Q3 2019 Earnings Call
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I would now like to hand, the conference over to your speaker today Mr., John Clean director of IR. Sir. Please go ahead.
Thank you marginal and good morning, everyone and welcome to todays conference call to review Rochelle resources third quarter 2019, operating and financial performance. After a couple of the forward looking statements day, French our president and Chief Executive Officer will provide opening comments and key highlights for the quarter. Following day, providing additional details in our operational and financial results will be.
John Freeman Senior Vice President of operations, Brian Irrs, and senior Vice President of geology, and Craig I wouldn't Chief Financial Officer, who will then have a question and answer session and they will close the call with some brief comments also joining us today on calls David Moore, Vice President of commercial one reserves.
I like to remind you the todays call includes forward looking statements in certain non-GAAP financial measures. We believe our expectations are based on reasonable assumptions. However, a number of factors could cause results to differ materially from what we discussed.
Kurt you to read or food or full disclosure on forward looking statements in resi SEC filings in the GAAP. Reconciliations are included in yesterday's earnings release with that I will now turn the call over to Dave.
Vicki and thank you everyone for attending Rochelle's third quarter 2019 earnings call Tonight.
I can only the comments in last nights earnings release, we're pleased with the execution on our third quarter, which was highlighted by a resumption of drilling activity kind of returns production growth.
We were one of them early view these operational results in September we built upon that performance with a strong finish to the quarter total September production was over 23000 Boe per day.
During that month, we achieved a couple of your record for total daily production as we work through a completion backlog the body nice momentum as we finished the year.
We're very active on technical efforts for both our northern and southern Delaware assets.
I will talk more about in a few moments.
On the financial brought we choose a meaningful enhancement to our liquidity profile, Greg will give those details in the financial review.
Moving to the update the quarter 20 or team was characterized by returning to volume growth.
Production increase was driven by strong pay some completions in the northern Delaware supplemented by people in southern Delaware. We also returned several simultaneous operations or sign offs shut in wells in the north Dr. production and expanded gathering capacity and loving county at the called 26.
Turning to our plans for the remainder of the year. We recently elected to continue a one rig drilling program through the end of year by adding up to six drilling targets.
Those are currently planned for second bone spring fan formation himself and will be completed until early 2020.
I think this is a prudent stuff that allows us to at end of year drilled uncompleted inventory did their broad running and 2020.
Good thing or we're going to makes practical sense operationally for crew continuity. We're opportunistically taking advantage of following total well costs, which have come down high single digits from the first half between 19 alone.
These new wells are not fully offset by cost reductions compared to our previous plan. So we made the necessary small adjustments to our full year guidance.
You also noticed real modestly lower in full year, adjusted EBITDAX, driven by the challenging markets for gas and natural gas liquids Orange, yes.
Third quarter NGL pricing was over 70% lower than this time last year and I'm sure everyone is familiar with the low or negative gas price situation in the Permian.
Before turning the call over to Brian Freeland I'll provide a brief update our planning around 2020.
We're continuing to work through finer points of our plan, but I can preview. The early work indicates a more measured a continuous capital plan throughout the year targeting clashed Warner <unk> cash flow neutrality about.
I look forward to providing more formal update and your mid December similar to last year's tiny.
With that I'll now turn the call over to Brian Freeman review of our operational performance for the third quarter.
Thank you Dave the operations team was very active in the third quarter, mostly from a completion standpoint, as we work through our DUC backlog. Although you completed 12 wells in the quarter comprised of nine wells in the northern Delaware area, and three wells and our southern Delaware.
Area, we resumed drilling operations around halfway through the quarter and plan to continue drilling through the end of the year.
In order to rebuild her DUC inventory for a spring loaded start 2020.
Overall, I'm very pleased with the restart ever drilling activity in a quarter, where first wells exhibiting similar efficiencies as those drilled just before paulding or work.
As Dave mentioned the returned to production growth.
In the quarter, which was a function of replacing or I'm, sorry, placing roughly a dozen wells online mostly in the north we provided results in our press release, where several of these wells.
The most impressive said being the cow 26, three well pad with average per well IP Thirtys of 1400 70 billion per day.
Producing from the lower Wolfcamp a formation.
We also placed several wells online any second bone spring formation with impressive initial results.
We've been impressed with the second bone Springs, sand formation, especially with extended well results.
As noted the I P 180, we provided.
On disease in T 20, be 006, well, which only declined 14% from IP 30 levels.
Based on this excess we decided to target this formation for the additional drilling.
We plan in the fourth quarter that Dave mentioned in his comments.
And our southern Delaware area, we brought on line three wells in the quarter.
Completing it for well program in India section 14 in 16 near the southern border of our acreage.
The results of these wells along with extended results there'll be new Alesco 12, 10, two mile lateral is included in our release.
