Q3 2019 Earnings Call
Welcome to <unk> Corporation third quarter 2019 Arnie.
My name is there.
Operator for today.
The company is currently in registration.
With regard to exchange offer only.
Hi.
Your next.
And my friend.
<unk>.
Yeah.
Recently completed.
Please.
During the course.
Speakers may make statements.
Hi, good traction.
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Our similar forward.
The companys actual results may differ materially.
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On todays press release.
Having already.
Additionally, during the conference.
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non-GAAP financial measure.
non-GAAP measures to GAAP measure.
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And the company's website I'll now turn the call.
Hi.
Yeah.
You may begin.
Thank you Rebecca good morning, everyone. Thank you for joining us this morning with me today or David marrow less often brake job crumbling at ballparks, each will be providing you with updates about there's a responsibility during the third quarter as well we have all year, we continued to navigate a very job.
Commodity.
Right backdrop for both natural gas liquids and natural gas.
<unk> pricing disconnects and the general industrial vehicle, we remain focused on balance sheet.
Sure.
That are older natural gas segment deployed capital or more oil growth prospects earlier. This year as all pricing has been stronger compared to like as we discussed during the second quarter call Orient beats like my capital expenditure plan was first half the year focus we have snaps release all.
Oh rigs that we are that we were we were operating the reduction Mcgraw operated rigs coupled with the continued weekly decline.
Working you ask land rigs that was adversely affected our contract drilling fleet utilization.
In the currently Barb, we're focusing on controlling the most buying but we are that are within our ability to pro.
As a result of actions taken a reduction in capital expenditures are anticipated to generate free cash flow during the fourth quarter that will be used to reduce debt.
I'll now turn the call over to David Merle.
Thank you Larry has you are probably aware earlier this week, we filed a preliminary registration statement.
Operating thats changed horses, and find 8% senior subordinated notes maturing in 2021 for new though.
Purpose of the exchanges to extend the maturity profile of our existing indebtedness and eliminate short to medium term refinancing and related risk.
Yeah with our capital structure.
As Larry mentioned.
Focused on growth of our oil production if that has begun to come to fruition during the quarter.
Also due to completion activities for wells drilled in the second quarter, we saw a nice uptick in quarterly production.
Frank will have more on the health of the minute.
Our operated rig count as falling however for the contract drilling segment, 100% of our boss rigs.
And remained fully contracted since inception, the construction of our 14th box boss rig is substantially complete.
The rig is expected to begin work later in the fourth quarter.
Midstream segment with contracts margins largely structured on fee based contracts.
That's held its own despite lower revenues due to lower commodity pricing and operating largely hidden ethane rejection.
Now I'll turn it over to less often.
Thanks, David.
We reported a net loss attributable to unit for the third quarter of $206.9 million or $3, a 91 cents per diluted share.
Adjusted net loss attributable to unit for the quarter, which excludes the effect of non cash revenue dance and impairment charges was $15.7 million or 30 cents per diluted share versus an adjusted net loss of 12.9 million or 24 cents per diluted share in.
The second quarter of 2019.
Although we experienced an improvement of 28% higher well production. This was more than offset by 32% lower natural gas liquids prices and 8.2 fewer rigs operating.
Our non-GAAP financial measure reconciliation is included in our press release.
For the oil and natural gas segment revenues for the third quarter was relatively unchanged from the second quarter of this year with higher oil natural gas liquids and natural gas volumes being offset by lower oil natural gas liquids and natural gas prices.
Equivalent production was 6% higher compared to the second quarter of this year, primarily driven by the higher oil production discussed previously.
Operating costs for the third quarter decreased 2% from the second quarter of this year, primarily due to lower lease operating expenses somewhat offset by higher production taxes.
For the contract drilling segment revenue for the third quarter decreased 13% from the second quarter of this year due to 8.2 fewer rigs operating in the quarter somewhat offset by increased day rate.
Operating costs for the third quarter work, 2% lower compared to the second quarter of this year, primarily due to fewer rigs operating.
For the midstream segment revenues for the third quarter decreased 10% from the second quarter of this year, primarily due to decreased condensate prices and gas liquids volumes.
Operating costs for the third quarter decreased 12% from the second quarter of last year because of the decrease purchase prices.
