Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the first quarter 2020, Bonanza Creek Energy <unk> earnings Conference call.
It's time, all participant starting to listen only vote. After the speaker presentation, there will be a question and answer session.
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Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero.
It is now my pleasure to introduce senior director, a finance and I are Scott Landress.
Thinks Andrew Good morning, everyone in welcome to Banana decrease first quarter 2020 earnings conference call and webcast.
On the call. This morning, I am joined by Air Gregor, President and Chief Executive Officer, Brent Amused Executive Vice President and Chief Financial Officer, and other members of the senior management team.
Yesterday, we issued our earnings press release posted a new investor presentation and filed our 10 q. with the S.U.C. all of which can be found on the Investor Relations section of our website.
Some of the slides and the current Investor presentation, maybe reference during our remarks this morning.
Please be aware that are remarks will include forward looking statements are subject to many risks uncertainties that could cause actual result to defer materially from these statements you should read our full disclosure is regarding 40 monkey forward looking statements container 10, Q. 10, K. and other S.U.C. violence.
Also during this call we will refer to certain Nongaap financial measures because we believe they're good metrics to use and evaluate performance reconciliations of these measures to the most directly comparable gap measures are contained in our earnings release and Investor presentation.
You'll start to call was prepared remarks, and I moved acuity now I'd like to turn the call over to Eric record Presidency, Eric.
Thanks got good morning, everyone and thank you for joining us today for our first quarter earnings call.
We appreciate your time, an interest in Bonanza Creek.
As with previous calls we will keep our prepared remarks short can orderly plenty of time for Q. and a and for you to join other scheduled calls.
Much has changed in the N.P. industry in throughout the World since we hosted our fourth quarter earnings call on February 27.
I would like to begin today's call by thanking the employees, a Bonanza Creek for their professionalism and dedication during these difficult times.
I'm proud that the team is delivered another strong quarter and has been able to respond quickly and effectively to the rapidly evolving macro environment.
Like many companies we've made changes to how we work in order to help protect our employees and members of the community with whom we interact from the covert 19 pandemic.
Most Denver based employees have been working from home for the last several weeks and those in the field have altered their activity is to limit their interaction with others.
Forward to the day when I can sit across from the four Bonanza Creek team again, but in the meantime, I'm very confident and the teams ability to provide safe steady operations in the current working environment.
From our operations perspective, we were quick to respond to the unprecedented combination of excess supply and demand destruction.
In early March we took decisive action to suspend further drilling and completion activity is.
Doing so enabled us to reduce our plan 2020 cap acts by over 70% from $225 million initially to arrange of $60 million to $70 million today.
We expect to reduce cap x., along with our expected 2020 volumes and a strong hedge book will generate free cash flow this year.
And allow us to access to your with nothing drawn on our credit facility.
We're off to a good start in this regard as we generated $43 million of either Don the first quarter on cap extra $41 million.
We pay DRV, all down $21 million during the quarter, and cutting or $59 million drawn $11 million in cash or $300 million I'm liquidity.
Courage ratio of two tenths of a turn.
Despite a relatively small size our costs structure is among the lowest in the industry. We have identified approximately $8 million and operating expense savings that we began implementing and the first quarter.
Our first quarter Hello, we have $2.52 per <unk> has the lowest the company has ever recorded.
And we have subsequently lowered our 2020 elderly guidance to a range of $2.50 to $2.90 per <unk>.
We made some difficult decisions on the personnel side during the quarter as a result of price volatility and reduced activity levels.
Both employee and contractor accounts for reduce during the quarter.
Well, so lower base salaries across the senior management team and are independent directors reduce their own retainers.
Are 2019 recurring cast G.N.A. was $32 million now expect our 2020 recurring cash in aid to be in the 27 29 million dollar range.
That is 8% lower than the 2019 midpoint and corresponds to $2 95 to $30.44 per <unk> based on our 2020 production guidance range.
Or am I operating expenses for the quarter of $1.78 per <unk> butter offset by 71 cents per be we have our on my operating revenue from working entrust partners.
For a net effective cost of $1.70 <unk>.
It's worth noting that this revenue from working interest partners is based on production volumes and the fees are not directly tied to oil or natural gas prices.
