Q1 2020 Earnings Call
Thursday
Okay, ladies and gentlemen. Thank you for standing by and welcome to the q1 2020 Highpoint resources learning conference call at this time. All participants are in listen-only mode after the speaker's presentation. There will be a question-and-answer session to ask a question during the session. You will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press * 0. I will now like to hand the conference over to your speaker for today. Mr. Larry. Bird is not. Oh, thank you, please go ahead sir.
Good morning. Thank you for joining us today for the high point resources. First quarter earnings conference call speaking on the call today or Scott Woodall CEO offered CFO. And Paul Geiger c o o before we begin I'd ask that you please review the disclosure statements provided within the forward-looking statements of our earnings release, which you can find our website at h p r e s. You can also find in review these disclosures that they are referenced in other filings with the SEC or in our 10-q, which we filed yesterday afternoon.
We will also be referencing non-gaap Financial measures during the call and a Reconciliation to gaap financial statements can be found at the end of our press release this morning. We posted a new presentation to the investor relations portion of our website that we will be referencing on today's call with that. I'll turn the call over to Scott begin our prepared remarks.
Good morning, and thank you for joining us today to discuss our first quarter 2020 financial and operational results. The covid-19 pandemic has significantly impacted Global supply and demand from a broader markets and the economy in conjunction with the precipitous drop in oil prices. We were operating an unprecedented and uncertain time that has severely hampered the the economic environment for e&p companies.
Our first priority is health and safety of our employees and our like to commend them for their commitment dedication and professionalism and maintain the smooth functioning of our operations during these challenging times as an organization to respond quickly to the covid-19 pandemic by implementing our business continuity plan. This involves implementation of remote Workforce measures and both quarters office and our field offices. The transition was seamless and we have not experienced any notable challenges with respect to our operations or obtaining oilfield goods and services. We also have not experienced any third-party related Downstream issues up to this point. We reacted decisively to the lower crude price environment by deferring all capital a recent activity until oil prices improved. We are committed to preserving our balance sheet and liquidity and ensuring free cash flow generation for 2020 given the uncertainties. We are facing as a ninja
We will be disciplined in Arkansas.
Iteration that future capital investment we will continue to assess changes in the Broad and Market as well as current and future oil prices to determine the appropriate time to resume operations. We are cognizant of the changes required to operate efficiently and profitably and is lower commodity price environment. And this regard we have implemented several cost-saving initiatives which enable us to better align our cost structure to the current operating environment and we are in the process of determining future savings measures now to recap the court. We had a good start to the year and experienced limited operational and tax office allowed us to deliver very strong results that were highlighted by oil volume is exceeding the high end of our guidance range. We accomplished this with capital expenditures that were lower than our guidance highlighting the official our operations.
Operationally we deliver strong well performance for Mark Odell completions at Hereford and high fluid intensity completion at Northeast wattenberg.
Both of which are performing materially better than earlier will follow discuss this in more detailed lastly are strong first-quarter results allowed us to reduce our bank bar of our bank debt by 32% in the first quarter. I will now turn the call over to bill for his comments. Thank you Scott and good morning all it's got mentioned. We had a good start to the year from a training perspective as our results generally exceeded consensus estimates in our quarterly gains production volumes of 2.9 mmboe and off and volume up one point, six million barrels or both ahead of guidance. This was a result of the strong Hotel results that Scott mentioned along with acceleration a timing of online and the quick recovery of our preferred section 17 area post clean up Capital expenditures were ten million below our guidance birth.
It's got mentioned are strong first-quarter generated ebitda of 81 million, which was an increase of 6% off the first quarter of 2019. This included eight million for the early termination of a small portion of r q 3 Q 420 edges Thursday. We reduce the activity near term.
Remaining hedge protection are starting our remaining hedge position provides significant near-term protection from oil. Low oil prices. We have nearly all of our anticipated twenty-twenty oil production at WTI price that is greater than $57 per barrel and about half of our 2021 production hedged at about $55 per barrel. The mark-to-market value of our hedge book is about a hundred and seventy million based on current WTI strip price has a significant near-term Revenue protection a full summary of our hedge position is in the press release.