We ended the third quarter of 2019 with total cash cash equivalents of $600000 and long term debt.
$784.4 million.
Long term debt consisted of $646.2 million and senior subordinated notes net of on amortize discounts and debt issuance costs and $134.1 million outstanding on the unit.
Corporation revolving credit agreement.
And 4.1 million outstanding on the superior revolving credit agreement, which is non recourse to unit Corporation.
Our unit Corporation credit agreement borrowing base was reduced to $275 million effective September 26, and the superior credit facility in the 200 billion dollar facility.
As David previously stated we have initiated that debt exchange for our $650 million senior subordinated notes.
Which mature in May 2021.
Our net leverage ratio on unit Corporation indebtedness was 2.8 times at the end of the third quarter.
At this time I will turn the call over to Frank for our oil and natural gas segment update.
Thanks Wes.
During the third quarter, we continued to see positive results from our report play in Western Oklahoma.
With these results we had a 28% increase in our oil production along with a 6% increase in total equivalent production over the second quarter.
We also continue to concentrate on reducing our operating costs in the slower commodity environment.
Operating costs were 2% lower quarter over quarter.
Our production staff has done an excellent job of lowering price and cost salt water disposal costs workover costs during the third quarter.
Total oil oil volumes through the first three quarters of 2019, our 10% higher compared to the first three quarters of 2018.
This is due to our ship to drilling oil prone zones on our and Sam prospects in Western Oklahoma.
Mainly in the Marchand and Red Fork intervals.
In the third quarter eight new horizontal wells were brought online which consisted of four marchand horizontals and for red for horizontal.
Three of the Red Fork World were in our Thomasville, while our Fourq was that a new prospect or coal being.
We have been leasing during 2019.
The average IP 30 of the for rent for worlds was 2150 Boe per day.
With an average oil cut of 72% an average working interest of 86%.
The Winguard Winguard farms 20, 128 number one HX with Juno has amounted to 4% work Phoenix, which them.
Was completed in early July with the lateral length of 7000 the.
And had an IP 32800 Boe per day and has cumulative oil production of 141000 barrels today in the third quarter.
Saratoga 17, 20 number one HX with Juno has 68% working and for Sam.
Was completed in mid July with the lateral length of 9300 the.
And had an IP 33000 BOE per day has cumulative production of 134000 barrels to them the preferred board.
Our first well in our Pina prospect the Hayes Trust number one age.
No.
With Juno has about a 2% working them was completed in mid August .
With a lateral length of 3600 feet.
The laterals cut short due to running out of Red Fork Sam on the on the well, but even so the well had an IP 30 of 1600 Boe per day with 81% be an oil.
Our ERP costs, where a red fork horizontal well with 7500 foot laterals approximately $7 million.
In Houston, we continued to show excellent results with our stack play primarily in the Wilcox interval.
By region Recompleting, three wells performing a work over on a fourth world.
Combined these four wells that are not be 30 of 17 million cubic feet of gas per day at 300 barrels of oil per day.
The total cost of only $1.4 million.
These wells are result of continued development exploitation of our recon digital in the world possibly.
The results from our Red Fork program, and our steady execution in our so possibly have made a significant impact on oil volumes.
Paul Our Wilcox Recompletion program continues to provide very low cost production adds.
Receive premium goal post processing.
In 2020, we will continue to focus our capital spending on these same areas.
During this time that we are running Briggs, we will continue our effort to decrease expenses and we will continue with our strategy of adding acreage and prospects at low cost.
Still provide drilling inventory, a competitive finding and development costs and cash flow margins.
We will also continue to valuate organic and acquisition opportunities that could improve our cash margin and provide upside drilling inventory.
At this time I'll turn the call over to John the drilling.
Thanks.
Thanks, Brian .
During the third quarter, we substantially completed construction over 14 boss rig.
In early December this rate will go on purpose for one of our value to operators in North Dakota, who also extends the long term contracts on two other boss rigs.
Presently operating for them.
There is a true complement for the quality of the boss rigs into the crudes threw off right now.
We began the quarter with 25 rigs operating and closed the quarter with 18 rigs operating.
All 13 of our boss rigs are operating with 10 of them on term contracts.
I also have five SCR rigs under term contract.
We averaged 20.4 rigs operating during the quarter.
