Q3 2019 Earnings Call

Ladies and gentlemen, thank you for standing by welcome to the Q3 2019, Abraxas Petroleum Corporation earnings Conference call. At this time up I guess, if I might turn to listen only mode. After the speakers presentation. There will be a question answer session to ask a question. During the session. You want me to press Star one now your telephone.

Please be advised that today's conference is being recorded if you're acquiring any further assistance. Please press star zero.

I'd like to hand, the conference or what's your speaker today, Steve Harris CFO . Thank you. Please go ahead Sir.

Thank you Judy and welcome to the Abraxas Petroleum third quarter 2019 earnings Conference call with me are Bob Watson President CEO .

When we ever Chief accounting officer, and our VP of operations and land available to answer any questions. You may have after Bob's overview.

As a reminder, today's call is being taken a webcast replay will be available immediately after the conclusion of the call.

Back to remind everyone that any statements made during this call that are not statements of historical fact are considered forward looking statements and actual results could vary materially from those contain any statements.

Factors that could cause our actual results to very are described in our filings with the securities and Exchange Commission I would encourage everyone to review these risk factors contained in the filings and in our press releases, so with that I'd like to turn the call over to Bob.

Steve Good afternoon.

Realizing that our commercial banks reserve based loan Redetermination period to period can be volatile for a number reasons.

The current time are being very conservative and as part of our strategy to maximize shareholder value. We determined our first step needed to be balance sheet stabilization and increasing liquidity.

We needed to term out some of our debt and reduce our reliance on our RBL.

After several months of delicate negotiations we were successful in bringing in a second lien lender, who cooperated with our group of commercial banks to develop a second lien loan that fits nicely under RBL creates a blended cost to capital of approximately 8.5% and creates approximately $41 million of current liquidity.

As we now have no debt maturities until mid 2022, we can move forward with a conservative capital program designed to stay within cash flow or actually generate free cash flow at current commodity prices and keeping oil production flat if not grow slightly in the years ahead.

This puts the company in a much better positioned to review and act upon other initiatives to create shareholder value.

Previously mentioned the company has very few drilling obligations and both of our basins to maintain the asset base and 100% held by production status.

Our board will be meeting in December to review, a number of budget scenarios going forward.

With the intent of maximizing our overall corporate objectives, we will report the conclusion and subsequent to 2020 guidance at that time.

Our capital program for all of 2019 was essentially completed slightly ahead of schedule, but the third quarter [laughter] slightly less than our guide in 2019 budget of 86 million.

Leading tag ends and minor capital expenditures for the core so fourth quarter.

The free cash flow generated during Q4 will be used to pay down debt and grow additional liquidity.

Our year end looks like spending approximately 89 million we've closed on approximately 23 million in noncore asset sales and we will generate an approximately 68 million in cash flow.

I'll leave you to do the math.

We will have added proved developed producing reserves and production from four new wells in the Bakken and seven new wells in the Delaware and will be carrying over six drilled but uncompleted wells in the Bakken to be completed and 2020.

During this period with no wells drilling or completing we're concentrating efforts on reducing expenses for example, but by no means all of our initiatives electrification in West, Texas has been difficult for all operators.

Hi, Chris witty providers don't act as fast as oil field operators.

We have taken the initiative to do as much of the electrification work as possible ourselves and pushing the electric companies for hook ups.

More than half of our pads are now electrified at a considerable savings and and lease operating expenses.

Every pad, where we have to generate electricity costs about $30000 per month for.

For generator rental and diesel fuel is our produce gas SH two S. In it which precludes that uses a fuel without a huge cleaning expense.

Our supplied by electric companies costs about $3000 per month.

For 11 current pads, the savings will amount to more than 10% of our companywide L. A week.

We've also concluded that jet pump so our preferred method of artificial lift when our wells quit flowing on their own.

We're now in a position to buy these pumps instead of running them at an l. always savings at $14000 per month per well.

Huh.

And generating approximately 16 month payout.

This further reduces companywide yellow, we by an additional 5% or more these projects amount to the previously mentioned minor capital projects remaining for 2019.

The Abraxas Board and management, along with our financial Advisory Advisors Petri partners content do they continue to evaluate numerous options for the company to enhance shareholder value.

Through the quality of our assets and people we have many.

Please do not ask me or any of our team to comment on market rumors or fake news as we have a policy to not comment.

With that I'll open for questions.

As a reminder to ask a question you want me to press Star one on your telephone towards a dog. Your question press the pound key please standby well, we compile the culinary roster.

And our first question is from Dunkin' Mackintosh from Johnson Rice. Your line is now open.

Oh.

Pardon me Duncan your line is now fan.

Hi, sorry. This is a actually Austin is associates.

Good afternoon, and I guess I have a few questions.

