Q3 2019 Earnings Call
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Now, let's turn the call offs conference over to Al Petrie Investor Relations coordinator. Please go ahead Sir.
Thank you operator, good morning, everyone and welcome to Valko Energys third quarter 29, two conference calls.
After a cover the forward looking statements carry bounds, our chief Executive Officer review key highlights of the third quarter along with operational result, this product now our Chief Financial Officer will then provide more in depth financial review carrier will then return for some closing comments before we take your questions.
During our question answer session. We asked you to limit your questions to one and a follow up you can always reenter the queue with additional questions I'd like to point out that we posted an investor deck on our website. This morning that has additional financial analysis comparisons and guidance, but should be helpful. With that let me proceed.
With our forward looking statement comment.
During the course of this conference call. The company will be making forward looking statements investors are cautioned that forward looking statements are not guarantees of future performance and those actual results of development may differ materially from those projected in the forward looking statements.
Alco disclaims any intention or obligation to update or revise any forward looking statement, whether as result of new information future events or otherwise accordingly, you should not place undue reliance on forward looking statements.
These and other risks are described in yesterday's press release, the presentation posted on our website and an reports we file with the Securities and Exchange Commission, including the 10-Q that was disseminated earlier today. Please note that this conference call is being recorded and now let me turn the call over time.
Sure.
Thank you al Good morning, everyone and welcome to our third quarter 2019 earnings Conference call. We've had a very exciting past few months and have achieved several significant milestones in August we completed our annual planned maintenance shutdown edit Tom and restored production with no safety or in bars.
Mental incidence in September we kicked off where 2019 2020 drilling campaign, and recently announced the nine but I'm sorry, the a Tom nine P. appraisal drilling results, which were better than expected for the gone back and didn't tell reservoirs on September 26, we began trading on the London stock.
Exchange, which complements our listing on the New York stock exchange by providing us the opportunity to diversify our shareholder base and attract additional research coverage.
The new listing also gives us additional options to raise new capital to grow our business in the future.
Tober, we began drilling via Tom nine age horizontal development well targeting the gone, but reservoir, we plan to update you on the results in the coming weeks.
Turning to operational results for the third quarter. We produced an average of 3081 net barrels of oil per day, which was within our guidance range. We completed our annual planned maintenance shutdown edit Tom in August on schedule and on budget and subsequently restarted production.
Production and sales volumes were lower in the quarter by about 250 net barrels of oil per day due to the temporary shut down.
Production was also impacted by the loss of the or Tom 10 age a Tom for age and nor Cibola to each wells that are temporarily shut in earlier this year. The electric submersible pump failed in the a Tom 10, H. well after operating for four and a half years prior to the pump failure. The Tom 10, eight well was producing.
Approximately 200 net barrels of oil per day, we're considering utilizing the vantage drilling rig to pro forma workover and replaced the failed pump in the atone 10, each well in total production is down approximately 400 net barrels of oil per day due to these three wells.
Looking ahead to the fourth quarter. We're currently drilling via Tom nine H., well, which is expected to start producing in December taking into account the production uplift from the Tom nine H., well and production deferrals from the three wells I just mentioned, we expect production for the fourth quarter to be in the range of 3100.
Good to 3500 barrels of oil per day.
As a reminder, the production impact from our 2019 2020 drilling campaign is expected to increase our 2019 exit rate and it should have a significantly greater impact on 2020 production.
We currently estimate our 2019 exit rate to be in the range of 3800 to 4100 net barrels of oil per day, assuming the Adom nine age is completed and online now I would like to give you additional details on the drilling campaign that is underway now.
As part of the PSC extension in good bone, we committed to drilling at least two development wells and two appraisal well bores by September 2020, as previously announced via Tom nine P. appraisal well bore was drilled successfully and encountered both the gumbo and didn't tell reservoirs at targeted ups as anticipate.
Based on the information we gathered in the Tom nine P. Wellbore the gone, but oil column is thicker than pre drill expectations and May result in higher ultimate oil recovery from the at home field, including the Tom nine H. development, well that we're currently drilling as well as the Tom 11 H. development.
Well, which we plan to drill shortly after the Tom nine age.
