Q4 2019 Earnings Call
We completed two great Acquisitions in 2019 for approximately $188 that added meaningful production significant reserves in future drilling locations dead. In addition. We added nine new shuttle water and ate new deep-water leases in Gulf of Mexico Federal lease sales financially, we generated adjusted ebitda 283 million dollars reported positive adjusted. Net income for every quarter generated about a hundred six million dollars in free cash flow, excluding Acquisitions and lowered off operating in overhead costs. Thus we increase reserves increased production and cut costs.
so before
Discuss a strong fourth-quarter earnings and provide an operations update. I'd like to review some of these important 2019 major achievements in a bit more detail.
So at the beginning of 2019 I told you that we were looking closely at acquisition opportunities and in the second half of 2019. We executed some very good transactions that met all of our Strategic investment criteria. We look for properties to existing good Cashflow upside that we can achieve with the drill bit and the potential to increase near-term cash flow through work over three completions off indoor facility upgrades. We primarily use the cash. We generate the fun drilling and make more Acquisitions to consistently grow value. We also use our free cash flow to participate down our debt to protect our balance sheet.
So on August 30th, we close the Gulf of Mexico Mobile Bay acquisition from ExxonMobil for 167.6 million dollars, which included working interest in nine Shallowater producing films and related operatorship in the Mobile Bay Area making w&t the largest operator in the area. These low decline assets are free cash flow positive and adjacent to our current operations. Thereby providing us the opportunity to recognize increase scale rationalize operations and capture cost efficiencies to further grow cash flow hedge position also included their onshore gas processing facility. That is near our yellowhammer gas processing facility.
so on this is
Number 12th, we completed an oil waited producing property acquisition from ConocoPhillips for their 75% working interest and operatorship of the Magnolia field in the central region of the page where to go from Mexico. The total purchase price was $20 Magnolia field provides upside from additional pay students and existing world wars and potential opportunities for future drilling off. Both Acquisitions were funded from available cash on hand and our revolving credit facility.
The 2019 Acquisitions added approximately eighty two million barrels of proof reserves as of your in which was higher than the $78 million barrels of oil equivalent combined reserves, as of defective dates of each transaction. The increase to reserve was driven by synergies and operational costs savings already captured by Debbie and T at Mobile Bay that were partially offset by the lower your over your prices the underlying technical analysis of the total field remained unchanged but these lower costs allow for higher margins throughout the life of the asset the 16th overall field life in addition. There's the opportunity for future growth and reserves from potential field Life Extensions with little or no Capital as well as through Drilling and facility up a great opportunities. We have a very good track record of reducing costs and enhancing value with all of our past Acquisitions. And we intend to do that with both Mobile Bay and Magnolia wage.
2020 and Beyond
So you saw on our release last night that we recently signed to purchase and sale agreement to acquire the remaining 25% working interest in the Magnolia field. We expect close that transaction page 31. This is another example the attractive acquisition opportunities were seeing across the Gulf of Mexico.
Looking at our strong urine Reserve report 2019 SEC proved reserves increased 87% to 157.4 million barrels of oil equivalent from 84-month ribbon year in 2018. So about 40% of your end 2019 reserves were liquids in the balance was natural gas the company achieved approved replacement rate of nearly 600% of 2019 production of the 14.8 million barrels of oil equivalent just included Acquisitions positive revisions suggestions and discoveries and the impact of negative revisions do the pricing at year-end approximately 78% of 2019 proved reserves were classified as improved developed producing a 7% is proved developed non-producing and 15% is proved undeveloped.
We extended our Reserve Life.
Issue with 2019 Acquisitions and successful drilling to 8.7 years based on your end 2019 proved reserves and the midpoint of our 2020 production guidance thousand nine thousand six hundred barrels of oil equivalent per day.
The pv-10 value of w n t s s e c Reserve that you're in 2019 was one point three billion dollars down about 9% from one point four billion dollars at the end of 2018. This was driven by reduced oil pricing 11% and natural gas pricing of 16% The 2019 SEC pv-10 is based on an average crude oil price for $58.11 per barrel is an average natural gas price of $2.63 per mcf the total impact from the year-over-year pricing change just proved reserves by approximately ten million barrels of oil equivalent in pv-10 by approximately half a billion dollars.
So are all in reserve replacement cost.