First-quarter results and focus Capital discipline contributed to a $45 million or 32% reduction in Bank debt during the quarter. We recently moved and the semi annual redetermination of our credit facility in anticipate that the review will be completed in the coming week. As many of you are aware. The banks have been a significant challenges with many borrowers and have become more restrictive with commitments and structures. We are not immune to these effects as our bank meeting was delayed multiple times in April and we are still in discussion with The Syndicate do to lower price decks on our reserve and hedge level. We expect our borrowing base wage could be reduced by L to 40% and our borrowing capacity reduced a little bit further and banks are straight seeking stronger cushion and reduced exposure.
We do not expect any material structural change, but maybe higher pricing good given the uncertainties the future oil prices with the impact that broader macroeconomic effects including the pace of economic recovery will have on the oil sector. We are currently providing guidance for the second quarter only issue at this time.
In which we expect Capital expenditures to Total about $40 million dollars as we finished up our work in April and anticipate their production will be in the range of about 2 and 32.6 mmboe of which about 57% is oil we expect to achieve this level of production provided. We do not experience any physical Downstream production constraints are shutting we are preparing for the possibility of shut-ins based on the potential for Downstream physical curtailment off as crude storage may fill but that's far have not seen any challenges due to our diversity approved purchasers and markets along with the premium API gravity just actively shut in a modest amount of production. That was only marginally economic. We enjoy Lo lifting cost for our PDP base wage.
Constantly monitor physical and financial markets to decide if future further shut-ins are warranted.
Finally a quick note on our large net box for the quarter because of all the uncertainties and current commodity prices. We recognized a non-cash impairment of just old one point two million dollars related to the carrying amount of our approved and unproved oil and gas properties. We expect our future DNA rate to be about $8 per month be going forward with that. I'll turn it over to Paul for an operational update. Good morning everyone first. I would like to congratulate and commend our home office Personnel the strong first-quarter performance and for safely delivering on our targets.
Program generated impressive results and we're very pleased with depression performance from our initial 20 20 wells in Northeast one bird ended her.
I'll never for you to slide 8 in the presentation as we look first at Northeast Watford we brought on line six wells in our Riverside unit in DSU 461 off that employed are proven higher fluid Northeast wattenberg generation for completion design. We've been very encouraged by the results of these Wells with average per well cumulative oil production month approximately 90% above the offset analog Wells that were completed with the previous standard completion Design After 50 days these results significantly improve the economic position for Northeast one for inventory.
Our initial to codell Wells in the Fox Creek area of the Herbert field were completed with the larger her for generation for designs of 50 barrels per foot and a half thousand pounds of Sanford put these high rate high-volume designs are based on the observed ability of these larger jobs to increase stimulated Reservoir volume during work.
These will replace online late in the first quarter and they're demonstrating The increased productivity that we were targeting after the first 30 days of continually inclining oil production. These wheels are abusing over 400 miles a day.
You can see on slide 6 that this is 30% higher than the section sixteen Southeast path, which is the analog for our Hereford Reserve bookings and represents our economic base line. I'm also in the Fox Creek flow back in April at DSU 1234, which continue to ramp to be production wages completion operations recently-concluded on two wheels in the Fox Creek. DS you twelve 6333 the wells are awaiting drill out and it's anticipated their initial flow back will come in a second quarter. We currently have 33 duck opportunities in our inventory post to completion of this one.
To summarize. We're very pleased with our operational performance year-to-date in 2020. We perform well against our first quarter targets. We brought our first High rate stimulation online in Northeast Wallingford, which is outperforming all offsets. We brought our first High rate stimulation pad online in Fox Creek area of Harvard, which is outperforming the previous page development on section 16 Southeast Ave. Our most recent performance.
In both assets demonstrates our best economic performance yet, which coupled with our base and leading margin positions us very competitively to face the mini challenge our challenges our industry wage operator. We're now ready for questions.
As a reminder to ask a question, you would need to press star one on your telephone to withdraw your question, press the pound sign or haschke. Please stand by while we compiled the Q&A rosberg.
Okay, and our first question comes from Derek Whitfield, thanks. Good morning all.
