportation and fractionation costs or high from the Rocky for example, our Mount Bellevue back it was down 15% from Q2 with ethane posted at 17 cents and Conway P mix posting at seven cents.
Each of these before taking into account TNF b.
Touching on the balance sheet liquidity, we completed our semiannual borrowing base reviewed during the third quarter and our borrowing base of 500 million remained unchanged. This was achieved despite lower price deck bank price deck being used by the lenders highlighting the underlying value of our reserves.
We appreciate our long term relationship with our lenders and their support.
On the hedging front, we continue to execute on our strategy and our 50% to 70% hedge on oil volumes for next year as we protect anticipated cash flow at greater than $59 per barrel WT.
You can find our current hedge position in the press release or 10-Q.
Now on to fourth quarter guidance.
We anticipate total production to be 3.6 to 3.7, and then we and oil volumes to be approximately 2.3 million barrels.
This represents an oil waiting of about 63%.
We remain capital disciplined and capital expenditures will be in the range of $30 million to $40 million for the fourth quarter.
By executing on our business plan and achieving our fourth quarter guidance, we will hit all of our full year guidance metrics that we laid out to start the year.
With that I'll turn the call over to Paul.
Thank you Bill and good morning.
First I'd like to congratulate the commend our field that office personnel for a great quarter delivering on our operating objectives in a safe manner and driving performance improvement throughout our operations. We're very pleased with our operational execution performance in the third quarter, which have us on track to meet our full year objectives.
Perfect well results in section 16, and 17 DS use are showing dramatic improvement our her for development optimization project is highlighting performance improvement opportunities.
And the high volume completion to us in northeast Wattenberg continue to outperform their offices.
We have driven our aegis incident rates down significantly versus 2018 rates are low is down materially on an absolute and lifting cost basis, and our 2019 Gen. Two completion designs demonstrated reduced well costs and increased yours.
Now moving on to operations.
At Herbert total production sales volumes in the third quarter set of field record averaging over 10000 barrels a day.
Barrels equivalent a day at a high oil kind of 80%.
During the third quarter, we spud six gross wells and placed 16 gross wells on control books.
We're operating a drilling rig and what we referred to as the Fox Creek area immediately north of our initial ROE of development enterprise.
We will resume completions in January with designed developed based on the hurdle performance data.
Our Herbert optimization program execution concluded in the third quarter.
Since our October 7th update we continue to see substantial and sustained increases in well productivity, which are both exceeding all previous for DS you performance and exhibiting significantly shallower decline profiles.
For specifics I would now point you didn't fit our November corporate presentation, which we posted to our website. This morning.
Turning to slide 14, you can see a snapshot of the dramatic improvement in well performance, we're seeing on a comparative basis for the two sets of wells and section 16.
The Green line is the seven wells located on the E. Signlive section 16.
Is important to note that these wells are drilled in the density at 16 wells per deal as you and completed with our Gen. Two completion.
The wells are exhibiting the daily production rate approximately a 120% greater than the previously completed wells as shown by the separation of the Green line of section 16 Gen. Two completions over the Blue line of all previous Gen. One completions.
This outperformance continues to increase as section 16 wells are displaying a shallowing decline trajectory as compared to previous wells.
Recall from our October update these wells were producing 75% higher barrels oil equivalent per day per well then the early program wells.
Now moving onto the Western sided section 16. This includes four wells were drilled at a density of eight wells per diem skewed and completed with our Gen. Three completion design.
As shown by the Orange line in section 14, the wells have begun to show strong performance at for initial curtailment associated with the startup of new processing plant.
After 85 days of production average well barrels oil equivalent per day is currently 55% greater than the previously completed wells and continues to increase as water credits declined. This is a very positive indication of performance.
Our section 17 DS you includes 12 wells placed on flow back in July drilled the density 12 wells for DSW and completed with even greater fluid of up to 50 52 barrels per lateral foot.
These wells are ramping up more slowly given the high volumes of fluid uses completion and our controlled flowback methodology.
We are highly encouraged by the early production profile. If this DS view based on well spacing in early performance.
We will provide further updates on these wells as we gain more production it.
Slide 15 in presentation is a good example, our controlled flowback methodology.
As you can see the wells performed very similarly for the initial two to three months before you begin to see separation and performance.
The section 16 wells continue to outperform early program wells and have achieved average cumulative production of approximately 40000 barrels oil per well, which is over 30% greater than the previously completed wells.
Overall these very strong results from our initial optimization program at her bolster our excitement future development program.
We also continue to see improvements in our drilling execution as we drive to maximize well rate of return.
This includes tangible efficiencies, which driven expectations of future well costs to $4.9 billion bridge into Srl with a high fluid intensity completion.
Down from 5.1 million.
Four wells drilled in the first half the year.
We continue to develop opportunities to drive costs lower.
Now turning to our legacy northeast Wattenberg asset.
