Q3 2019 Earnings Call
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I'd now like to hand, the conference over to your Speaker today, Mr., Scott Landers Senior director of Finance and Investor Relations. Thank you. Please go ahead Sir.
On the call. This morning, I'm joined by Air Gregory President and Chief Executive Officer, Brent The mute Executive Vice President and Chief Financial Officer, and Dean suddenly senior Vice President of Operation and engineering.
Yesterday, we issued our earnings press release hosted a new investor presentation and filed our 10-Q with U.S. you see all of which can be accessed on investor Relations section of our website.
The slides in the November Investor presentation will be reference during our prepared remarks. This morning.
Please be aware that our remarks will include forward looking statements that are subject to many risks and uncertainties that could cause actual results could differ materially you should read our full disclosures regarding forward looking statements contained our 10- Q1 0-K and other FCC filings.
Also during this call we will refer to certain non-GAAP financial measures because we believe they are good metrics to use and evaluating performance reconciliations of these measures to the most directly comparable GAAP measures are contained in our earnings release and Investor presentation.
We will start the call with prepared remarks, and then moved Humanaone now does my pleasure introduced Gregor President and CEO Eric.
Thanks, Scott Good morning, everyone and thank you for joining us for our third quarter earnings call.
We will keep our prepared remarks brief in order to leave plenty of time for Q and <unk>.
Our third quarter results were in line with the expectations, we communicated on our call last quarter.
I was expected and due largely to the timing of wells turned to sales from our one rig program third quarter production up 24.3, M. Boe per day was essentially flat with the second quarter.
Our average production through nine months was 23.2 Mboe per day, which is up over 50% compared to average Wattenberg production through Q3 at 28 team.
This performance year to date has resulted in us raising our annual production guidance twice once after two key learnings and once again with our release yesterday.
Our current annual production guidance is a range of 23 to 24 and be a we per day.
Up from 20 to 24 and be away per day to began the year.
Our oil mix for the quarter of 57% was inline with our expectations going forward, we expect quarterly oil cuts to fluctuate in a high 50 below 60% range, which will be highly correlated to wells that have been turned to sales in recent quarters at a higher oil cut associated with new production.
Capex for the quarter was $46 million, bringing the total through nine months to $173 million.
We're on pace to deliver the activity levels contemplated in the 2019 budget, but we are lowering our full year capex guidance to a range of 230 to 240 million.
From 230 255 million previously.
We've also tightened elouise and cash DNA guidance throughout the year.
Our cash cost for the quarter after nine months of the year fall within our annual guidance ranges.
Cash DNA for the quarter, a $3.53 per BOE, He was down 2% from the second quarter, while L $3 per BOE. He was up slightly from second quarter as a result of some nonrecurring expenses during Q3.
We have lowered the upper end of both our Elouise and cash DNA ranges as a result of performance year to date.
Our current full year 2019 guidance ranges can be found in our earnings release issued yesterday or on slide 16 of our Investor Relations presentation.
We've updated the production blocks in the IR deck, we posted yesterday for our eastern pronghorn be 28, bad and northern White tail well.
We continue to be encouraged by these results and the potential to unlock unrealized value on our eastern in northern acreage.
We also updated the production for the 21 pad and consolidated the five individual curves into a pad average to be consistent with all the other curve shown on slide 10.
We continue to be encouraged that the results.
16 wells per section are exceeding our legacy west type curve.
As we mentioned on the last quarterly call, our new oil gathering pipeline commenced operations in late July .
The investment in this new our am I ask that has returned immediate results.
As a result of the line, we removed overt 40 truck loads per day, representing over 1200 truck miles per day at current volumes.
This reduction in truck traffic.
Continues to improve over the next several quarters.
Volumes moving through the line receive an improved oil differential of about 25 to a buck 50 per barrel.
Shipped volumes increased as a third quarter and we'll continue to build throughout the fourth quarter.
Our oil differential of $4.98 per barrel was down from $5.90 per barrel in the second quarter.
A portion of this change relates to the lower benchmark price during Q3.
The oil line also had a positive impact.
Our oil differential through nine months as $5.40 per barrel and we are reiterating reiterating our full year guidance range of $4 25 to $5 25 per barrel at current oil prices.
Finally, I wanted to comment on our business plan for 2020.
It's early in our budgeting process, but we expect to deliver moderated production growth in 2020 with a lower year over year capital program that will include some capital for our French like assets.
We are encouraged that we generated approximately $50 million an EBITDA during the third quarter with Capex of 46 million for the quarter.
We're close to free cash flow neutrality owner operated one rig program and want to deliver a 2020 plan to build on this momentum.
With that I will turn the call back over to the operator for <unk>.