Overall, we continue to be encouraged by the results were seeing it could and are continuing our technical review around all aspects of optimizing future results in this area.
It's Brian errors, we'll talk more about and a few moments.
Moving to current operations. Our completion crew is wrapping up a two well pad and then more targeting the Wolfcamp B formation before moving to completion crew down to the south to complete a two mile lateral.
The drilling program is focused on the additional wells, we mentioned earlier.
Is expected to be the case read the remainder of the year.
The other than DNC activities, our field personnel had been active and ensuring an adequate power supply in both our operating areas. These efforts resulted in additional lease operating expense in the quarter.
Mostly due to the need to rent natural gas generators, which we hope to reduce in the future.
He area upgrades or installation of commercial power.
In summary, you can see we've had a very productive third quarter and now have a newly revised drilling plan they'll keep us busy through the end of the year.
With that I'll now turn the call over to Brian Irrs for a review of the ongoing technical work well, thanks, Brian I'm going to provide a brief update on the work. We're currently focused on across our operating areas. As most of you are aware Geo science has always been a central Foundation Rosales model and the key goal of ours is.
To stay on top of the latest advancements to ensure we're developing or assets as effectively and efficiently as we can that theme is alive and well and I'm pleased to share some.
Did that get additional details those efforts in the so we've learned a great deal about this assets since we first began.
Development around the middle of last year compared to the north to south of shallower has somewhat lower pore pressure and is slightly less mature hits, a lower ratio gas oil. We've also confirmed that the south is highly naturally fractured much more so than from the north.
This is generally very positive and as a trade associated with many world class source rocks, but it also presents a challenge with regards to where we land and how we complete or Frac a well.
Very quick to implement changes into our operational approach from new data.
And we've experienced general improvement in our results with each new traunch you're drilling.
Our latest work involves the building of a three d. Geo mechanical model using sophisticated software three D seismic in a wide array of subsurface and drilling data the goals of guests are threefold, one establish an ideal landing target to develop and in junior.
Year to approach to completions based upon walk tight and three model.
Great new Jerry's to determine optimal well spacing and to help lesson or avoid future parent child impact.
Along with our models, we've engaged a major oil field service from to conduct a completion study and potentially implement the result into our upcoming coming work.
In the north.
We use the same tools to determine optimal spacing Atlanta landing targets, but with a short term focus now on the Wolfcamp b.
We see a tremendous potential in this target based on our old historical results, but also because of some recent offset wells.
In general given our footprint of the north it's imperative that we have the well thought out approach to our plan to avoid adverse parent child impact and we're confident the work we're doing will go a long way to afford us.
We look forward to.
Providing results around our recent will be wells once we've had a chance to place. These wells online in the very near future with that I'll turn the call over to Craig for a financial review the quarter.
Thank you Brian I'm pleased to report on our strong financial results for the quarter third quarter revenues were 76.3 million in production totaled 20576 barrels of oil equivalent per day comprised of 74% crude oil, 14% NGL and 12% natural gas.
For the third quarter of 2019, Rosedale reported net income of 20.9 million or 88 cents per diluted share.
Which included at 41.9 million noncash pretax gain on commodity derivative instruments.
We generated adjusted EBITDAX of 49.1 million for the third quarter decreased 13% compare to the third quarter 2018, driven primarily by lower commodity prices and increased lease operating expenses.
Our average realized price oil price for the second quarter is $52 or 90 cents per barrel and total equivalent realized price was $40.28 per be ilene, both on an unhedged basis.
For natural gas the current transportation constraints experienced in the Permian Basin continued impact us on the pricing front, resulting in a third quarter realized natural gas price of 27 cents per Mcf.
This price was significantly impacted by Wahaha any Permian pricing points and is inclusive of processing costs in some gathering costs.
NGL pricing continued to be challenged during the quarter with Mont Belvieu prices remaining low.
Which is mainly a function of increased domestic supply and tight export capacity.
Our average realized NGL price for the third quarter was $8 in 10 cents per per barrel, a 71% decrease as compared to the third quarter of 2018.
We have a very strong hedge book protecting our downside commodity risk, while also providing exposure to upside price movements.
The majority of fourth quarter 2019 expected oil production hedged in the high Fiftys per barrel.
For both 2020 and 2021, we're hedged at approximately 80% of production using the midpoint of our 2019 production guidance with both years hedge that floor levels of approximately $60 per barrel.
All of these positions provide us with exposure to upside price movements at the end of the quarter, our commodity hedge book value was $62 million net.
Turning to cost total cash operating expenses were 23.8 million or 12 56 per BLE, which consisted of 12.2 million in direct lease operating expense or $6.45 per will be Lee.
7.2 million in cash DNA expense or 378 previously.
900000 gathering and transportation expense were 47 cents from B., Riley and 3.5 million in production taxes or $1.86 per Boe.