For the third quarter 2019, we produced an average of 26845 barrels oil equivalent per day.
But nine gross wells at least five gross X RL and for grows as our wells on flow back.
Recent activity as highlighted by seven wells in DS you 561 35.
Which began controlled flowback in September and October .
All these wells continue to ramp to peak production.
Our northeast Wattenberg drilling program is continuing to lead the way in terms of innovation by recently executing our two longest laterals and the company's history.
The drilling team executed the wells and under some and a half days spud to spud with laterals, averaging 12975 feet in late and delivered at $84 per lateral foot, which is among the strongest cost performance realized in 2019.
The success of these wells will allow the company to continue to expand our well designs increased the return of individual wells and expand the profitability of development throughout the assets.
To summarize during the third quarter, we met all key operational objectives, which in turn drove our financial performance continued section 16 southeast performance, coupled with ramping production from section 16, southwest and section 17, reinforce and refine our plans for future economic develop.
Performance of per.
We look forward to providing future updates and delivering on our full year 2019, guys.
Operator, we're now ready for questions.
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Our first question comes from Wells Fitzpatrick of Suntrust. Your line is open.
Hey, good morning.
I want to wells.
No.
I know the NGL and gas pricing is a basin wide issue I mean, it as we look towards relief on that or are we really waiting on projects and white cliffs and are those still supposed to be in service by year end and then I guess Cheyenne in the first half of next year.
Yes, that's the way we're seeing it well this is bill yes.
I think the tight infrastructure.
Caused walk up prices to be so weak on the TNF and having to go to Conway just impacted pricing.
Yields are starting to improve in Q4, we expected to be better in 2020, obviously ethane is pricing that 20 cents and I think than the processors will be able to go through their normal rejection math.
Okay, Okay, perfect that that makes sense.
And then.
You know as you guys think to kind of 2020 plans, let's see in in the presentation. You have you know you have one and half rigs worth the permits is that.
It should we look at that it's sort of a gentle guide are you guys just trying to illustrate the the margin of safety you have in the basin.
I think thats, just kind of Directionally that we probably think that next year is something like a one or two rig program, but yet there may well, we've got all the flexibility in the world. When you think about everything being HBP and really minimum commitment of any other fashion. So we're still early in the planning process and and we'll keep kind of working.
Through it so we kind of chose one in half as an illustrative example, just to talk about the permits in the regulatory environment.
Okay perfect makes total sense, thanks a lot.
Our next question comes from Jason Wangler of Imperial Capital. Your line is open.
If you're telephones media please UN mute.
Thanks, sorry about that.
Good morning.
Good morning to as far as the 2020 program was just curious.
You just mentioned with wells in one or two rig program, how do you kind of see that breaking down between hurford and like its position as you kind of.
Okay.
It's going to be in more heavily weighted towards hurford with the well results that were getting that I referred so.
You know the way, we see the EU ours and the cost in the oil cut.
Would make you want to spend more money in Hartford than in the legacy positions, so probably a stronger waiting up there.
Okay, and I think you've mentioned this to me before but where were you guys kind of started drilling.
Yes, it would be kind of stay close to the infrastructure in that area would that be correct or would you guys looking to step out any further in hurford as you look at next year.
No we're going to stay in close to the infrastructure. So we did that east to West Roe.
The wells that we've been talking about in 16, and 17 and the way we kind of looked at 20 is just going just north of there and drilling two mile laterals.
Kind on top of 17 and going from west to East So pretty simple plan.
Great I appreciate ill turn it back.
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Our next question comes from Derrick Whitfield of Stifel. Your line is open.
Thanks, Good morning on congrats on a strong ops update.
Oh, Thanks Derek.
Perhaps for Scott or Paul as they build on wells earlier question do you have a view on what your maintenance capital would be to hold Q4, 19 production flat, assuming current Q3 capital efficiency levels.
You know we've been talking something.
Derek in the range of $250 million to $300 million.
Great and then.
Perhaps as my follow up could you comment on how the section 17 wells performing within your October presentation. The cumulative total for the volume was trending about 30% above the section 16 East wells is that still the case today and are you seeing evidence of oil breakout.
It is Eric this fall.
As we look at 17 relative to 16, we put considerably bigger completions on those things we've talked about that 52 barrels up to 52 barrels a foot and so they have more water coming back under that controlled flowback methodology. So those wells continue to clean up oil cut continues to.
Through and we're seeing solid performance in productivity out of those wells and continuing to ramp even even at the current time timeframe.
Very helpful. Thanks for your time guys.
There are no further questions like to turn the call back over to Larry Busnardo for any closing remarks.
Thank you again for joining us today in closing I would like to reiterate our message that the strong execution. We have delivered this year.
It has firmly positioned us on track to meet our operational financial objectives, we set out earlier this year.
Forward to providing further operational updates to the investment community and please feel free to contact us. If you have any additional questions with respect to the quarter. Thanks.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.