Perhaps for Scott certainly appreciate the challenges of providing quarterly guidance in the current environment with that set assuming your capex plan is currently contemplating. Could you offer any color on the broad bookends on where you could exit the year with oil production?
I don't know Derek. You know, I think we aren't really kind of trying to put out an absolute number. You know, we are you know, kind of look at this thing on a quarter-by-quarter kind of basis looking to see how much Capital where it ended up deploying and the second half of the year and couple that with also just if there's any physical limitations off kind of hate you even kind of put out a range right now Derek under understood Scott certainly a challenging time perhaps for Paul with my my second question with respect to the five bowls at Fox Creek. Could you speak to the well design and spacing for those well as more broadly and highlight the ability of that design to the niobrara interval is I recall those are codell wells
Yeah, you're the first two were codell. Well, the next five would-be niobrara. And so we've got to photo. Well, we'll follow those. So those niobrara designs are off near the this generation for her poor design. There's a higher fluid rate and higher fluid design of total volume completion month. So we expect others to be similar to the to the original codell and then as a result of the larger job will blow those back Morgan as well to get that water off over. All those are about a six well spacing on the on the niobrara home accepted spacing and and without food available.
It's compared to the hotels that are up there that are about four. Well spacing as you've seen as you develop on and
Thanks, very helpful. Thanks for your time guys.
Okay. Next question comes from Wells Fitzpatrick.
Hey, good morning morning. I was wondering if we could get an update on the politics and the state obviously. It's it's pretty tough to confirm signatures these days. I mean can we can we assume that there's there's likely not going to be a ballot initiatives targeting the industry. Come November.
It's probably early to draw that conclusion Wells but I think your assessment is probably right currently, we still require physical signatures in the state and Thursday. So that's probably going to be very difficult and very challenging to do and to meet the the deadlines for you know, early August, you know, there's been some discussion about doing it online but it's not getting much traction and I'm not even sure if legally the state can go down that path so he could jump to conclusions, but you know, it seems like it's trending that way.
Now understood makes sense. And and and I'd have to imagine the state needs that Revenue more than more than ever now. Can you talk a little bit to the the the divestitures thought it might be in the math right that that went from 27 million to 3 million. Can you was that just a seller's funding falling apart? And can you talk about the associated production with just the three million now if you could break that up, that'd be helpful.
Well, this is Paul looking at those disasters, you know, as we as we progressed through the through the downturn we had some of those offers kind of re trade there. So we had multiple offers on the not only the package that closed but the package that packages that did not that we did not elect to transact. The reason for that is is we saw that price continue to soften the resulting offers continued to soften. They didn't look like they were a creative opportunities for us looking forward into 1221 really specifically with those two with the development in the in the Permian on that a bridge and then as well as the the position in life and one bird with the continual Improvement of of the wells and designs that we're seeing we weren't really
Don't really compelled to to invest those in stock.
Makes makes sense. Thank you guys.
Okay. Next question comes from Jason Wrangler.
Hey, good morning was was just curious as you guys talk about the the borrowing base redetermination. Obviously, we're able to pay something like the facility down in the first quarter as you kind of like a Ford you have the Hedge book. Is that going to be the focus in terms of you know cash flows is trying to reduce that balance sheet further or is there anything else we should be thinking about?
Yeah Jason, this is Bill. Yeah, I mean obviously we needed to get through, you know, the borrowing base here in the spring to determine, you know, what levels of liquidity just look out as you know through the summer. What are the best uses of our cash and how we think about using it? And so I think that's why I asked you know, we've made the decisions we have and have the liquidity we have and will take advantage of whatever we can.
Okay, and and Scott the production side, I certainly appreciate not not that kind of put numbers around that but if you think about the capital spend Edge, you've kind of deferred everything, you know, if you think if you're running it X April, I mean, is it a pretty low number that you're thinking about in terms of capex that you think about May and June and it's obviously this continues, you know, you know the second half of this year is it you know, is there a a range of numbers you'd say? That's I don't know what to call it maintenance capex obviously, but the number that you guys would be spending but you know as As you move forward with that program.