Thank you as a reminder to ask a question. Please press Star then one on your phone to withdraw your question press the pound key please standby well, we compile the given a roster.
Our first question comes from Irene Haas with Imperial capital. Your line is now open.
Yeah, Hi, My question for you is that French Lake you know in light up the region.
Reorganization that happen live.
Oxys, taking over Anadarko sort of any color on when the project, which start roughly when you should expect spending money and roughly how much.
When should we expect it protection impact thank you.
Yeah. Thanks, Irene you know, we're thinking right now based on our best intelligence from the Oxy organization that will be picking up a rig it'll be about 50 50 operated a rig operated by oxy, 50% net capex from Bonanza Creek starting in late.
Q3, so think.
Kind of mid to late September .
And that rig would start it's a it's one rig level loaded operation moving continuously throughout the balance of the subsequent years. That's the current best intelligence. We've got so what that means that we would have half a rig for one quarter at the tail end of 2020 and you could anticipate yeah. Because these are big.
These are big pads would be drilling or eight wells east and eight wells west off what might be a single pad and these are XR else.
It's going to take probably.
Four or five months to release off the first pad at another.
Month, or so to to begin stimulation, so it's going to be well into 2021 before the first I first wells IP.
Thank you.
Thank you I rate.
Thank you and as a reminder to ask question. Please press Star then one on your touched on telephone to withdraw your question. Please press the pound key our next question comes from Welles Fitzpatrick with Suntrust. Your line is now open.
Hey, good morning.
Good morning Wells.
White tail a four continues to you know a fit that 830 curve can you can you talk to how you guys are thinking about that that area now internally and how much capital you might be willing to to push up there in 20.
Yeah. Thanks Wells, we are encouraged by the whitetail a four and we think it continues to de risk the reservoir in that area.
So the way we're thinking about it is you know our 2020 budget is going to.
Take a shape around working to achieve best we can with the challenging price environment free cash flow neutrality. So that is that is that sort of the focus in the objective is working toward that.
The whitetail a four is a great performing well, particularly considering.
The reservoir performance in that area was expected to be challenging. So we're very encouraged by it but it's probably.
Given the fact that we don't have a lot of infrastructure up there.
The best we could we could do into 2020 budget would be to continue delineating, perhaps what one well a couple of miles away from the current whitetail, what we'd be thinking there as you know.
It did it's going to be challenging for a single well to compete with the kind of economies, we can put together on larger pads.
And particularly in a place where we don't have a lot of infrastructure existing infrastructure to to leverage.
So to be a best we could do in a challenging price environment, we expect to see in 2020, as perhaps one delineation well and that's likely to be closer to the ended the year, perhaps in the back half.
And so.
That's the way we're thinking about it at this point.
Okay, and you said.
You do push it would you would you want to.
If you if you were to drill on what do you want to be pushing it eastern north I mean, which which which do you think would be.
Sort of most informative.
Yeah, I think we'd probably want to push it north.
And I might even be north and west and the reason for that is because we've got good acreage ownership.
To that to the north and west and we can easily connect to rights of way that get us back to the whitetail again, its ease of infrastructure build out and really lowering the burdens on that single.
Delineation wells.
So learn as much as you can delineate as much as you can but don't create an unnecessary burden on the well over the 2020 budget.
Okay and then.
You guys. Obviously, you have more midstream control than most but can you talk to.
More recent NGL pricing in the basin to my understanding Fracs and White cliffs are taking a line filled now has that has that moved up a the price of the heavies at all.
It hasn't really impacted.
The realized pricing for us at least at this juncture, we're certainly encouraged that more more inch miles of pipe are going to improve access.
Most of us in DJ are exposed to Conway and the Conway pricing has realized pricing has just been terrible.
And I I think there's there's some hope that that can continue to get better I don't know that it's going to be this quarter, but I think it's going to be perhaps in the and the.
Early in 2020, as we continue to see capacity open.
Okay wonderful and that's that's all I have thanks again.
Excellent Thanks wells.
Thank you. Our next question comes on Ray Deacon with Petro Lotus. Your line is now open.
Hey, good morning.
Following on the last question about Ngls would you.
I think that the current level would be a conservative place to be for 2020 in terms of realizations or it sounds like you're you're hoping things improve.
I I do think it's a conservative place to start and I would anticipate that.
Ngls, we'll we'll continue to improve as particularly the propane element of the Ngls.
In this part of the country is weather sensitive and we're moving into the colder season. So I think you'll see the propane elements continue to two to improve in terms of realized pricing and as the last conversation pointed out we do see a just a little bit more fractionating capacity coming on at the end of the at the end the NGL pipelines as well as more.
Capacity.
And we think that will help exposure to.