2019 including Acquisitions drilling costs and considering all reserves in the impact of negative price revisions was $4.18 per barrel oil equivalent for the three year. 2017 through 2019 W and TS all in reserve replacement cost was $5.05 per barrel of oil equivalent. We think that's a very competitive cost for any us EMP especially for a company with proof reserves are 85% approved developed. So now turning to our fourth-quarter results replace our performance in particular with the increases in production integration of the Mobile Bay assets growth and adjusted ebitda and continued strong cash flow generation.
We grew adjust ebitda 279 million dollars in the fourth quarter despite a week pricing environment while investing thirty two point two million dollars in capital expenditures, excluding Acquisitions wage and maintained an active drilling program in the Gom with two rigs running.
This is very important as we continue to create significant value by generating nearly fifty million dollars more of adjusted ebitda versus our cat facts.
The pillars of our success is our ability to generate positive cash flow for the full year 2019. We generated $283 billion and adjusted ebitda. It's been a hundred and twenty billion capex excluding Acquisitions, which was below the low end of our guidance of 130 to 150 million.
In the fourth quarter of 2019 production increased 28% to 52773 barrels of oil equivalent per day or 4.9 million barrels of oil equivalent wage to the third quarter of 2019. This was above the midpoint of guidance range and included three months of production from the Mobile Bay assets and less than one month from Magnolia home.
total liquids production comprise 45% of production in the fourth quarter of 2019
production for the full year 2019 was above the midpoint of production guidance and came in at $40,600 oil equivalent per day or 14.8 million barrels of oil equivalent home after the first quarter of 2020. We expect to have production to be between 49600 and 54800 barrels of oil equivalent per day and for the full year twenty-twenty to be between 47100 and 52100 barrels of oil equivalent per day.
so for the
Fourth quarter of 2019 prices declined about 4% for oil compared with the third quarter but increased modestly for ngls and natural gas. The average realized crude oil sales price was $56.84 per barrel. The NGL sales price was $16.64 per barrel and the natural gas price was $2.58 per mcf page news for the fourth quarter increased quarter-over-quarter by 15% to 151.9 million dollars. The increase was driven by higher sales volumes partially offset off. There's a client in realized oil price. So our total fourth-quarter l o e came in at fifty three point three million dollars, which was below the low end of our guidance range primarily due to lower Range Rover cost and not operated facility maintenance expense resulting from delays in the timing of planned projects.
For a quarter-over-quarter basis cost were up primarily due to additional costs associated with the Gulf of Mexico Mobile Bay acquisition. But on a walk-in basis fourth-quarter costs were down 12% $10.98 per Boe that's reflecting the benefit of the higher volume to lower per Boe costs associated with the Mobile Bay acquisition. We also reported net income in the fourth quarter of 2019 of nine point, six million dollars or seven cents per share which included 18.1 million unrealised commodity derivative loss. Our adjusted net income grew by 32% 24.4 million dollars were Seventeen cents per share.
And you sir?
431 we had thirty two point four million dollars in cash and cash equivalents and 139.28 of availability under our revolving Bank credit facility in early 2012 to pay down debt with a portion of the free cash flow. We continued to generate and as of February 29th 2020, we reduced our borrowings on our revolving Bank credit facility be 25 million dollars to eighty million dollars in borrowings under our revolving Bank credit facility. This is about a 24% reduction in revolver debt.
So turning that operations we continue to have strong results through the drill bit at the bank nine ten deep water filled the South 10:30 11:00. Well with successfully drilled off the first quarter of 2019 and discovered to high-quality Sans the operator completed the well in third quarter 2019, well is currently producing approximately 4850 barrels of oil equivalent per day the A3 well as follows the success of the 8 to well that was brought on line early and 2019 on June 5th. We announced an oil Discovery wage first exploration. Well in 2019 glad indeed the well is located in approximately three thousand feet of water and was drilled to a total measured depth of 18324 Ft off the counter 201 ft of metal OPEC. Well was completed and placed on production ahead of schedule in the third quarter and it's currently producing approximately 4360. Yep.