Do you all highlight just three held by production wells and 2020, well there'd be any further activity in the Delaware and how are you all thinking in terms of timing on your remaining six block in turn in lines.

The Oh, we have announced that we only have three commitment wells in the Delaware, we have not set our capital program yet for 2020, but those three of the only ones that that we have planned and Oh, we don't frac in the wintertime up in the Bakken. So those six will be a well be fracked as soon as.

Whether permits this spring.

Hi, Thank you and then the follow up question is are you also is there any active dealers in regard to the M&A market.

And is there any continued interest and around goes back in properties.

As I've said that our board and management in our financial advisors are continuing to evaluate numerous options for the company.

We'll continue to do that no certainly we're in a much much better position to negotiate now with the balance sheet that we have and liquidity that we have so those those talks continue.

Thank you very much.

Thank you as a reminder to ask a question you want me to press Star one on your telephone.

Our next question from Noel Parks from Coker Palmer. Your line is now fan.

Good afternoon.

No.

Hi, just a couple of questions I was wondering about what you think of hedging at this point you know we had some commodity spikes over the last few months otherwise you know crudes Ben in these pretty tight trading ranges.

And but you know 2020 strip I guess has risen maybe about three bucks over the last couple of weeks so.

Do you have any thoughts on hedging going forward and does the new second we didn't have any any requirements are restrictions on hedging.

The the requirements are the same is our first lien.

And.

We are limited under under that loan agreement to hedge no more than 80% of our.

PDP production projection from the last reserve report, we've supplied a the bank for the Bank group.

So a we're currently hedged at the Max for the time being.

Until we supply another reserve report.

Which will be effective at the end of this year and then we will look at locking in additional barrels.

Going forward we.

Because of the a tremendous discount in the Bakken and in a west Texas on natural gas.

Very difficult to consider hedges on those right now just because of the basis differentials are almost impossible to predict.

Sure.

And if you.

My calculations are right. It looks like you know how are we already had a good.

Downtrend in third quarter is that it incorporates on what your or are you talking about electrification and.

To be able to buy your your own pumps for or is that well both of those be arms will seem more or the impact in the future.

Well most of the impact will be in the future, but some started in the third quarter.

We also had minimal frac protect cost we did have four wells shut in during September while we were fracking our greasewood pad.

But weve device, a little bit cheaper frac protect.

Protocol. So we don't have the big Big Frac protect costs going forward.

Continue to use the cheaper one because it seems to work.

[laughter] actually what's what's involved in that that protocol, that's different from what you're doing before.

Well, we're just pressuring up on the wells periodically instead of monitoring with sophisticated gauges.

Any pressure spikes.

You want to add any of that.

No that's that's about it.

Yeah, we have been more active in the past and actually measuring that can't be nan against pressure events, but yeah, we think that a especially going forward.

Point in plugging.

When temporary bridge plugs <unk> would be effective.

And so that's that's kind of our plan going forward now.

Great.

And I'm sorry.

There's something else.

No.

Okay and.

Wanted to just asking what you're thinking about about service costs I I.

I think from things you said in the past that the service companies were were pretty hungry and your Ah you. You know for example of course won't be completing in the Bakken and the near term.

But I guess I was wondering in this environment is.

Maybe where you stand on materials inventory of sand and pipe is this the good time to.

Or maybe by did that for the future Lana supply for next year.

Assuming this is cheap as it's going to get or.

Do you think.

I think it makes it as much sense to wait and see.

Well you know, we're not a big company and we can't afford to have a big inventory of pipe. We do by our pipe ahead of time, which we've already done for for a.

An estimated drilling program for next year.

You know sand is getting cheaper by the day, so there's no sense and buying and stockpiling sand.

But we're not we're not factoring in any additional savings into l., we or into capital expenditures for for service costs next year.

We think they've gotten pretty much closer to the bottom and don't anticipate much more.

A reduction in costs.

Okay.

Great and just one last thing could you just remind me about sort of the difference in the royalty terms on your legacy acreage in the Delaware versus.

The it because you're more recently acquired.

Yeah. The some of the legacy acreage. We have is calls for a one eighth royalty. So are you know riser and the high eightys even ones right at 90%.

All of the stuff that we have bought in the last three years is at 75%. So our average throughout our 11000 plus net acres is right at 80% in all right.

Great. Thanks, a lot.

Thank you know.

You bet.

Thank you at this time when I'm showing no further questions I like to turn the call back over to Steve Harris for closing remarks.

Thanks, We appreciate your participation today in our earnings conference call as I mentioned at the start the webcast replay will be available on our website and a transcript will be posted and approximately 24 hours. So thanks, everybody and have a great day.

Ladies and gentlemen. This concludes today's conference call. Thank you for participation you may now disconnect.