Perhaps to Mont Belvieu, which is which is the ultimate goal.
But the access will will improve the pricing regardless so.
So I do think it's a conservative place to start right. Thank you.
And just one follow up is in terms of the mix of XR Els versus.
That's or else it seems like a fairly big shift next year I guess does that what's the reasoning there and I assume it helps your cycle times, some terms like getting wells tied on quicker I guess.
Well the mix of a srl is an XR els will be is very much up a function of the shape of the acreage the D.S. use and that's which ones come on.
Two out of various budget year raise more a more dependent on our.
Maximizing both our surface efficiencies in our subsurface efficiencies.
So I.
I wish we had just a wide open whiteboard, where we could where we could just take advantage of any piece of acreage we wanted to but but the truth is we've got varying working interest and we've got varying shapes to our DS use and we also are very careful about minimizing frac impacts in the subsurface and so it can stream.
Rains the number.
Of options, we've got in so.
The mix is governed by by maximizing the profitability of a budget year. So you try to you treaded developed in areas, where you have.
That's the highest total return at the pad level, whether that's an x. RL or an srl.
It's going to continue to be dependent on on a number of factors, including both surface and subsurface efficiencies and to be clear Ray home. We're still in the budgeting process. So we we have not guided the mix of those different links yet.
Got it great Yeah, and just one more Brent did you.
One of your peers have had their RBL reduced or elected a lower level.
On a call yesterday I was just curious if you already gone through that process.
No it's yeah.
I appreciate the question because it's a good when we are right in the middle of.
Working with our syndicate. The fact, we have our our meetings next week.
So our very early indication is I think we'll be fine.
But it's probably too early to give you a definitive reaffirmation, but but I think with the.
Reserve growth than the production growth over the last several quarters I think we're in we're in very good shape, yeah fundamentally well in cash costs of have been reducing overtime.
Well performance has been improving over time.
Reserves growth has been consistent quarter over quarter.
And our utilization rate of the RBL is pretty low in fact, weve will draw and repay in.
Periodically through through the quarter throughout a year so.
We really do use at like like working capital. So I think all of those things will will 0.2 up a pretty healthy.
Redetermination, but again as Bret pointed out its early.
Okay got it thanks very much.
Thank you Ray.
Thank you and our next question comes from Noel Parks with Coker and Palmer. Your line is now open.
Good morning.
No.
How are you.
We are well thank you.
Good just a couple things.
One of them.
Ask about.
Consolidation in the basin and.
I.
I was wondering if you you've seen among the.
The feedback folks out there.
Anymore kind of coming down to Earth as far as they're there.
I'd ask expectations on.
Yeah transacting in the assets.
Yeah. Thank you that's a that's a great question I'll tell you what we have observed.
Is that over the last couple of quarters.
Rather than testing the market to kind of a broad process that involves.
A big BDR and inviting everyone to come take a look and make a bid while we've seen as an evolution toward targeted kind of rifle shot strategic conversations and we're happy to participate in those it.
The challenge really is as you know.
You know our outside our thousand gross well srl inventory doesnt bring a whole lot of share share value or component to our share price today, our am I really doesn't doesn't.
Provide as much value in our share price.
What really does in our share prices, our PDP and so if we look at the or we have imply our valuation on a potential target it would imply we could pay.
Fair price for PDP.
And.
Most of these PE backed firms are are really light on PDP and they can't possibly afford.
To sell at that price, but there continues to be interest in the idea that.
That that PDP PDP for PDP is beginning to make a lot more sense as the strip remains constrained and access to capital gets tougher and tougher. So I don't know that they're they're currently at the point just generally speaking across the the.
Companies that I speak with I don't know that are currently at a price that that makes.
That makes our our bid makes sense to him.
But I think it's it's certainly moving in the right direction I think there's plenty of therapy to continue to migrate in that direction.
Great. Thanks, and one other thing you know things have been so probably for the service guys.
That we're really not hearing antibody worried about answered or cost inflation over the medium term.
Do you see any scenario where.
I mean, I guess going to things I can think of our.
Withdrawing equipment from the basin or.
You know.
They are getting rid of older equipment.
Do you think scenarios that could give me any cost inflation in 2024 or maybe beyond that.
No no we see no scenario in fact throughout the course of 2019, we've seen.
Factor input cost to our DNC operation consistently declining.
And we've been able to take advantage of that too.
Further optimizer stimulation designs and really maximize PV and I are are.
Based on those those factor cost improvements, we've seen that happened throughout 19 and as we.
Kind of stress test.
RFP and test the market.
Into 2020, we see continued improvement in so throughout throughout 2019, we've seen about a 10% reduction in.
Factor cost inputs to our DNC operation, we've been able to take advantage of that.
