Q4 2019 Earnings Call
Ladies and gentlemen, thank you for Sun environment due to the high point resources fourth quarter 2019 earnings Conference call.
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The conference to Speaker today, Larry Busnardo, Vice President Investor Relations. Please go ahead Sir.
Good morning, Thank you for joining us this morning for the high point resources.
Fourth quarter and you're in 2019 earnings call.
The call with me today are Scot Woodall CEO, Paul the Tigers, COO and Bill Crawford CFO.
Before we begin please review please review the disclosure statements provided within the forward looking statements.
Earnings release, which you can find on our website at HP, our yes Dot Com you can also find these are within our other filings you actually see or in our country, which we filed yesterday afternoon.
We will also be referencing non-GAAP financial measures during our call any reconciliation to GAAP financial statements.
He found at the end of our press release.
Additionally, we have posted an updated corporate presentation to the Investor relations portion of our web site and we will be referencing several slides within the corporate presentation on todays call with that I'll turn it over to Scott to begin prepared remarks.
Good morning, and thank you for joining us today to discuss our fourth quarter and year end 2019 financial and operational result.
We will also be discussing our 2020.
2020 point.
2019 with nonstop challenges.
He just financially and operationally as an organization in our first full year operating at Highpoint resources.
Returns focused strategy allowed us to execute our corporate initiative.
Were solid financial and operational performance.
Our prior to our priorities for 2019 wasn't sustained capital program that would generate free cash flow in the second half a year. This was accomplished during the third quarter. The excess cash was used to strengthen our balance sheet and reduced borrowings under our credit facility.
Our solid operational execution ability to optimize our cost structure was evident in our financial result, as we meaningful meaningfully increased EBITDAC by 21% to $339 million.
This was underpinned by development activities that drove production sales volumes growth of 23% to 12.5 million barrel and oil volume growth of 21% 7.7 billion barrel.
This was accomplished with capital expenditures that were 29% lower than 2018, underscoring our commitment to maintaining a disciplined approach to capital investment.
We maintain a focus on managing cost by reducing operating costs by 16% for view, we compared to 2018 that included a 23% reduction in cash DNA.
Profitability was also demonstrated by our peer leading operating margin of $30, a 31 cents per barrel that benefits from our assets, having high all percentage in oil price differential and lower operating cost structure.
Operationally, our average were highlighted by the successful execution of our large scale optimization program in the Herbert field, which is realizing tangible benefits of increase capitalization feet enhance well performance and stronger per well economics.
This significantly advanced our geologic and reservoir understanding of the field and several generations of completion enhancements were accomplished in a single project area instead of over several years.
I will discuss our results in more detail, including a status update and our development plan going forward.
In our legacy northeast Wattenberg field, we continued to deliver strong well performance as high fluid intensity completion are performing materially better than earlier program well. This highlights our ability to continually enhancing value from our assets as demonstrated by our 2019 drilling program, achieving 48% rate of return.
Okay.
For 2020, we will maintain a disciplined approach and plan to prudently allocate capital to our highest we turned development opportunities and preserve inventory we have a flexible development program as the majority of our acreage is held by production and we have very few drilling commitments.
We were like important to managing our liquidity have set a planned spending level that is approximately 40% lower than 2019, as we prioritized positive free cash flow generation and no increased debt.
We remain focused on creating further cost savings by generating greater operating efficiencies, our drilling program lean to lower well cost to enhance returns.
Bill will touch on full guidance in his remarks, I will turn it over to build out for his comments.
[noise]. Thank you Scott and good morning to all Scott already touched on a lot of our key financial highlights all provide some additional detail around the financial results and some color around EUR 2020 outlook.
Again as Scott mentioned are one of our chief financial objectives for 2019 wants it to sustain a capital program that would build momentum throughout the year and allow us to generate free cash flow in the second half.
It was accomplished in the third quarter and allowed us to deliver $52 million a second half free cash flow. This excess cash was utilized to reduce borrowings under our credit facility and we ended the year with 140 million of debt on our credit facility.
And 350 million up liquidity I.
I would like to highlight that with respect to our longstanding 26 million dollar letter of credit you will reduce ratably on a monthly basis beginning on April 1st until it expires in Q3 2021.
This relates to our longstanding GTP commitment, which will end as well that.
Reducing debt and maintaining liquidity will remain our top priority for 20, Twond, our capital budget and non op divestitures reflect this our nearest senior note maturity is over two and a half years away and we won't be prepared to address them as markets availed themselves.
On the hatching front, we have the great majority of our anticipated 2020 oil volumes hedged added W.G.I. price of over $58, which is well in excess of current strip prices. We also have a strong base of 2021 hedges at $55 to protect our current.
Activity.
Consistent with our longstanding strategy being 50% to 70% hedged over the for 12 to 18 month timeframe to protect our capital investments you can find eight fold summary of our updated hedge position in the press release.