In addition, the preliminary analysis indicates that the Tom nine P. wellbore encountered at least 45 feet of good quality dental oil sands with estimated gross recoverable oil resources of 3.92, 43.9 to 14.9 million barrels of oil in the dental reservoir.
This is very positive news for us as our pre drill estimate was was 4.6 million barrels of oil.
As anticipated we did not encounter age to us in either reservoir as you can imagine we're very excited about the result, as we plan for future development development wells in the didn't tell reservoir.
After reaching total depth in the and Tom nine P. Wellbore drill pipe became stuck lying nearly horizontal in the dental section.
After several attempts to break free we decided to cut and pull the drill pipe, but a portion of the drill pipe in the bottom hole assembly could not be recovered.
We then plugged back to a shallower depth and begin drilling via Tom nine H. development well as planned while we are what we are still early in the drilling campaign. The additional time spent on the nine p. coupled with the loss of drill pipe in the bottom hole Assembly will likely add 3 million to $5 million net to the ultra.
Overall cost of the drilling program.
Thus far we have not encountered any significant issues drilling the a Tom nine H. development well.
We expect production to come online in December at a stabilized rate of approximately 2500 3500 gross barrels of oil per day or 675 to 960 net barrels of oil per day. Following the Tom nine H. well, we plan to drill via Tom 11, H. development well.
Into the same gone but reservoir.
After we complete the 11 h. well, we're considering executing a workover to replace the electric submersible pump and near term 10, each well which is on the same platform.
We then plan to move the rig to the southeast to Tom nor Tchibala platform to drill the southeast it Tom for P. appraisal wellbore to evaluate a gormless stepout area in southeast to Tom.
On drilling the second appraisal wellbore, our come our drilling commitment as part of the PSC extension that we signed last year will be complete I do want to point out that if this if the southeast to Tom for P. appraisal Wellbore proves up the gamba in that area, then with our joint interest owners and government approvals, we plan to drill.
Third development well as part of this drilling campaign, so far we're off to a great start and our vision is to repeat similar drilling campaigns edit Tom over the next several years and continue adding reserves and production.
I can't stress enough the importance of our capital discipline and operational execution as it allows us to continue to generate significant free cash flow build our cash balance and fund our capital programs at the Tom from cash on hand, and cash flow from operations. In addition to funding our drilling program. We are also.
Actively returning value to our shareholders through a share repurchase program. We believe the share repurchase program is an excellent opportunity to buy our common shares at a significant discount to their intrinsic value and the program also reflects the boards confidence in the current value proposition overstock.
We're confident that we can continue to execute our share repurchase share repurchase program and fully fund. Our 2019 2020 drilling campaign from cash on hand, and cash from operations. Later on this will provide additional details regarding the share repurchase plan before I turn the call overdose.
It is I would like to discuss our listing in the UK.
We believe our story resonates well with the UK investor audience, who have a strong interest in companies with the type of assets that we operate in Africa. It has already generated interest in Valko with new equity research coverage and increased access to international oil and gas investors.
While we don't have a current need for additional funding should we find something particularly accretive and compelling and in line with our inorganic growth objectives, we can potentially use our london listing to tap into a deeper pool of capital.
As you can see we've had a very busy and productive 2019, we've enhanced our corporate financial and operational capabilities and positioned balco to succeed for many years to come with that I would like to turn the call over to list to discuss our financial results. Thank you carry and good morning, everyone.
As Gary mentioned, it's an exciting time for us it now with our drilling program well underway and with the early positive results.
Additionally, we completed our listing on the London stock exchange and we're very pleased to have two new analysts now providing research coverage on our company.
In the third quarter, we reported a net loss of 3.9 million.
Seven cents per diluted share. This was impacted by a noncash expense of 5.1 million nine cents per share related to deferred income tax, which was partially offset by non cash benefit of 1.8 million or three cents per diluted share related to unrealized gains on crude oil swaps.
Adjusting for the net impact of these items totaling $3.4 million.
Third quarter adjusted net loss was <unk> point, sixmillion or a penny per share.
Third quarter 2019, net loss was also impacted by lower revenues, reflecting lower sales volumes as well as a 1.2 million or two cents per diluted share non cash expense for stock options restricted stock and stock appreciation rights.
Adjusted EBITDAX totaled 4.5 million in the third quarter at 29 team, which was likewise impacted by lower pricing and production.