Or am I on <unk> guidance for the year remains unchanged at $1.50 to $1.85.
<unk>.
Before opening up the line for Q., an a. I would like to speak to the production guidance, we had provided for 2020.
Our initial guidance was 26 to 29 M.B.O.U. per day on capital program of $215 million to $235 million.
On March 12th we reacted to the quickly deteriorating price environment by reducing our capital guidance to a range of $80 million to $100 million.
And reset our production guidance to a range of 24 25 and barely per day.
We have sense further reduced our capital guidance to arrange of $60 million to $70 million and we are reciting the lower end of our of our guidance range.
For an updated range of 23 to 25 ambiguity per day.
The primary driver to the reduced ranges or reduction unexpected non operated capital and production and the second half of 2020.
There remains additional macro uncertainties, including potential impacts from downstream storage levels. However, a crude oil purchaser has done a great job moving our barrels and we believe we have very little risk a forced curtailments and the second quarter.
Additionally, while our first quarter differential was higher than expected, mostly due to a one time revenue adjustment that.
The majority of our crude oil is not subject to spot differential is rather base and specific price risks.
In conclusion, our first quarter 2020 volumes came in as we expected at 24.8 M.B.L.U. birthday, we had guided to the first quarter being relatively flat with with four Q. 2019 on our last call.
And they were up 2% sequentially.
We expect second quarter production to be relatively flat to slightly down from one q. and as a reminder, we have an eight well padded was completed in March and waiting to be turn to sales later this summer to help stretch or flat production profile as far into 2020 as possible.
Oliver full year 2020 guidance can be found in the press release, we issued yesterday and on slide 16 of our Investor presentation.
With data will turn the call back to the operator for Q. and <unk>.
Thank you.
As a reminder to ask a question you will need to press star one on your telephone.
Withdraw your question press the pound key please stand by while we compiled the Q. and a roster.
Okay.
The first question comes from the line up Steve debt shirt with Keybank.
Hey, guys just had a question on the the comment around low costs opportunities from the release sort of see there's any detail that you guys get provider or where are you guys are on that thanks.
Yeah. Thanks, Steve.
You know we've.
We've really been.
Deliberately patient all over the last couple of years.
And we think that deliberate patience has benefited us.
You know, we've talked about PDP for PDP exchange and our willingness to engage in something like that.
Over the last couple of calls and we remain open to that you know the way, we think about scale and certainly we're focused and have been focused on efficiently achieving scale.
The way, we think a scale is cash flow and we think a scale you know as as cash flow net of debt and so.
When when we think about any low cost opportunity we have to consider.
That.
Most opportunities are many opportunities.
You know have have a significant upside component to them and we simply you know can't can't paper upside no one can today.
And that's why we liked the idea of a P.D.P. for P.D.P. exchange.
This is this you know this is the way we think.
You know gaining meaningful meaningful scale is going to work for us.
But it's got to be it's got to be not have debt.
Okay, Great I appreciate the Kelly thanks, Thank you.
Thank you.
Next question comes from the line of Irene Haas with Imperial capital.
Hey come morning.
Ordinary.
Hey can grasp on the debt reduction you'd probably be this one in the whole second to go to zero, that's a great job and my questions specifically for this quarter, it's really the natural gas liquid dynamics. It seems like you know pricing is kind of low. So can you give me a little comment as to you know what costed because typically first quarter you have some help.
Cooling I mean heating and all that good stuff.
Yeah. Thanks, Irene you know it really I think our oil I realized pricing on oil came in as you suggest just about in line and G. elder <unk> at historic levels and you know in the in the past we've talked about.
The difference between Conway Inmont Bellevue and most D.J. operators off included have more exposure to Conway than Mont Bellevue.
But natural gas liquid across the space and in particular in D.J. have been have been it historically low levels. You know recently, we've seen a little bit of an updraft on acid rain pricing, but I don't think it's going to be enough to change the overall NGL basket.
And so for US you know Fortunately were dominated by oil pricing, but but you you rightly pointed out and I don't think it's it's something that's unique to Bonanza Creek, it's on a difficult pricing environment on the residue gas side.
A little bit of our natural gas liquid from the tailgate of one of her processors his truck and so that tends to to cut in just a little bit on on the the value of those liquids.