oil equipment per day
with 89% oil we are the operator the well and on a 17 and a quarter percent interest in the discovery that will increase the 22.1% once performance thresholds are off that additional it was successfully drilled the chip show 28 number 41 and the East Cameron 321 be a Sidetrack wells in the third quarter the Ship Shoal 28 number 40 wage was brought on line in fourth quarter of 2019 the growth rate of 1440 barrels of oil equivalent per day the East Cameron 321 be eight Sidetrack Well, Log, better-than-expected net vertical pay maybe forty and was brought on line late in the fourth quarter of 2019 at a grocery of 940 barrels of oil equivalent per day are interested of these wheels is currently 30% and that will increase 38.4% once performance thresholds are met
So we're currently drilling our first well twenty-twenty in the East Cameron. 338 / 349 field the code. Oh, well is in over two hundred ninety feet of water will plan total of over six thousand feet and we expect to reach TD in the second quarter of 2020. We currently own a 20% interest in the code as well, which will also increase the 38.4% month has brought online and performance thresholds are met during the fourth quarter We performed one. Well recompletion and 6 work overs that in total added about a thousand net barrels of oil equivalent per day.
so looking at
At the 2020 under current commodity pricing conditions we intend to continue to generate free cash flow and focus on debt reduction in additional Acquisitions. This means that we should take a measured approach drilling while continue to find our Capital expenditures excluding Acquisitions with available cash and cash generated from operations.
Our preliminary capital budget for 2020 excluding Acquisitions is expected to be in the range of fifty to a hundred million dollars. We also expect to spend about 15 to 25 million on Thursday and obligations this year, which is in line with the twenty million average that we spend on a r o in the past two years. We have significant flexibility to adjust our Capital spending up or down at any time since we have no long-term rig contract commitments or drilling obligations are lower production declined profile combined with the office building program. It will add incremental production late 2020 and early 2021 allow reductions and cutbacks without significantly impacting near-term production levels off.
for example, we could further with
Is our cat back to approximately 20 million dollars and see approximately 1% decline in production for the range. We provided for 2020.
For 2020 assuming the midpoint of our preliminary capex range of $75 million dollars. We currently estimate that. We will generate free cash flow at or above $45 per bulb in a dollar fifty per mcf to Matt of natural gas. We think that's a very positive statement to make in this current uncertain price environment.
To our 2020 Capital program will continue to be focused on lower-risk high-return projects, which could be placed on production fairly quickly. We have a strong inventory of drillable projects a long track record of drilling success in 2019 and 2018. We had a one hundred percent drilling success rate and since 2011 across nearly fifty Wells we have achieved success rate of 93%
We believe that even with that lower preliminary budget range of fifty to a hundred million dollars. We will be able to increase production approximately 16 to 28% in 2028 versus our full-year 2019 production rate of 40634 barrels of oil equivalent per day. This increase is bolstered by Acquisitions. We completed in the second half of 2019. We also expect r l o e to increase on an absolute basis, but we're forecasting a meaningful decrease on a per Boe basis compared to 2019.
So despite the accuracy.
Issues that have significantly increased production and reserves we believe our G&A expenses will be similar to 2019 levels. We will continue to control the costs that we can to maximize and generate significant cash flow from our operations are release yesterday has more details on our 2020 first quarter and full-year guidance.
So we remain optimistic about the future 4WD. We have a premier portfolio of both shallow water and deep-water properties whose significant upside that will be further enhanced through Acquisitions and organic. Generally, we have developed significant technical expertise in the Gulf of Mexico for over thirty seven years and believe that we can leverage this expertise to maximize the value of our asset base wage and any additional Acquisitions that we make we believe that market conditions in the Gulf of Mexico remain very favorable for additional Acquisitions. We will continue to look at new opportunity to meet our criteria and our creative ad production reserves and cash flow.
We are well-positioned to generate.
Sustainable growth within cash flows and we believe that the Gulf of Mexico is an excellent bass in which to achieve that growth.
We remain focused on operating efficiently and executing our long-term strategy while maintaining our strong balance sheet to maximize shareholder value.
Our management team's interests a highly aligned with those of our shareholders given our 34% stake in wt's equity which is the highest of any public EMP company of the month. You can't blow seven billion dollars. This alignment of interests ensures that we're truly incentivized to maximize shareholder value mitigate risk, and we look forward to working through the in twenty-twenty operator. We can now open the lines for questions. We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two months. Please limit yourself to one question and a follow-up you can always rejoin the Queue at this time. We will pause momentarily to assemble our roster. The first question comes
from John White of Ross
Capitol please. Go ahead.
Good morning, and congratulations. It's not every year that you're able to double proved Reserves.
Thanks. Yeah, so could you talk in general about the 2020 Drilling and development program since wage affects has been greatly reduced which I think is prudent move given the size of the capex that rule out any deep water wells or or are you going to focus on work overs? Could you just give us a little color? Yeah, we we do have a A reduced program from last year, of course cuz we've reduced our budget. We've got a well we're drilling now. We got plans a little bit later on in the year for uh another well in in in what I would call deeper walk it higher than 380. And also we we've got plans for another well.