The average day rate for third quarter was 19000.
$176, an increase of $795 per day over second quarter.
The average total daily revenue before intercompany eliminations was $19692 an increase of $730 over second quarter.
Our total daily operating costs before Eric.
The nations increased by $1623 for the third quarter as compared to the second.
The increase was primarily due to less rigs operating thus increasing the daily cost.
Due to fix cost and expenses related to stacking rigs nonrecurring.
Average per day operating margin for the third quarter with no elimination of intercompany profit split.
$4635, which has a decrease of $891 from the previous quarter.
Our non cap rates silly edge can be found in today's press release.
We expect that rig activity will remain flat during the fourth quarter and increased during the first quarter of 2020 due to operators have a new drilling budgets for the year.
At this time I'll turn the call for to Bob for this fair pipeline.
Thank you John .
Paul operating in this low price environment Superior has continued to produce attractive financial results.
Operating profit before depreciation was $11.3 million for the third quarter of 2019, which was a 4% decrease compared to the second quarter of 2019.
This decrease was primarily due to lower realized gas NGL and condensate prices between the quarters, along with lower gathered volumes.
Additionally year to date through the third quarter, we have had a 14% increase in gas gathered volume over the same period in 2018.
This was due to that in seven new long lateral wells are Pittsburgh Mills system, and the Appalachian area and continuing to connect new wealth and expand our passion processing facility.
We have invested approximately $41.4 million and capital projects. During 2019. This amount includes $7.3 million spent on purchasing five existing well compressors at our facilities.
Regarding the remaining capital expenditures are for our cash and facility to expand the gathering system and connect new well along with completing the installation of the new reading processing plant.
I'll now discuss several of our key midstream asset.
At our cash and processing facility the average throughput volume for the third quarter of 2019 increased approximately 53.5 million cubic feet per day, and natural gas liquids production increased approximately 270000 gallons per day.
Several producers continue to actively drilling this area during the third quarter, we conducted 11, new wells to the cash and system.
This brings the total number well connected to the system since the first of this year to 27, and we anticipate nothing several additional wells the system in the fourth quarter.
We are continuing to develop and expand the system in order to accommodate the accu producers in the area.
The new 60 million cubic foot per day reading processing plant is fully operational and with the addition of this processing plant on the cash and system, our toll processing capacity at the castle facility at approximately 105 million cubic feet per day.
At our Pittsburgh Mills gathering facility facility in Pennsylvania during the third quarter 2019, our average total gathered volume was approximately 171 million cubic feet per day compared to 206 million BP per day for the second quarter.
This decrease in gathered volume for the previous quarter was due to the seven new wells connected up into the first quarter declining from their high initial production volume.
At the end of third quarter 2019, these seven new wealth.
Renewing to average total of approximately 70 million cubic feet per day, and a decline rate appears to have begun to moderate.
The production from these wells flows to artistic compressor station, which has recently been upgraded to handle the higher volumes from this area.
At our headquarters facility in the Texas Panhandle. The average total throughput volume for the third quarter 2019, with approximately 69.2 million cubic feet per day, and total production of natural gas liquids decreased approximately 177.
177000 gallons per day from 289000 gallons per day in the second quarter.
The decrease in natural gas liquids as the result of operating ethane rejection mode due to low NGL price.
During the third quarter, we connected to new wells the system that released by third party midstream operators.
In summary, we are continuing to develop and expand our testing facility broad gathering and processing services to that producers in the area.
When the low price environment, we're pleased with the third quarter financial results for our midstream segment.
Despite this environment, we continue to add additional wells you system with the installation of the new any processing plant at our cash and facility. We have increased total processing capacity on the system, which allows us to handle additional volume from active producer.
Finally, due to the avail of $200 million Standalone credit facility, we are actively searching for and evaluate evaluating possible acquisition thats an opportunity.
Our midstream segment is well positioned for growth I look forward to continue the future.
Ill now turn the call over Larry for his final comments.
Thank you Bob as we mentioned earlier, we are currently in the registration relationship with the FTC garbage that exchange offer that can only discuss was publicly available.
We will take questions I refer you to our registration statement and soon to be both games for the most recently completed quarter.
Thank you for joining us from the call today, operator, I'll turn the call back over to you.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participation you may now disconnect.
Okay.