Q4 2019 Earnings Call
Ladies and gentlemen, thank you for funding by and welcome to the Shapiro energy fourth quarter on full year 2019 results conference call. At this time, all participants I need listen only mode.
I'll, just because presenter shown there'll be a quick jumps on sufficient so I've two questions drink, especially when it's the first one on your telephone if you require any for those systems. Please press star zero.
No like on the conference. So what's your speakers today pottery Grumman senior director of corporate Finance. Thank you. Please go ahead Sir.
Thank you operator, good morning, everyone and welcome to Chaparral Energy's fourth quarter and full year 2019 conference call.
Participating on the call today, our Chaparrals, Chief Executive Officer checked again ski and Chief Financial Officer, Scott Pitman.
Before we begin I'd like to encourage you to download our 10-K and corresponding earnings release as well as our updated company presentation, which are currently available any investors section of our website.
You can also sign up to automatically receive updates about chaparral through the email alerts feed our investors page.
Please be aware that during the call we will discuss certain topics that contain forward looking statements based on our beliefs assumptions and information currently available to our management team.
Although we believe expectations reflect in such forward looking statements are reasonable we can give no assurance that they will prove to be correct.
There are numerous factors, which could cause actual results to differ materially from what I've discussed.
You can read our full disclosure on forward looking statements and the risk factors associated with our business and our most recent 10-K.
In addition, we will also present certain non-GAAP measures reconciliations to which can be found in our 10-K.
With that said I will now I'll turn the call over to Chuck.
Thank you Patrick good morning, everyone and thank you for joining us today.
Before I go into our 2019 results I'd like to take a moment to introduce myself and sure what I have found here at chaparral over these first few months.
I've worked for several outstanding companies over my career, including mobile oil Exxon Mobil in continental.
Common theme that I have found is that to be successful you need a talented experienced and dedicated team and that is what we have appeared chaparral.
The team is generating high quality technical work at a finer level of detail when I was expecting to fine.
Sound fundamental Geo science and engineering, our as important as ever in this challenging market, where there was little margin for error.
I've been very impressed with what I've seen thus far and I believe that we have a tremendous foundation to build on.
Chaperone has a large oil and liquids rich production base in the mid Con region, and a core acreage position in the oil window of the Anadarko basin.
These geologically advantaged core assets and the outstanding team here are the real strength of chaparral.
This is why we have a great track record of operations meeting or exceeding expectations.
In summary, the oil window, the Anadarko basin has a proven area with many attractive qualities and I'm confident that with our focus on technical and operational excellence safe operations and an improved cost structure, we will be able to create value.
2019 was a challenging year within the industry and that is continuing the first quarter 2020.
There's been prolong volatility and weakness in commodity prices macro fears of excess supply and falling demand.
Tightening of capital markets, and a clear lack of confidence in energy equities.
Shopper all his prepared for this environment with a high degree of operational flexibility with no long term rig contracts no mbcs and nearly all of our core acreage is held by production.
In addition, we have the vast majority of our crude hedged in 2020 at over $51 per barrel and continue to move aggressively to cut costs out of the system.
We've been able to excel at the things that we can control and are taking strategic steps to leverage our strengths and the current difficult environment.
With respect to chaparral in 2019, we delivered strong operational results within or better than guidance ranges as we've done consistently the past several years.
I'd like to commend all our employees and our operations team in particular for completing 29 team without a recordable safety incident.
And 29 chain, we expanded our adjusted EBITDA to nearly $155 million lowered elouise mdna costs and grew reserves and production.
For the fourth quarter, our production was 29.7 M.B. OE per day, which was above the high end of our guidance range and a 14% increase compared to the third quarter.
Our fourth quarter stack production was 25.3, M.B. OE per day, which was an 18% increase compared to the third quarter and also above the high end of our guidance range.
Production mix for the fourth quarter was 32% oil, 31% Ngls and 37% natural gas.
Our full year production was 26.3 Mboe per day and stock production was 21.7 M.B. OE per day, both within our full year guidance ranges.
In the fourth quarter, we had 10, new gross operated wells with first sales, helping to contribute to our fourth quarter production, where the nine wells that we brought online late in the third quarter.
All of the wells brought online in the fourth quarter were in Kingfisher and Canadian counties. As a reminder, production continues to be somewhat variable from quarter to quarter due to pad drilling and the timing of completions.
Looking back at the notable lessons of the 2019 program.
We drilled seven infill sections in the Canadian County mess interval.
Of these reclassified five and successes.
The remaining two were less than successful, but provided valuable experience specifically in retrospect the wells in the Fourq or development were too tightly spaced and suffered from competitive drainage.