Now onto our 2020 capital program in guidance as Scott mentioned, we will maintain discipline capital approach for 2020.
Spending level up 200 to 220 million, which allows us to generate free cash flow and not increase overall debt levels based on the timing of operations budget is weighted towards the first half of the year and remains flexible to adjust to any macro related changes Paul will.
Discussed in the timing and cadence here in a moment.
First quarter capital spending is expected to be approximately $90 million as we focus on completing our inventory of ducs in both her heard and northeast Wattenberg drilling in the first half the year its focused primarily in northeast Wattenberg before we plan to resume drilling and completion operations.
Hurford and the latter part of the year.
2020 production is expected to total 10.5 to 11 MMD Lee with an oil proportionate 50, 758% I would like to note that this takes into account about 0.6 M.M.D.. We have production associated with the planned divestitures first quarter per day.
Auction is expected to be 2.7 to 2.8 and that'd be a week.
The remainder of our cost guidance, maybe found in our press release with that I'll turn it over to Paul.
Thank you Bill and good morning, everyone.
First I want to congratulate commend our field office personnel for a great quarter end year, delivering our best combined HSC performance and several years as a result of rigorous root cause analysis and quality corrective actions.
Our fourth quarter production outcome was heavily impacted by midstream availability at her occurred in the power outage across that region in late November the continued into the beginning of December.
However, our strong operational execution allowed us to grow annual production by 23% with the fourth quarter production disruption pulling full year 2019 production so lower in our guidance range.
Development activities drove an increase that proved reserves to 127 million barrels oil equivalent.
A 22% increase over our year end of 2018.
This was driven by a meaningful increase in hurford reserves recognizing the success of the section 16 southeast wells.
This provide an economic baseline and supported the additional pud bookings audited by our outside reserve engineers.
Hurford Wells in section 16, southeast and southwest continued to perform well exhibiting shallower declines and supporting our development curves.
I would now refer you to slide 14 interrupted corporate presentation.
As you can see.
Production from each set of wells is exhibiting strong trajectory.
This is highlighted by the average per well cumulative oil section 16 southeast wells tracking 40% above are all earlier wells. After 230 days and section 16, southwest wells trucking, 30% higher after 185.
The 12, well development deals you in section 17, initially displayed positive productivity, but didn't recover as well as the surrounding wells following the field wide power outage caused by extreme winter weather.
We initiated a workover program to ensure open laterals on each of the wells.
These wells are returned to production recently and continue to clean up post workover production rates still improving.
And northeast Wattenberg, we're delivering strong well performance as high blood intensity completions are performing materially better than earlier program wells.
This highlights our ability to continually enhanced value from our assets and as demonstrated by our 2019 drilling program, achieving a 48% rate of return.
Our more recent operations are highlighted by seven wells located NDS you'd five to 61 35 completed with high food intensity completions in place on flowback late in the third quarter.
Well have exhibited strong production performance as per well average cumulative oil production is tracking 50% or both analog offsets after 125 days versus wells with the previous standard completion design.
Slide 17, and 18 at the corporate presentation highlights impact that higher fluid completions have had on production performance of our wells and demonstrate our success and enhancing value from all areas of our legacy asset.
We're very focused on tuning our cost structure in response low commodity prices.
Lease operating expense has trended down across the year, achieving $2.10 per year, we averaged for the fourth quarter, the lowest of 2018 and 29 team.
Now moving on to 2020 operations.
And Herbert we resumed completion activity in the first quarter with completions on the Curian 2019th.
This program incorporates the design optimizations from or heard a program and our 2019 development program.
Significantly among those are larger volume completions, a 50 barrels a foot.
Medium sand loadings in 2000 pounds per foot.
Hi, root for cluster methodology and simultaneous stimulation of wells.
These seven wells located in the Fox Creek area of DS You 12, 63, 34 will be turned online during the late first in early second quarter.
We will evaluate the relative performance of these wells during the second quarter make any indicated design changes and we expect to initiate continuous drilling complete operations at hurford, beginning in the third quarter.
And northeast Wattenberg, we're in the process of completing the 24 Curian dust.
We're currently operating one drilling rig and we plan to spot up to 13, new wells in the first half of the year.
Early 2020 northeast Wattenberg activity results in a lower overall corporate oil percentage as these higher Geo Orwell's come online.
We expect this trend to reverse as we begin continuous development her for field in the second half a 0.1.
The company is committed to producing energy and environmentally responsible manner.
Both Herbert and northeast Wattenberg completion programs utilize natural gas is fuel reuse produced water for completions and employee Ventless completions and flowback techniques, we incorporate in sustainability in innovation focused in all of our efforts.
Finally, we're in the process of divesting our non operated assets in Wyoming, Colorado, New Mexico, all of which constitute a small portion of our overall acreage position.