Through the first nine months at 29 team, we have generated 27.1 million and adjusted EBITDAX, which has helped US fund our capital program and remain free cash flow positive.
Third quarter 2019 oil sales totaled 279000 net barrels compared with 329000 net barrels in the same period, a year ago and 357000 net barrels in the second quarter 2019.
Third quarter 2019 sales volumes were impacted by lower production volumes during the quarter, which was the result.
Planned full field maintenance shutdown that occurred in August 20, not team as well as the impacts on the wells currently shut in.
For the fourth quarter 2019, we expect sales to increase as a result of higher estimated production from the Tom nine inch well, which is currently being drilled and which is expected to come online in December .
Our realized oil price for the third quarter 2019 averaged 61.2.
Thanks for bear all.
Down 19% from $75.40 in the third quarter, 2018, and down 11% from $60 at 62 cents in the second quarter 2019.
In the third quarter, we recorded noncash mark to market unrealized gains related to our crude oil swaps.
$1.8 million, while we realized a cash gain of 8.5 million on the swatch swaps, which settled during the quarter.
These swap agreements are at a dated Brent weighted average price of 66.7 days per barrel.
As of September Thirtyth 2019, there's swaps outstanding for 394735 barrels for the period from and including October 2019 through June 2020.
We will continue to evaluate ways to mitigate price risk ensure future cash flows for our drilling program and allow for upside.
Rising commodity prices through our hedging program.
Turning to expenses total production expense, excluding workovers for the third quarter 29 team was 9.5 million or $34.01 per barrel of oil cells. This compares with 7.5 million or $22, a 93 cents per barrel in the same.
Same quarter of 2018.
9.8 million or $27.45 per barrel in the second quarter 2019.
For the fourth quarter, a 2019, we expect production expense, excluding workovers to be between 9 million and 11 million or $30 to $36 per barrel per.
Production expense for the quarter for the fourth quarter is expected to continue to be somewhat high as result of planned preventive maintenance.
DDNA for the third quarter, 2019 was $1.5 million or $5.41 per barrel of oil. This compares to 1.1 million or $3.43 per barrel in 2018 third quarter.
And 1.9 million or $5 in 35 cents per barrel in the second quarter 29 team.
The year over year increase in DNA per barrel of oil reflects an increase in deployable costs associated with the PSC extension.
Partially offset by a favorable impact of the upward revisions to reserves at December 31st 2018.
We continue to expect our full year DDNA right to be in the range at $5.50 to $6.50 per barrel of sales.
General and administrative expense for the third quarter 2019, excluding noncash stock compensation was 3.6 million or $12, an 86 cents per barrel of oil as compared to 1.8 million or $5 into 39 cents per barrel of oil.
And then third quarter 2080.
$2 and $2.8 million $7, a 93 cents per barrel of oil in the second quarter 2019.
The expense for the third quarter was higher due to the increased professional fees associated with our listing on the London stock exchange as well as our growth initiatives, we expect our fourth quarter DNA, excluding noncash compensation to be between 2 million and 3 million.
Noncash stock based compensation expense related to stock appreciation rights are Sars was a charge of 1.0 million. During the three months ended September Thirtyth 2019, as compared to charge at point 8 million in the comparable 2018 period and a credit.
I would point 7 million in the second quarter 2019.
Sorry, our revalued quarterly based on the closing stock price at the ended the quarter.
It was $2.03 at the end of the third quarter 2019 versus $1.67 per share.
On June Thirtyth 29.
Stock price variability greatly impacts the fair value the Sars and there'll be an expense our credit that every quarter associated with the mark to market value at this ours.
Income tax expense for the three months ended September Thirtyth 2019 was 7.7 million. This is comprised of 5.1 million of deferred tax expense any current tax provision at 2.6 million.
For the three months ended September 32018, the company had a current provision of 4.0 million.
Current deferred tax benefit at 66.2 million.
The decrease in the current provision between the third quarter 2019, and the third quarter of 2018 is primarily attributable to get Bon income taxes, which are impacted by a decrease in revenues.
With respect to deferred income tax for periods prior to the three months ended September Thirtyth 2018.
Company had full valuation allowances on its net deferred tax assets.