The brucie development on the other hand was properly spaced, but unexpectedly depleted in the midst by vertical wells from an earlier stage of development.
These issues were diagnosed quickly and we have adjusted our pre drill planning to avoid them in our current program.
From an expense perspective, we took great strides in 2019 to reduce DNC Ela, we and DNA spending and anticipate building on the those meaningful reductions as we move into 2020.
We have implemented a company wide effort about which I'm very excited that will further enhance our profitability by continuing to drive down costs and increase efficiencies, which will lead to sustain sustainably stronger results.
As we move forward our progress towards cash flow neutrality is of utmost importance.
There are certainly challenges given the current cycle of commodity price and overall mark market volatility.
We do anticipate a large reduction of capital spending relative to 2019.
While working to maintain our were strong fourth quarter production base.
Our drilling and completion activity will remain focused in the areas of Canadian in Kingfisher counties in which we have achieved our best economic results.
We entered 2020 with two operated rigs and remain at that level today.
For the first quarter of 2020 total company production is expected to be between 28.5 and 30 Mboe per day.
The midpoint of this range is slightly lower than the fourth quarter of 2019 due to timing of new wells coming online.
We will continue to monitor the commodity markets as well as our results from operations and our and adjust our operating plan as needed.
I would now like to discuss our year end reserves.
Despite a difficult pricing environment Chaparrals yearend FCC 2019 proved reserves increased to 90 696.6 mboe wheat.
Which was a 2% year over year increase.
We booked extensions and discoveries of about 21, M.B., OE, which were mostly offset by pricing revisions and production.
While reserves increased the net present value discounted at 10% of our year end FCC proved reserves was down 25% year over year to $514 million.
Pricing negatively impacted total reserves by approximately 6.7, MMD OE and $252.8 million in PV 10 value.
Our proved reserves are weighted towards oil and liquids with 28% oil, 34% Ngls and 38% natural gas.
In addition, 67% of our reserves are classified as proved developed these reserve estimates were prepared by our third party reserve consultant.
As I mentioned, we are focused on bringing our capital spend inline with our cash flow.
While we had a very strong year operationally and we have done a great job of cutting costs. Throughout 2019, we are proactively taking measures to further reduce costs across all aspects of our cost structure, including Capex Ela, we mdna.
We plan to continue to deliver on our guidance as we've consistently done and remain focused on operational excellence and delivering strong returns on the dollars we prudently spend.
With that I will turn the call over to Scott to discuss our fourth quarter and full year financial results.
Thank you Chuck and good morning, everyone.
While chaparral reported a net loss of $189.2 million or $4 in 14 cents per share for the fourth quarter. We reported an adjusted net income for the quarter of $12.6 million are 28 cents per share.
The quarterly net loss included 169.7 million dollar noncash ceiling test impairment charge, primarily due to a decrease in prices used to estimate reserves and a noncash mark to market loss of 225.5 million on our hedge hedges similar similarly, our full year 2019 net loss.
Of 468.9 million was driven by a $430.7 million noncash ceiling test impairment and a 40.8 million dollar.
Of non cash mark to market losses on our hedges the full year adjusted net income was 20.6 million or 45 cents per share.
Fourth quarter, adjusted EBITDA grew 30% from our third quarter $246.7 million and grew to grew by 24% year over year to $154.5 million.
This increase was driven primarily by higher production lower operating costs, partially offset by lower realized price.
Revenues for the fourth quarter rose to $72.5 million.
Which included $49.3 million from oil $13.1 million from natural gas liquids and $10.1 million from natural gas.
Revenues increase.
25% in the fourth quarter compared to the previous quarter, driven primarily by increased production higher realized commodity pricing.
For the fourth quarter, excluding hedge settlements, we realize 55.90 per barrel crude oil $15.55 per barrel of Ngls Dollarssixty six per Mcf for natural gas. Despite this increase in realized pricing for the fourth quarter full year 2019 realized prices so weak.
Yes, and all three streams compared to 2018 for the full year, excluding hedge settlements. The average realized crude price was $55.79 per barrel. The average realized NGL price was $15.04 per barrel and the average natural gas price was $1.83 per mcf, which were year over year.
Decreases of 13, 38, and 23% respectively.
We continue to make progress in 2019 and decreasing our operating costs and we are working to drive these costs down even further in 2020.
For 2019, L. OE was lower by $4.6 million or 9%, despite a 28% increase in production compared to 2018.
On a per BOE basis, we realized a 29% reduction year over year to $5 in 17 cents for 2019.
Which was within our updated guidance range of $4.90 to $5.40 per Boe.
Decrease was driven primarily by the increase in production and a record and reduce production salt water disposal costs, along with efficiency improvements in field operations.