As Brian alluded to our costs in the quarter were impacted by several items, including unscheduled workover activities in general generator rentals.
Required you to intermittent commercial power availability, we're working to reduce these costs going forward by pursuing various commercial power solutions, along with operating plans, requiring fewer and less expensive workover activities.
During the quarter, we close the fall Redetermination of our borrowing base under our revolving credit facility, which resulted in an increase to our borrowing base moving from 300 million due its current size of 340 million.
Total liquidity as of September 30 was $74 million made up of cash on hand in availability under the revolving credit facility.
And as we head into 2020, we feel very comfortable with our liquidity levels and expect to close out 2019 with strong operating cash flow and our moderate level of capital investment.
Lastly, I'd like to provide a brief update and potential sale of our water midstream assets in the northern Delaware area.
As we said earlier in the year the overarching themes for our plan was to look for ways to potentially realize the attractive value for these assets with the right partner at this time in the current market. We believe it right path forward is for Roseville to continue to own and operate these assets and realize the associated cost savings, we will continue to be open to entertaining smart.
Transaction should an opportunity present itself and with that margin when we're ready to take questions.
Thank you Sir.
Reminded to ask a question you will need to press star one on your telephone.
And to your question.
Well pause for a moment compiled luchini roster.
Your first question comes from the line of Neal Dingmann from Suntrust. Your line is open.
Ill.
Yes.
My first question is just around.
Realizing you don't have full 2020 guidance out there.
I'm just wondering given the duck build that you'll have now at the year end.
With that little bit increase you mentioned in Capex, just wondering how can we how should we think about the trajectory as we start 2020 or maybe for the year overall, just what kind of growth we should be thinking it seems like.
That's really get a healthy year and not only earlier, but but throughout some just wanted your thoughts there.
Yes, Dan I would think.
Part of the reason to put those ducs them into Fourq just again this momentum heading to the first part of next year I think I wouldnt as I kind of alluded to with some simple words I think we expect to plan. It's fairly similar in terms of activity certainly continuous through the year. I think we had we had kind of high first quarter high third quarter. So you'll see that spend profile look more moderate.
Throughout the year.
I also think we're going to focus on on certainly being cash flow neutral if not.
If not trying to to improve off that so I think our perspective would be a main live within live within our means probably in any way some will generate some cash and do so with that with a continuous spending profile from a capex standpoint throughout the year.
Okay, Great answer and then just one follow up given you have a strong asset base really developing the southern.
And given.
Kind of what's going out there and environment will continue to challenge and I'm just wondering.
Now when you see opportunities going forward I'm, just wondering I know, maybe this is to black and white, but you'll view yourselves as more clarity a quarter or I mean, I'm just trying to get a sense I guess, maybe just a broad M&A.
Could add on that thanks.
Yes, I think we're obviously opportunistically, we like the assets that were sitting on we like the acreage economy, I think Brian airs talked a little bit about the technical work being done both in the south and honestly in the north to continue to sharpen our pencils on on what our development profile looks like.
I think we are certainly open to continuing to expand our footprint I think we have enough right now to say grace over in terms of volume and side. So you'll see US focus next year really that blend Dolby combinations of north of us out if if there was acreage that made sense for us to pick up we certainly as we've talked about in previous quarters, we're always interested in.
Trying to get to where the two mile laterals is probably in our case the direction. We want to go to so to the extent theres acreage that allows for drilling longer that wouldn't be a focus I don't think we're in a broad based view. This as were needful of something material. So I think we'll focus on the things we haven't especially make sure that we've got the technical edge deliver at its best interest in India.
In terms of the well performance.
Great update thanks, guys.
Your next question comes from the line of Mike.
From Stifel. Your line is open.
Hi, good morning, everybody.
David just a follow up on your 2020 comments.
You want to.
Target pre cash flow neutrality, or better and you're going to go about it was a little more measured pace.
I'm just wondering does that imply you would not go back to the two rig good the full time crew.
At some point next year and if you don't.
Can you talk about.
The efficiencies that you.
And achieving within with it seems like in order to keep a crew.
Busy fulltime need probably two rigs so.
Wondering if you're going to see some officials or if you're worried at all about seeing any efficiency slipped next year if you.
Got it a little slower pace.
So I'll, probably take two parts listen I, probably handed over to Brian as well. The this is.
I guess my view would be will definitely think of drilling continuously so the operational improvements would be we intend to older rigs throughout the year, I think where we where we see needs to supplement we would probably think about bringing in the second rig if necessary, but I think our view would be continuous capital plan throughout the year, one one rig throughout so you'll have similar well.
Profile on I, certainly see advantage, which you're talking to and that is the maintaining crews and Rick continuity allows you to get to a shorter days for the same targets. We've seen tremendous improvements in terms of the number of wells in our well costs going down by holding that's holding that crew with us. So they learn the way we do work learn the way we target for and the way we deliver the wells. So there is.