And deferred income tax was zero.
The the deferred income tax benefit of 66.2 million in the third quarter 2018, right related to the recognition of deferred tax assets and the reversal evaluation allowances on the other deferred tax assets.
With respect to the third quarter a 2019.
Our tax expense at 5.1 million in the third quarter 2019 includes a $4.8 million charge to increase the valuation allowance on you as deferred tax assets.
Which was primarily due to a decrease in future estimated taxable earnings primarily as a result of lower oil prices.
As detailed on slide 23 in the presentation deck posted this morning on our website. We currently estimate the dock is operational breakeven in 2019 is approximately $37 per barrel of oil sales.
And our free cash flow breakeven in 2019 is approximately 47.
Dollars per barrel of oil cells with both the now including Workover expense.
In general terms, we estimate that each five dollar increase in realized oil prices increases our annual adjusted EBITDAX by $6 million. This clearly shows our strong leverage to higher oil prices.
At the end of the third quarter, we had a cash balance at 57.2 million, which included 11.8 million of cash attributable to non operating joint venture owner advances.
At the end of the third quarter Valko had 29.0 million of working capital from continuing operations. This metric excludes lease liabilities and amounts attributable to discontinued operations.
On June 22019, Daqo announced that its board of directors had authorized stock repurchase program since inception of this program through November 5th we approached US nearly 1.6 million shares of our common stock at an average price of $1.80, representing a total investment as a.
Approximately $2.9 million.
This represents 2.6%.
59.8 million shares of common stock outstanding as of June 30 adds 2019, just prior to implementing the program just post implementing program. Despite the weakness in oil prices DAF is cash position remains very strong.
We can continue to up.
And it is simply execute our buyback program and also fully fund our plan 2019, 2020 drilling program at a time from cash on hand, and cash flow from operations.
For the nine months ended September Thirtyth.
2019, we invested 8.4 million in accrual basis capital expenditures, primarily for the drilling program and to a lesser degree for equipment and other.
The current estimated net capital expenditure range for 2019, which is primarily associated with our drilling program is expected to be at 20 to 25 million. However, as Carey mentioned the total cost of the 2019 2020 drilling program is now estimated to be approximately three.
To $5 million higher than the original 25 to 30 million estimates.
Due to additional rig and service costs associated with the nine p. well.
The full 2019 2020 drilling program will include up to three development wells and two appraisal Wellbores, we anticipate that it will be completed in the first half at 2020 with this I will now turn the call over to carry.
Thanks, Liz over the past several years, we have worked diligently to strengthen our financial position and create opportunities for growth, we are debt free with over $45 million and cash on hand, excluding cash attributable to joint owner advances and we are generating strong operational cash flow that can.
We used to fund our drilling program.
The 2019 2020 drilling program is the first in a series of drilling campaigns, where we hope to create significant value I'm pleased that we've already seen results that are better than expected from the first appraisal well in the program. We're looking forward to the expected production increase from the next to the Tom development Wells on the drill.
King schedule, followed by an appraisal wellbore southeast to Tom with the potential to add meaningful reserves.
I believe that moving forward, we will create substantial value for shareholders by growing by growing reserves and production into Tom and building our asset portfolio through mergers and acquisitions in short. This is a very exciting time for balco and we are well positioned to deliver profitable and accretive growth. Thank you.
And with that operator, we're ready to take questions.
Yes. Thank you we will now begin the question and answer session.
Good question you May Press Star then one on your telephone keypad, if you're using speakerphone. Please pick up the handset before question. Your case to withdraw your question. Please press Star then.
At this time, we'll pause momentarily to assemble the roster.
And the first question comes from Charlie Sharp with Canaccord.
Good morning, everybody. Thanks for taking my question just just one.
Quick question.
Outlined the successful results in line.
Mhm.
Nine H. and 11 age.
You had any chance.
Yes to assess.
So why the implication across the license so is that something that work in train.
Right that is work in progress Charlie Thats, a great question and the better expect better than expected results that we saw and the gumbo will affect youre right. The nine agent 11 age, but it it affects the entire Tom field and I say field on the a Tom license, we have four fields and the Tom field is one of them in the goal.