During the first during the fourth quarter Chaparrals net DNA expense was $10.8 million $3.94 per Boe.
Adjusted for severance charges and noncash compensation Chaparrals cast gene a expense for the fourth quarter was $6.1 million or $2.25 per Boe to better align our DNA and overhead expenses with current industry conditions, we implemented to workforce reductions in 2019, one in August and one in November.
Since the beginning of 2019, chaparrals reduces corporate and field workforce by approximately 37 and 40% respectively.
As well as implemented cost reduction initiatives that combined are expected to result in estimated annualized DNA savings.
$7.5 million to $8.5 million.
The full impact of these reductions should be realized in 2020.
Adjusted for severance charges and noncash compensation, our cash DNA expense for the full year 2019 was $25.2 million or $2.63 per Boe.
As compared to 27.6 or $3.68 per Boe in 2018.
Representing a 29% annual doing decrease on a Boe basis, and within our updated guidance range of $2.50 to $3.
Shifting to Capex, our total investment decreased to $51.1 million in the fourth quarter of that we invested 42.4 million on drilling and completion activities 3.7 million in acquisitions and 1.2 million in capital Workovers.
An additional 3.8 million was incurred and corporate allocations consisting of capitalized DNA capitalize interest in asset retirement obligations.
For the full year 2019, we invested $269.8 million capital expenditures, which was below the low end of our original guidance and at the midpoint of our updated guidance range.
The majority of our Capex was related to DNC, which was $228.8 million.
As Chuck mentioned, we entered the year with two rigs active and we'll continue to monitor the current environment to ensure we bring our capital spend in line with our revenues.
We anticipate our full year capital expenditures will be significantly less than 2020 than they were in 2019.
In the second half of 2019, we took meaningful steps and reducing a portion of our secured debt on August 29th we closed the sale of our headquarters building for $11.5 million proceeds from the sale were used to pay off outstanding balance of the real estate node of $8.2 million.
Estimated annual savings of $1 million will be achieved.
In addition, we successfully eliminated 9.8 million of lease financing obligations for compressors associated with the sale of our legacy your properties in 2017.
Compressors were being subleased to the buyer of in your properties and therefore chaparral did not utilize any cash eliminating this debt obligation in total we were able to reduced 18.1 million of debt through these two transactions.
For the full year 2019, chaparral realize 14.7 million in proceeds for noncore asset sales. This was significantly above our initial guidance range of $5 million to $10 million and we will continue to be opportunistic as it relates to potential noncore asset sales moving forward.
On September 27, 2019, the company's $325 million borrowing base was held flatten our semiannual right fall Redetermination.
As of December 30, Onest 2019, we had approximately 22.6 million in cash and cash equivalents and 130 million drawn on the revolving credit facility.
As a reminder, we have no significant debt maturities until the end to 2022.
For 2020, we have approximately 2.5 million barrels of oil heads at an average strike price of over $51 2021, we have approximately 700000 barrels of oil has an average strike price $46 with respect to natural gas, we have 7.7 Bcf hedged at an average tractors.
Yes of over to $2 in 70 cents in 2020. Additionally, we have natural gas basis hedges of 7.1 Bcf at an average strike price of 46 cents into 2020.
From an NGL perspective, we have approximately 600000 barrels hedged at an average strike price at $30 in 34 cents per barrel and 20 Twond.
We continue to be inefficient and discipline, operator, and maximize ever Dot every dollar. We spent we proactively took steps in 2000 1919 to rightsize operations.
Increase efficiency and lower cost structure, and we will continue to do so in 2020.
With that I will turn the call back over to Jeff.
Thanks, Scott in closing, we remain confident in our operations team and the strong culture of learning science and technology.
Combining that with our large liquids rich production base geologically advantage acreage position and strong hedge position, we are well prepared as we entered 2020.
The market is changing for energy companies and the turbulent environment remains difficult to navigate.
We must continue to differentiate ourselves and leverage our geological and technical expertise to maximize the impact of every dollar invested.
We are focused on aligning our capital spending with our revenues and improving the profitability of the business.
Because of the current uncertainty in the market and in particular pricing we remain flexible in our pace of development as we are focused on our goal of achieving cash flow neutrality.
We have significant flexibility in our operating plan derived from a high percentage of held by production acreage short term rig contracts and no minimum volume commitments, we must adapt to the current market conditions and prepare for the future by remaining focused on operational and corporate cost reductions, while directing our drilling to toward our best performing areas. This.
Flexible approach is designed to better position us to capture value on opportunities in the future.
With that ill turn it back to the operator for today.