We have received accessible bids for multiple parties and expect these transactions to close separately during the second quarter.
In aggregate, we expect these accretive sales to bring at $27 million, which is approximately seven times, a three year average cash flow.
The proceeds will be used to repay borrowings on revolver and our 2020 guidance is net of the approximately 600 Mboe, we expected production loss from the sales.
To summarize.
And our first full year of Highpoint resources, we increased production, 23% versus 28.
Demonstrated economic DS you development at Herbert with the 16 Southeast Wells, we expanded our proved reserve base, 23%.
That's fully developed high volume completions across the northeast Wattenberg, leading to our best program rate of return.
And we drove our NHS incident rates will year lows.
For 2020 were focused on conservative capital management on rate of return performance within the drilling program and on generating positive free cash flow.
We look forward to providing future updates and delivering on our full year 2020 guidance.
Operator, we're now ready for questions.
Thank you.
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Our first question will come from the line of Derrick Whitfield from Stifel. You may begin.
Thanks, Good morning all.
For perhaps for Scott or Paul with respect to your 2020 Guy could you speak to the production impact associated with section 17 wells.
With that question I'm trying to separate section 17 impacts from activity impacts.
Sure. This is Paul.
We look at those versus our previous curve and their their net contribution to our 2020 budget.
Picked up reduction is about 250 M.B. are we.
Okay. Thanks, and then with respect to the five docks at Fox Creek could you speak to the well design spacing for those wells.
Sure.
They are.
Codell and Niobrara wells, North and south the us use and those are codells that equivalent for well spacing.
And.
Numbers at equivalent six to eight well spacing across that area.
As far as designed goes those were larger completions at the 50 plus barrels of foot.
2000, plus the pounds of sand a foot based on our our hurdle findings and our 2019 results.
Great and just one last build on that last question assuming success with Fox Creek.
Could you speak to how you're thinking about second half plans for her for.
Absolutely as we as we bring those wells on in the.
The.
In the first quarter and the beginning of the second quarter.
We.
Well be monitoring those across the first the second quarter with that higher.
Great flow back that we've been.
Talking about will last quarterly call.
To bring those wells on more aggressively.
In that way, we'll be able to watch those wells over Q2.
For reflective of any design changes any modifications before we go into continuous development in the third and fourth quarters the year.
Great. Thanks.
Thanks for your detailed commentary.
Sure.
And our next question will come from line Welles Fitzpatrick from Suntrust you may begin.
Hey, good morning.
On the G could you talk to the JLR the asset sale, just so so I can kind of better understand that the the kind of cadence of how that youre shifting with the new 2020 got.
Sure as we look at the.
Total pieces those assets sales they fall.
Within the range of our of our operated production very similarly, and then you've got the of course the.
The.
Permian component in the up the Wyoming DJ component and so altogether those are ours, 60 to 80 or 60% to 70% oil.
Okay, perfect and then.
On the Blizzard is the is it right to assume that the only real impacts in 2020 is that kind of 63 17 section of the two 250, Mboe you talked about or where there were there other impacts that that might have negatively affected that that guidance.
No we didn't see other negative impact from that field wide shut in it is really limited to that section 17 area.
Okay Perfect and then just just one last one from me.
What do you guys seem with current NGL pricing, obviously theres been a little bit of in a pleasant plus an uptick.
With the new pipes coming on are you seeing that continuing into into February actuals.
Yeah.
Yes miles were up from our obviously the lows.
You know Q3, and kind of seeing that 10 to $12 per barrel with our mix now that we're getting more too.
DCP, which is now off curtailment, we get on those long haul types down to Bellevue.
Obviously, the ethane is still just 15 cents down there so it's not great, but it's better than it was in Q3.
Gotcha. Thanks, so much.
Thank you and our next question will come from the line of Jason Wangler from Imperial capital maybe get.
Hey, good morning, guys.
Curious on the Capex spend and thanks for the details for this year, obviously, you spend in a pretty good chunk of it first quarter.
Is that second quarter, all is going to have a pretty good piece as you as you can complete those docs are or how should we kind of think about it as you think about the optionality for second half of the year.
Yeah, I'd, probably say, yes.
Jason you won't be as much as what.
Q1, but it will have some of those ducs still being done in the early part of Q2, which will lead to a little bit higher spending.
Okay.
And then just looking at the guidance from the the operating expense and gene and things is our those levels just little bit higher than last year basically just because of the lower production level or is there anything else, we should be thinking about on those numbers.
I don't think there's anything else you should be thinking up in those that those numbers. We did them all on a per view he basis and so it's just the the denominator there.
I appreciate it.
Thank you and I'm not showing any further questions at this time.
To turn the call back over to Larry Busnardo for any closing remarks.
Thanks, Eric Thank you again for participating in our call today, please feel free to reach out if you have any additional questions. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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