Egyptian forty we've got a uh
at
We've got the Mississippi Canyon 800 Side sub see one side traffic. We did is an intervention work over in nineteen. We're looking at some some other activities around one of our fields that has hasn't uh, really come to the Forefront yet for for announcement purposes wage going to be it's ten 3:16. So and we we expect it will have other opportunities as we work through the data at Mobile Bay and other places where we're we're doing more reprocessing, uh in in uh in our shop now,
Expect to see the results of that kind of production increase I would later on in the year and early twenty Twenty-One wage. Okay. Well, thanks a lot and giving your production profile. You've got a lot of flexibility to cut capex like that and congratulations on progress paying down the debt.
Yep, it'll just get prices up. We'll do some more drilling tip.
I appreciate you taking the taking my question. Thank you, sir.
Again, if you have a question, please press * then 1 the next question comes from Richard Palace of Capital One Securities, please go ahead.
Hey, thanks. Good morning, Tracy and and everyone over there.
Quick questions for you, you know you talked about the the acquisition landscape and of course the reduced budget for this year. What's the outlook for possibly pulling together additional drilling type JV similar to monzo to maybe do a little more work in 2020, you know with some outside folks as well.
Yeah, that's that's certainly a possibility. We we do have more Wells to drill. I'm really more inclined to focus on Acquisitions at that point. And of course as we do the acquisition that generates more prospects.
I understood and if you look at the 2020 budget the fifty to a hundred million in total you outline the guidance for this year and I couldn't talk a little bit about the the impact on production later in the year, you know, which sort of Outlook would you see production wise say the first half of 2012-13 as a result of of this year's spending, you know in Broad terms.
I'm not sure. I have a response for that Richard. I don't see any real dramatic increases or decreases throughout the year off like we we've we've outlined guidance kind of as well not kind of but as a function of uh of the budget that we proposed clearly if we spend more money will expect to see an increase in the budget. We did tell you that down to a very minimal budget of around twenty million that we should expect to see only about a 1% decrease in production of okay and and just just as a quick follow-up. Could you do the same sort of production impact in 2021 with another twenty million dollar type budget in in 2021.
It's a little bit far-reaching right now. I think what we would expect to see is is in increases in production as a function of the work that we're doing the the the more the the more impact that we would see would be later on in the early 2021. So, you know a complete blow off of of of our reserves. We did no work is typical in in in the Gulf of Mexico will be around 15 or so percent, right? I mean the good news is it that our our our production profile is his our our would be is increased over eight about 8.7. Okay. Let's helpful Tracy. I thank you. I'm sure thank you. The next question comes from Richard of long Port please. Go ahead. Good morning. You're you're coming about the pig?
on reserves was
So ten million barrels or half a billion dollars was that largely in the oil part of your reserves or was that spread across the 3-month?
No, it was more on the gas side of it. Okay, and then to follow up on the prior one of the prayer questions if if in a your your capex of twenty million keeping production down 1% off how much of the or what what would the the decline rate be for your assets last year's Ecuador?
Free last year's Acquisitions. Well pre last year. We had a an oral repay of around 5 and 1/2 to 6.
Based around 8.7. So I think that's that that should make up the most of it.
I I'm I'm not a very facile with those numbers. Okay, sir. Well, if that's the you know since since you have a bunch of production coming from 2019 Acquisitions, yeah the that that's masculine or you know, it's it's offsetting the the the base decline rate know it doesn't offset at all increases it.
The base decline rate gets longer because we've added Reserve that are long-lived reserves. Okay.
And and the long-lived reserves in increased the decline rate, they decrease the declining. Yeah, they decrease the okay. That's correct.
Okay.
So I'll just say not available. I don't I don't know what you mean by now some of the the of the the way the answer is, you know, I'm still murky on the answer now could be different ways. I need to answer it for you, sir. All the profiles increased and the reserves have increased. The only logical answer is of course that the production profile is better. We're producing more and we've we've added more reserved and we've got coughing.
Okay. Okay. Thank you.
Again, if you have a question, please press * then 1 on a touch-tone phone.
This concludes our question-and-answer session. I would like to turn the conference back over to Tracy Krohn president and CEO for any closing remarks. Thank you, sir. We look forward to Morgan not-too-distant future and we'll talk to you again soon. Thanks so much. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Thursday
Thursday