And that might explain a little bit of a differential but I think you'll look across most of the N.P. is operating in D.J.
This quarter and you'll see sauce, both rather do gas and and they in jail pricing.
Great. Thank you. Thank you Irene.
Thank you.
The next question comes from the lined up might see Allah with <unk>.
[noise] yeah, good morning sworn to see if existence for your.
Thoughts on heading into 2021 be somewhere strip prices are right now.
What what you might spend their and what what kind of kept x. would you need to spend in order to keep production flat with say the fourth quarter.
Thanks, Mike that that's a great question you know it it really does depend on on how pricing looks but if we could you know if we could you know maybe just reflect on the strip pricing we've got.
We've got <unk>.
Opportunities to invest the N.C. capital in our best acreage that will return.
Above above hurdle right returns deep into the thirties and with the factor cost inputs on the services side, having come down as as sharply as they have.
You know, we expect that there's going to be a time in 2021, you know whether it's the first quarter second quarter or.
Or or so on.
That will allow us to make incremental investments. We also have about 30 docks, that's a working doc inventory that that we carry as you know.
And you know because we we stopped doing a completions activity.
Fairly swiftly in March we have those we have those docks, which have a relatively low.
Non well capital requirements. So they just require completions and when you when you take the the low cost.
<unk>.
Fulfilled services factor costs to input environment into consideration.
I think we can we can probably stimulate a number of those doctor number those pads and maintain that accept rate throughout 21 as far as Catholics is concerned I think the best way to look at is probably you know something in the range of of this year I think because we have dockson because the prices have calmed down dramatically.
We could probably carry year over year with something in the range of the cap X., we have forecasted this year.
Throughout most next year and maintain something close to a flat production profile.
Oh, that's awful and I guess to clarify it.
You mentioned the 30 ducks.
You also mentioned that eight well pad I'd seen Daddy will pad that you.
I assume that baked into the the 2020.
Production forecasts for for second half you plan to bring that on and then the incremental 22 ducks would be.
Price more price dependent possibly this year, but more likely next year's at the right way to think about that.
Well, you're right about the T. 19, being baked into our second half production for 2020, but the 30 Ducks. We talk about does not include that Pat. So there's 30 additional docks that or you know that that T. 19 pad is completed and we're we're we're drawing it out with a coil unit right now so it's it's x. secluded from the 30.
Okay, and then the the thirty's not baked into a anything this year, so you're you're thinking more likely that would be 2021.
<unk>.
That's exactly right Mike.
Very good thank you.
Thank you.
Thank you.
No next question comes from the line of low parks with Coker in Palmer.
Morning.
<unk>.
Took on a couple things you know.
Talking about going completion costs.
What.
The recent cost cups, we seeing what some of that proportion of the pulled the N.C. dollar that now for the drawing component versus the completion component and and.
Different from.
A year ago.
Well I think the two are both coming down hard and I would say you know.
Relatively speaking.
They're they're coming down in proportion so.
If you know if a year ago.
Drilling was 25%, maybe 25% to 30% of the total A.F.C.
And stimulation was was perhaps 60% and then the balance flow back while to being drill out plugs and the balance of of things that aren't stimulation butter incompletions.
Make up the difference I think they've all calm down pretty hard there you've seen the rig count drop and we get a lot of we see a lot of press on on the precipitous drop and rig count and that really affects day rates.
And all the ancillary components around the drilling spread.
We've also seen you know Frack horse power come off really hard and so that's that's going to put a lot of downward pressure on.
Horsepower pricing.
And then you know normally we we see oil and gas kind of factor input costs move in different directions from the general economy, which sometimes puts us at a disadvantage with regard to labor costs, but right now labor costs are are crashing as well across the entire economy. So.
Think what we're going to be able to do as as an E.N.P. space is if you have gone activity.
You know, we Rephresh R.R.S.P.'s on a very regular basis in fact, so far this year, we <unk> refreshed.
R.S.P. is three times, leading up to where we set today, Justin 2020, and that allows us to continue to bake in these these improvements over time and and stay up to speed on what we think the returns will be.
Based on that both commodity price environment and also the factor cost inputs environment. So yeah. You know I think that's the thing to answer is I think they've come down roughly proportionally, but they they both come down or all components have come down pretty dramatically in the last couple of months.