I certainly would second that I know, Brian anything to add in terms of your thoughts on the plans for next year.
Dave I think you hit it spot on and Mike. Thanks for that question, but the one rig that we have partnered with HMP weird, though.
Efficiencies that we have with one rig.
Two rigs a little much with the budget that we have in the timeframe keeping everything efficient, but the one rig we should be able to stay ahead. Since we have early start with the ducks coming into 2020.
Very good.
And Brian you talked about sort of the things you've learned so far since you started developing the southern Delaware Basin, just wonder if anything litters surprised you it sounds like maybe the natural fracturing or the extent of the nets refreshing might have been a surprise and if so.
Anything that you maybe a little more detail on what you plan to do in terms of drilling or completion design on future wells two or.
To hopefully take advantage of that.
Mike.
It.
Back to that because of where we fell on the deep bump we would have a more fractured.
Wolfcamp and bone spring interval than the trees ranch area to the north or south that was where fang is growing.
And we found out that that's the case the the.
The Wolfcamp a there is an extremely good source rock and we found that it's the most highly fractured.
What fey interval pretty much in that into the play.
And far more so than.
That that than our northern core.
It does have an impact on how we frac wells. It has an impact on how we land wells and we're still learning the secret sauce, if you will.
To effectively complete rock that's that's broken.
How you connect up the fractures.
How you prop those fractures, how many per per stage.
Stage length, and all that is something that is different in rock. That's that's that's that cracked and.
We've come a long way in that in fact, the next well that we're about to complete our state New Alesco 12, 10, H one is going to have a customized frac plan.
Based upon rock types.
Fractures, we're going to complete it differently than wells, we have prior to this and we.
Of course, each tranche of wells Weve drilled and Fracked out here has gotten better I think I think we're going to see a big step up with this next well.
Very good thank you.
Thank you ladies and gentlemen.
And at this time, please press star one.
Sean.
You have a question from line of Stifel. Your line is open.
Yes keep going here.
Maybe to follow up.
Brian .
Looks like that.
So 14, well may have been your best so far in southern Delaware Basin.
You did differently there of what the drilling or completion or is that maybe just a function of the geology being a little different at that location.
Well.
The rocks do vary from north to south and actually from east to West there.
Well is actually not in bought I wouldn't consider to be the sweet spot of deployed to be honest.
But again, what we've done is we have.
Implemented changes in how we complete the wells and also where specifically we land them with each new well, we landed that well and very good rock.
Based upon results are wells, we've drilled prior and we didnt quite frac at the same as we did last ones and it turned out to be I think.
Very very good good well and Brian would you like to have anything to that or no like I said everything we've been learning every well apply and knew we have this latest technology. We have I'm looking very forward to this next well coming up here in the next couple of weeks.
Pretty good and then.
Just wanted to see where the a the build out of the.
The infrastructure stands now and it sounds like you're until and some.
Things differently with compression, maybe if you give a little more detail on that.
Yes, Mike.
Our compression we started out probably last year building that out spreading it out in the north quite well we're up.
Additional capacity.
For their 2020 plan.
The facility build out in the South is complete so we're ready for multi well pads.
There will be no hold up then our SWT system, we have plenty capacity built in there.
Thank you for the question.
Sure and then just the last one any update on.
One point, you're looking at potentially monetizing a portion of the midstream any update there I know the market doesn't fin.
Actually.
Probably to your liking, but just wanted to see if that's still something that you anticipate maybe for 2020.
Hey, Mike This is Craig I mentioned it briefly in the prepared comments.
You know certainly great asset, we're going to hold onto that what we indicated would hold on to that for now just given the market, we're going to realize those cost savings.
In the benefit within our assets in our footprint.
The market has gotten softer just in general, but we're open to the right transaction at the right time, but you know not compelled to have to run out and do something right away or anytime for that matter, so well, so listen but we're not.
Not.
Having that out there and as a strategic goal near term, but we'll continue to see what the market how changes in moves over time.
Great. Thank you.
I'm showing no further questions at this time I would now like to China Conference back to Mr., David mentioned CEO Sir.
Thank you Roger I'd like to thank everyone for joining the call today I Hope we gave everyone. A good sense of our solid execution for the third quarter and a preview of our momentum heading into 2020 Theres a lot to look forward to as we finish up the work of shaping of our plans for 2020, and we'll ever you that plan with everyone in mid December to reiterate our strategy roads, and we're focused on creating shareholder.
Our value through relentless and discipline delivery of the potential or acreage you can expect nothing less from us take care everyone enjoy the rest of your day. This concludes our third quarter earnings call I. Thank you for your interest in Brazil and have a great day.
Ladies and gentlemen, this easy cities conference call. Thank you for participating you may now disconnect.