As a reminder, ask a question you renewed so Chris Star one on your telephone suite draw your Chris Jones. Please press the pound Ohashi. Please standby why we've compiled the Q on a roster.
Your first question comes from the line of Derrick Whitfield also feel Hill. Please go ahead. Your line is helpful.
Thanks, Good morning, all congratulations to you Chuck for joining chaparral, thanks to our.
In your prepared comments you noted you were positively surprised by the technical focus some personnel at chaparral.
As you think back through your past experiences and where chaparral is today, where do you see the greatest opportunity to further improve operations costs in 2020.
Well were thanks for the question Derek.
We've got opportunities across the cost structure to do make improvements and we would launch an effort, including everything from identifying capex reductions gionee reductions Ela, we reductions, we really got the team energized around that and generating ideas to to.
To improve our costs throughout the structure I'd say the largest even with all the reductions that we've seen in capital cost. That's the area for the largest reductions there's always room in my my experience to to be innovative around designs.
The.
Aggressive around operational improvements and current certainly in the and the current environment. There are opportunities in the supply chain to work with our vendors in the way that makes sense for all of us to drive costs out of the system. So capital is the largest but thats not the only area of focus weve.
We're focusing on on DNA in the corporate office as well as operating expenses in the field.
Beyond just taking out costs that were also looking at getting more efficient with our production operations evaluating our up uptime.
A major effort in the company is what we refer to as operating by exception, which which makes our field personnel more efficient with their time, so they're focused on the right wells and improving production on those wells.
And that there is another big area for opportunity there. So so it's many phases and the other important thing I'd like to mentioned is that there's the team is energized around this. This is this is about controlling the things that we can control in this environment and putting our efforts there to improve improve the business profitability.
Okay, great detail check and then regarding 2020 as my follow up.
And your current activity how quickly could you spend activity if prices further deteriorate and are there other measures you'd be willing to implement.
Well, we have as I said, Mike in my prepared comments, we have maximum flexibility we have two rigs running as Scott and I. Both mentioned, we could weaken ceased drilling activity. After the current wells with minimal financial impact so.
We're four days into this this this pricing war, we've got the ability to wait and wait and see how things develop no one knows what's going to happen next.
But were we are prepared to react and react aggressively we can we can shut down capital spending as I said at the end of the current wells.
Helpful. Thanks for your time guys.
Your next question comes from the line all done Mckinney Gosh Johnson Rice. Please go ahead. Your line is open.
Foreign Chuck and congrats on joining the team over there.
Oh I kind of follow a follow up on Derricks question.
Assuming that that is that of course of action or capex.
Basically get shutdown it before looking down the barrel of $30 oil I Wonder if you could give some color around your corporate decline for the year on you had a pretty good ramp there in Fourq you down down a touch the midpoint in the first quarter, just wondering if you're not spend.
Minimal spend what is that kind of look like as you progress over the course of 20 Twond.
Any color on where you think you could end up in the fourth quarter would be very helpful.
Yes, I'd say is as a base statement we've.
Pardon me, yes were our decline rates, if we if we were to where to shutdown activity would be in that in the mid to high 20% range, some a little less than 30% on a corporate basis.
In terms of additional steps, we can take again were I'd refer back to Mike. My comments response, there's question that were being aggressive about cutting costs out of the system and all phases.
And controlling the things that we can control.
Okay, great. Thanks, and then.
So I assume you've been in contact with what's your banks.
As prices have fallen down how are you feeling as you go into the spring Redetermination.
Period, and they've got pretty good look pretty good room under there but.
What are you hearing kind of from that side of things, maybe not just from chaparral, but kind of for the industry as a whole on that.
I guess space.
Yes, generally obviously, we have been in contact with them over the week, just trying to understand how they're they're reacting to this price movement, obviously, they're kind of in early days as well I think that.
Obviously with prices where they currently are.
If they're sustain this for the next.
Please.
So you would expect some reduction in borrowing base capacity based on them moving.
There their price decks around.
I'd say, it's probably a little too early to kind of.
Walk through that I would say that our expectations are we're going to go through kind of our normal course redetermination process over the next.
Cost six weeks, but if prices stay where they're at now my expectation is you would see that come down some I don't know to the degree currently kind of where that will fall out that being said I would say that our expectations would be that we would be fine for the foreseeable future.
Reduction.
Okay, great. Thanks.
There are no further questions. So this time I turn the call Buck of whats the presenters.
Well, thank you for joining us on the call today.
As noted we believe we have a great team differentiated assets and a plan to continue to drift were delivered strong results on our path to cash flow neutrality.
Scott and I look forward to speaking to you in the near future.
Ladies and gentlemen. This concludes this conference call. Thank you for participating you may now disconnect.
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