Great I guess I, just ask as far as to the sand component has even that come off how did or it's it's already come down so far from the peaks.
Yeah. It it has it depends on you know depends on where you go we've we've been expanding argues in field.
Kind of Brown sand low compression you know lower compression strength <unk> because our close your stress is you know allow us to do so.
But I I think if you're you know if you're bringing it down the Mississippi River and then by rail you're going to be subject to you know all the the diesel pricing, which hasn't moved down as as much as other.
His other fuels, but if you're doing if you're using more enfield profit like we are you know it is really come down a lot because it's very it's locally demand driven and there's as you know in D.J., there's been a precipitous drop in an activity both drilling and completion.
Gotcha.
Thanks, it's helpful and.
You know it it has been.
Topic with some data as as companies have been talking about the the quarter in their outlook.
Oh round, whether these service costs are improvements are gonna be durable or not.
And I guess the question I think you're like a D.J. is the the most bearish comment I've heard.
Said that.
They find this is actually somebody or another decent, but saying that the service providers things have gotten solely for them that they actually are.
Getting more inclined to lay down equipment, that's been trying to keep keep up there on scale, but just barely breaking even on on a larger fleets and I just wonder if you had any sense was that you know.
Finally gotten to the point, where the service companies are on the verge or not being able to give any more and and whether you've seen.
Any shift.
Oh equipment availability in the base and as a result, I don't know stuff might be coming over from.
I'll databases, where where things are really dropping even more dramatically.
Well, we really haven't.
We haven't seen the shift in either direction. So so recently, we R.S.P. <unk>, one one least retention well that we needed to stimulate.
And the fact horse power, we look to two two of the several key providers N.D.J. and both were you know willing and able to provide very competitive.
Proposals for that work I think in the past what has happened again as the general backdrop of economics has been countercyclical oil and gas and that is put a floor and in some of the.
Well filled services companies ability to push back through their supply chain, you know labor costs <unk>.
In Colorado, the unemployment rate was running in in the high you know in the high one you know 1.91 0.851 0.9 low too is for quite a while running right up here the early 2020.
That has obviously dramatically changed and just the last few months.
And what that.
What that means is now you know if you've got a frat crew that you want to put to work you don't have to pay against you know, but 2% unemployment rate in the greater Denver area. So they've got downward pressure. They can they can push on wages water contracts are are you know flexible as well.
Oh and local sand contracts are flexible you.
And to the extent that they have to maintain activity in their fleet to keep the fleet dysfunctional you know to make sure. This capital equipment will function and be ready to pull back up when when we see an opt draft and pricing an activity they've got they've got to operate you know the equipment and they'll do so.
That that costs that are as close to break even as as necessary I don't think they'll operate negative, but what happens is because their supply chain has has seen a little slack in it we've been able to to push down more on the on field services.
And they've been able to push more on the array of their supply costs and gain incrementally there's not a lot laughed and whether or not it's durable will depend entirely on the available supply on an updraft and that that is something I worry about.
But it's not something I'm I'm is acutely worried about as as I am about ensuring the very lowest.
Factor costs to import prices for our D.N.C. activity.
Great Great and it's just the last one on the non outside you were saying that was the.
Yes, it a little bit of variability of.
What you.
Activity levels.
I'm just curious.
Don't go up your no no if you're operating partners. There are are public or private but are you seeing among the the private companies operating the base any sort of similar behavior shut ins and and lay down to as we're seeing them on the public.
Yeah Bye bye enlarge we are because it's just you know it's driven by.
Such limited availability to capital.
Many of them many of the private equity back onto her back portfolio companies had already experienced meaningful tightening to their availability of capital through 2019 and in many were you know pursuing things like.
Term loans and such.
And you know if if you're taking a term loan to.
Drilling complete wells in this price environment only to decline off again, you know you're stuck with you're stuck with a debt and the P.D.P. as in significant enough to make a difference in how you flip the asset so while we're seeing as most of the privates pulling back on activity dramatically as a result of the price environment, the oil and gas price.
Environment.
Yeah.
Great. Thanks, a lot.
No. Thank you.
Thank you.
And as a reminder, ladies and gentlemen, if you have a question. Please press star one on your telephone.
Once again, if you have a question please press star one.