Number reservoir there are two other wells right now the 10 in the 12 that are producing from the platform or the 10. This shut in but anyway and then there's also the subsea wells the six in the seven so we think the good news we saw in the gumbo actually spreads across all of those wells and our we're evaluating the results and the impact and we.
Our work with our reserve auditors and probably make an announcement when we finish our year end reserves.
Okay, great. Thank you.
Alright, Thank you Charlie.
Thank you.
And the next question comes from our buildings on with Titan capital.
Thank you I actually wanted to wanted to continue down this same path or you originally spec expecting in terms of pick on the sand.
In terms of the sickness. It came out you said at least 45 feet kind of what was for the oil column.
I was in your mind going in.
And that's really a range and I would say at the at the low end of the range probably half that thickness.
But somewhere between.
25, and 45 feet.
And so.
You also.
Came out with your initial press release with the dental.
That you were thinking the sands or somewhere in the neighborhood of 35 feet and then with the second release you came out and said that it was at least 45 feet, what led to that to that upgrade and the Dentale sands.
And that to intervening time.
Right right, what led to that Thats a good question Bill our we gathered information as we drilled via Tom nine P. The information, we gathered was mainly mainly well logs and so it took some time to interpret those logs. There was an initial interpretation and we wanted to get the news out very quickly with our initial and.
Interpretation and then after after our engineers and Geoscientist had more time to study the logs the interpretation improved and so we made another announcement.
Great congratulations on that.
And then talk if you would please about the implications of the dental sandwich, if I understand correctly is underneath the gamba and pretty much your entire production.
Has been from the gone.
And so how do we think about this now.
That.
Then tall.
Which is an entirely new reservoirs, if we think of if I understand this correctly being at the same sicknesses as the Gaba.
Well it is what we've found is what we call oil down too. So we know that theres at least 45 feet of oil it could be sicker and so that's that's part of what's driving the range of reserves I mentioned.
Four to 15 14 million barrels for to 14 million barrels. So there's a there's a range around thickness and then there's a range around aerial extent, how how wide or what area does the dental cover so.
That's what's driving the range for to 14 million barrels of oil recoverable. It may take two to three wells to recover all of that oil, but that analysis is going on right. Now. So we're combining what we learned from the wellbore in the well logs that we took combining that with our seismic interpretation and our mapping and coming.
The up with our best estimate of where to drill development wells.
Carry are you thinking that it is possible that to.
With your assets.
That.
You just are on the verge of finding that you have double.
Yes, the oil than what you previously did and what I'm thinking as it did into all of it.
As is the same as the gamba.
Well, it's structurally it's different and so no. The dental is is.
Is not the same as the gone, but it's it's a very good quality, Sam but not as good as the gone, but like I said structurally it's different but I would point you back when I think of the future potential in the field.
I should say on the license I would look across at all of our opportunities and what we've said in our.
On our website in our investor deck is that we have a line of sight to another 123 million barrels of potential reserves and resources and to date. We produced over 110. So if everything works out as planned we're halfway through the life of the field or the I should say the life of the license.
Great. Thank you and I would like to.
Ask relative to your share repurchase what was the highest price that you are that you paid.
But we havent really disclose that separately I mean, we have Ed you can you can kind of gather some of the information that I think the last quarter, we disclaim that the average price was around $1.75 or so.
Cumulatively, we're now at around $1.80. So it has the price has kicked up a bit during the during this past quarter, which you would expect.
Great. Thank you and then one additional question as I think about your drilling program.
All right you.
Built cash coming into this.
You are paying for the program out of cash and cash flow.
Sure.
Then it appears to me as though you'll be benefiting from increased production cash generation and then I.
Spec given what you have inferred that you'll be coming back with another drilling program and it almost seems as though you have a a.
Drill produce build cash or I guess increased production build cash and repeat process that you are starting to develop or we understanding philosophically how you're thinking about this.
That is exactly correct I have nothing to add to that Bill that's exactly what we're doing okay. Thank you for the health and congratulations on.
Make entry this quarter.
Alright, Thank you Bill.
Thank you.
And once again. Please press Star then one if you would like to ask your question.
As there is nothing else to presence here I would like to return the floor to carry bounce for any closing comments.
Yes, I'd like to thank everybody for joining our conference call today, and we look forward to another good quarter end our next call.
Thank you.
France has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Okay.