And even beyond that relative to current pricing. Our current RFP is are pointing to nominally 15% to 20% reductions in the 2020, we don't see a scenario where.
For example.
A major supplier of Frac horsepower withdraws capacity out of how the DJ.
Although I've read a lot about it I don't I don't read about it happening or have any sense that has taken place VJ.
And I think because the market is really pretty well balanced.
Today, and DJ has been under pressure because of the political environment for a couple of years and so we've had time to sort of get right with the activity level as a as an operator and supplier environment, whereas some of the other basins that were a lot more active up until the recent couple of quarters have have really had a higher.
Rate of change and so I think there they're much more.
Sensitive to the oversupply and and capacity.
Gotcha and I mean.
Seeing things like.
People looking at closing are combining service centers, just to kind of help with their their overhead.
Aaron.
I certainly anticipate that that there will continue to be.
Rationalization of costs on the service side and.
Efforts made at every level.
To reduce the overhead and some of the burdens on the business because their margins are tight.
And that's a that's a difficult place for them to be in and we as an operator community all of US continue to put downward pressure.
Through competitive tension and round after round of RFP is.
Great Great and just one last thing for bigger picture.
Just like on a flat stood up and yes.
Pretty constrained paving <unk> roofing jumped to come to wonders for dealmaking.
Is it fair to say that.
You know if we are looking at a fairly long term 50 to 55.
Dollar price that's that's not.
Really a.
Add long term operating environment for you guys. Assuming we can we can continue into the same sort of efficiencies that on the.
So far.
Yes, I think we've got we've got adequate high quality inventory.
And and that inventory is effective.
At this price environment. We also have good liquidity and as I mentioned earlier in the remarks, we're certainly.
Flirting with today and working hard to continue to be self funded operation and that.
I would imply that if we're not drawing on the RBL and we're not increasing our net debt at these price points weaken whether we can weather time, and we can weather this price environment, perhaps longer than than others can and that should that should create some opportunities for us we're certainly focused on.
Disciplined capital program, we're going to continue to be focused on lowering our cash costs over time, and really working to rationalize anything that doesnt that doesn't really improve our business and the profitability of our business.
But we also recognize that.
There are a lot of benefits to scale and so.
When we think of scale, we think of cash flow and so thats. The way, we look at consolidation from our our perspective, but today, we remain patient because we think we think this is an opportunity where.
Patients will continue to benefit us in terms of the number of opportunities that we get a chance to look at.
Okay.
Great. That's all for me. Thanks, Thank you know.
Thank you and we have a follow up from Welles Fitzpatrick from Suntrust. Your line is now open.
Hey, Thanks for let me hop back on.
Sure.
I just had a real quick one.
Just to kind of sanity check my reading of the CEO GCC new.
Mission change White paper it didn't seem to me that anything was terribly new or onerous and there is that I know you guys are close to it can can you talk to your interpretation of of of that document.
I feel exactly the same way wells I think it was a reaffirmation of.
COVID-19 when anyone.
And I think the point really was to continue to reinforce.
The mission of the Seo GCC. So I don't think the white paper was meant to to announce any incremental changes or new emphasis I think it was really to reaffirm.
19, 181 and to ensure that as as Doug.
Operator, and and environmental.
Communities continue to talk about how we.
Now we provide energy for people in a state like Colorado, how do we balance that and what is what is the legal mission of the CEO GCC I see it as a reaffirmation of that and frankly I think it's good that the whole conversation today really related to CDP Agncs GCC.
There's a lot is in a lot healthier place than it was a year ago and I think.
Civil people can disagree on on points, but but I think everyone recognizes that the middle of the fairway has gotten wider and.
If you if you've got.
An opportunity to do good work.
Add be sensitive to the stakeholders needs I think you can continue to do good work and provide.
Good job going to stay like Colorado, and I think we saw that during.
The press conferences at this the CDP Agncs GCC Prescott conferences during the health study rollout I think there was a balanced view as to what that study did and did not accomplish.
To me it was frankly.
A healthy indication of the balance that regulatory bodies are taking when it comes to evaluating the impacts of oil and gas development.
Yeah, no that's the that's great.
And I agree I when you pull us uneven becker kind of lined up the same way to have a quick response to that that study at mid points of sale in at a much better place anyways. Thanks wasn't topical thank you well.
Thank you and I'm showing no further questions in the queue at this time, so I'd like to turn the call back to Eric Gregor President and CEO for any closing remarks.
Thank you.
Thanks for your interest to everyone. As a reminder, we're going to going to be attending the capital and energy conference in Houston on December 10th to the 12, we hope to see some of you there.
And with that we'll end the call. Thank you so much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.