Our next question comes from the line of Philip Johnston with capital one.
You guys. Thanks for happy Friday, obviously, the the plant activity for French Lake in the backup for this year's off the table and.
Let us citizen exactly fun of mine right now, but assuming some sort of reasonable oil price recover recovery in the the backup for the year and then to 2021.
What do you think it's realistic in terms of the timing of when you guys have oxys stand up or rig to develop that acreage.
Thanks, Philips you know we're <unk>.
The good news is French like you know remains.
Some of the very best well reservoir in D.J. and it remains one of the very few if not the only remaining greenfield large scale Greenfield development.
And as a consequence of those two factors both the high quality reservoir and the Greenfield development opportunity it rises to the top.
Of our returns and of our working interest partner, our partners returned and so.
Yeah, we're confident that when the price.
Supports meaningful development activity, where we're going to we're going to get there. So.
You know that joined development agreement is great. We really do enjoy a strong relationship with our partner and you know in terms of realistic startup times you know I think the best thing to to think about now is I.
I don't think anyone's going to rush out on a January 1st spotted so it's probably reasonable to think about mid 21, you know maybe if there's a substantial up draft in price and it looks and it looks sustainable than you know that could be cute too, but I I really think kind of mid cuter mid year is is a reasonable and.
Realistic expectation.
But again because this is really good rock, that's a really great opportunity to build a.
A highly efficient development program for Ross and our on our partner, it's going to rise to the top of any portfolio of opportunities.
Okay. Thanks, Eric that's all for me Thanks Philips.
Thank you.
No next question comes from the line of Mikes yellow with Stiefel.
Eric You had mentioned in your prepared remarks, some small force curtailment or the D.J., one or you could qualify that and just wondering.
Thoughts on.
If you looked at any voluntary shut ins.
And if so how much there as well.
Yeah. Thanks, Mike our our shot ends have been limited to you know low rate intermittent wells and low rate continuous wells, but you know these these tend to have higher variable cost and you know and this price environment, you would fully expect that that would be that traunch of wells or.
Or the portion of the distribution, we would we would shot in first it's a it's a meaningful number of wells, but it's not a meaningful production value. You know we're talking about a couple of hundred <unk> in terms of the the total production contribution.
And that's yeah, it's a combination of wells, we've we've deliberately shoddy and at the surface and wells that by virtue of the fact that they they may have needed.
Intervention to maintain you know, they're they're off time.
And that intervention you know, we've we deemed as out of the money.
We would have we were just forgo that intervention. So you know, it's it's something like 20 per cent of our total wells.
But it's a couple of hundred <unk> a day, so it's not a meaningful raid.
You know, obviously allows us to cut those variable costs off immediately.
Okay, and then did you happen to me.
<unk> there were some minor force curtailments as well Oh the digits.
We haven't seen any we I think you know what we were talking about in the prepared remarks was we don't anticipate in the future being forced to curtail and we haven't been forced to curtail in fact, even even in the darkest month.
You know given.
Low cash costs of the company, we were able to keep you know.
Almost all other than the intermittent wells, we just discussed on production and you know generating positive cash flow dwell head.
So we haven't we haven't been forced to shut anything and we've shot in voluntarily.
As we discussed just a minute ago, but haven't been forest and we don't anticipate being forced to in fact, our our oil purchase or is successfully moving our future nominations already through Cushing.
Okay. Good and then I just wanted to get your thoughts on the I think you'd go through borrowing base Redetermination right now and then.
Your plans for the balance on their volver over the course of the year.
Yeah, so as far as the R.B.L. is concerned we we don't know anything yet we've got ongoing conversations with our lead bank and and you know there's no indications whatsoever of abstracts with those guys I mean, they've got stress and other names. We've got 59 million drawn and we're going to be paying that off over the balance of <unk>.
<unk> and I, just I don't anticipate any any meaningful stress.
Very good thank you.
Thanks, Mike.
Thank you.
And I'm showing no further questions I would now like to turn the call back over to C.E.O. Air Gregory for any closing remarks.
Thanks, Andrew Thank you all again for joining us this morning and for your continue to interest in Bonanza Creek.
Ladies and gentlemen, thank you for participating in today's conference. This doesn't include the program and you may now disconnect.
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