Yeah, you know in the the beginning of Q2 we still were wrapping up some of the drilling and completion operations and that's why you see that capex number of off of about forty million, you know provided that we do not resume Drilling and completion activities. You know that number probably Falls to something that's more in the you know, $10,000, you know range per quarter or something which is just you know, we've got to do a lot of wells and you know do some maintenance and do some things but it's probably a pretty low number subsequent course if we do not resume activity.
Great, that's helpful. Thank you guys.
Okay, next question comes from Noel parks.
Good morning.
I was interested in hearing just how you are looking at well results with the the updated completion now got more of completion history on a on a bunch of them and just as far as adherence to type curves and seeing roughly what you would expect given the you know, the the strength is this how how's that looking with a little more history?
Turn all this is Paul is we look at those you saw that the the the flock there and the in the deck on 6 and 8. We're cruise with those initial go to higher flow back rates higher higher observed productivity based on the significantly larger stimulations. We put on those and so at this point, you know it worse case. I think that's all she can say that it's acceleration only in which case he's still have improved your your rate of return, you know, five points or or above but best cases you've got incrementally you are there dead and and that's what what we really believe having put the much-larger completions on them having has a higher total fluid productivity and based on the month. And so we're expecting that those are incremental performance improvements overall to the URL be improvements to our type birds in those areas going forward.
Great.
Great and talking about about our cars, you know, I'm looking at or what I've heard from folks about the the service environment and I feel like this is Thursday the 4th here at our Oh, I thought well cost can't go any cheaper than this and then you know, for example we have this year's events and it looks like they they could go even cheaper than just what are your what are your thoughts? And do you do you have a sense of it? And this is of course assuming we get we get better home better visibility a stronger strip that makes it more attractive to you know to look ahead but do you think where you would be right now if you if you were drilling is this the the absolute track you think and and looking ahead where do you think sort of cost might be on a more normalized basis, you know assuming we say in 2020 wage?
Have more of a you know $50 world again.
So, you know starting off at the at the top I mean, there are bigger driver there is going to be this double-digit Improvement in in recovery. / well, and so we're we're very pleased with his kind of the dominant input into that system from a cost standpoint. We had a pretty attractive pricing coming into two twenty20 here and you'll see that flow through on the capital for well. So we're very encouraged about that from a flexibility standpoint. I think that's that's going to be a toss-up. I think you got opportunity for some concessions to get back to work, but probably in this truck, you've got some some service folks dropping out. So we'll see how that plays out is. We look at the second half. We're continuing to to Thursday test the market and talk to folks on the on the completion side to make sure that in addition to this this improved type program that we're looking at that we've got the best of
Current cost as we contemplate decisions going forward great great and I guess just one more thing off. What what what are you hearing from your your sort of Midstream Partners? I'm I'm sure you visibility is not not great, but I didn't know what it in the guidance office testified that these are our numbers can't you know can't really incorporate anything unforeseen that could happen as far as you know, I guess force majeure or Thursday other other curtailment sort of be beyond your control, but just what do you hearing? How is it sound? You know, we haven't had we haven't had uh, we haven't had crew go back negative then see how it looks heading into the into the June expiration, but you have to say any insight you can give there would be great.
Yeah.
Yeah, we we we sell to three or four different purchasers and with our API gravity being, you know, mid thirties. I think it's a very desirable cut for what the refiners are looking for and some of it stays local some of it goes down, you know Grand Mesa pipeline some of it goes down to Georgia Express and you know, we've heard that you know, they've found you know home for all of our main barrels and into June barrels. So right now I'm not feeling the pinch to do anything more voluntarily given are very low lifting costs. And so but it's we're ready to act if it if it's just come up.
And obviously on the gas side with all the expansions recently and people starting to cut back activity, you know, they're taking advantage of this time to do some planned maintenance and some other stuff but no, you know gas or a GL issues.
Great. Thanks a lot.
And I'm showing that there are no further questions at this time. I would not like to hand the conference back over to Larry Buzz Nardo. All right. Well, thanks again for joining us today on the call. We'll be around all day. If you have any questions, feel free to reach out and we will I'll talk to you soon. Have a good day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You all may now disconnect dead dead dead dead dead.
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