Q2 2020 Berry Corporation (Bry) Earnings Call
[music].
Ladies and gentlemen, the operator.
Today's conference is scheduled to begin momentarily.
All that time airlines will again be placed on musicals.
<unk>.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Barry Corporation second quarter 2020 earnings Conference call.
At this time, all participants' lines are in listen only mode.
After the speakers presentation, there will be a question answer session.
Just a question during this session you will need to press star one on your Touchtone phone.
Please be advised that chase called which is being recorded.
Your acquire any further questions. Please press star zero.
I would now exceed the converts or what your speaker Mr. Todd Crabtree Investor Relations. Thank you. Please go ahead Sir.
Thank you Randy and welcome to everyone. This morning. Thank you for joining us for berries second quarter earnings teleconference. Yesterday afternoon issued an earnings release, highlighting 2022nd quarter results. Our continued response to the financial and operating uncertainties caused by Cobot 19.
I think these another issued this morning, Retransmit Board chair and CEO, Jerry grow Chief operating Officer, and Executive Vice President and carried <unk> Chief Financial Officer, an executive Vice President travel disgust varies continued response to these unprecedented times and the company's plans for the remainder be here. Gary then surely will show further detail.
Also on how we are aggressively operational and financial aspects of their business before turning it over to questions travel make if you will concluding remarks before we begin I want to call your attention to the Safe Harbor language found in our earnings release earnings release, and today's discussion contain certain projections and other forward looking statements within the meaning of federal Securities law.
These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements. These include risks and other factors outlined in our filings with the FCC our website beer wine Dot Com has a link to the earnings release and our most recent investor presentation any information.
Moving forward looking statements made on this call or contained in the earnings release and that presentation reflect our analysis as of the date need we have no plans or duty to update and except as required by law.
Please refer to the tables in our earnings release and on our website reconciliation between all adjusted measures mentioned during today's call and the related GAAP measures. We will also post the reported link this call and the transcript on our website I'll now turn the call over to trim Smith.
And your dog.
Hello, everyone. Thank you all for joining us today for Barry second quarter 2020 earnings call.
I just want it continues to be a challenging business environment for industry and many others I hope everyone has made safe and healthy over the last several months.
The team it varies worked tirelessly to navigate these choppy waters and due to everyone's dedication and commitment to the very first principle, we will come out of this to cross cycle, good strong position for growth and value creation.
As I mentioned on our last call. We have planned for two years down cycle, and we remain laser focused on creating value through sustainable long term cost reductions and process improvements and by continuing to generate free cash flow.
And I understand that might sound like a broken record, but very is living within levered free cash flow and we'll end the year with substantial cash on hand in are strong liquidity position intact, giving us flexibility into 2021.
As we anticipated the second quarter was one of the most challenging quarters for the industry and the economy in history.
He was prepared interim results show, we performed very well.
I will speak to a few highlights now for additional details can be found in our earnings release and the 10-Q.
We reduced our unhedged opex by 16% quarter over quarter. This success was due to an extraordinary team effort. The organization identified numerous opportunities to reduce costs through cash savings and process improvements that increase efficiencies and improve our cash position position.
Importantly, because these projects are we done in or control they should provide sustainable benefit over the long term.
During Carrie will give examples of the specific projects in a moment.
However, it is important to note the cumulatively. These projects all resulted in a major positive impact to our financial position.
Further we continue to improve our hedge position and added additional 2021 hedges at $46 rooms.
We are now about two thirds hedge for oil in 2021 at about $46, which carry will provide more details around.
Excuse me.
Additionally, this quarter, we closed the 740 acre bolt on opportunity located on trend with or prolific Potter formation horizontal well development in north Midway Sunset.
We are confident this acquisition will lead to even more development opportunities.
We will continue to be proactive and taking advantage of attractive acquisition opportunities as they arise.
Looking forward now we got continue to concentrate our efforts on the remainder of 2020 and through 2021.
Fuel usage in California is up approximately 33% from its low in early April and refinery runs are all about 13%.
The brunt strip is improving as well and is up around 40% from vehicle strip.
It's improving market gives us confidence to run at least one drilling rig starting in October 2020, and continuing through 2021.
As noted in prior Investor calls and meetings, we can maintain or production levels.
In other words, we can replace our annual decline for 10 to $12 per barrel.
The production decline in the second quarter was as expected.
Our historic annual low decline curve and low capital needed to keep production flat sets us up nicely for successful 2021 and beyond.
We are accustomed to adapting quickly to new regulations and requirements Cobot 19 is no different.
As we reported last call we were able to attribute our operations quickly implementing the recommended CDC aligned safety and health protocols, including mask worry requirements sanitizing procedures.
These measures have been in place for the past few months at all of our locations and they are working successfully.
We also implemented remote working tools that allowed us to operate or assets seamlessly, while keeping employee safety and distance when needed.
This is critically important for our businesses business and for the states, where we operate.
Governors have you talk Colorado in California have all declared oil and gas operations as a central businesses and we continue to operate as such.
We know that local oil and gas production is fundamental to the economic recovery of each day.
In addition, Barry has not laid off were furloughed employees do the due to the current economic downturn at this time.
And we are proud to be able to continue to take care of our people and support the communities in which we work we have as previously stated made significant advances and reducing Nonemployee gene, which should evidence itself, even more profoundly in the second half of 2020.
California is the third largest gasoline consumer in the world and consumes more than half would be OPEC crude imported into the United States. Every day were about 600000 barrels oil per day.
Last year, approximately 70% of all California imports came from OPEC plus nations and all of it came to California, I see on tankers.
There is committed to helping bridge the gap between California is energy energy reality, and carbon neutrality goals as well as support the states social priorities, we're working to become California, leading affordable energy provider.
Therefore is critical that we remain dedicated to advancing our environmental social and governance initiatives.
This includes maintaining safe and environmentally friendly operations as well as managing our collaborative relationships with regulatory agencies and policymakers everywhere very offerings, especially in California.
We understand we have a responsibility to sport, California in achieving its energy goals to reduce cotwo emissions and to reduce its dependence on opex.
We are taking a holistic approach to working with the state to achieve this this includes producing affordable energy from diversified sources, such as oil and gas renewables, providing an offering piping energy jobs and growing local California oil production in a safe and environmentally sensitive manner.
To help us achieve this and to continue our ever improving SG efforts, we've created a new position.
Director of strategic partnerships and alliances.
Jason Marshall with 28 years of experience in resources Conservation joined US in early July and we'll leave these efforts, including addressing orphan and idle wells throughout California, reducing C. O two emissions expanding the use of technology, including technology for beneficial reuse of water remain.
Ideation, and preventative solutions and the elimination of spills.
We're not letting this downturn distract us from being a good corporate citizen and we will not differ or shy away from our no obligations to the state in all of our stakeholders.
On the regulatory permitting front, we have not will not let cobot 19 issues keep us from achieving our 2020 plans. We continue to streamline our in house permitting review process to expand throughput oncology Oems additional permitting requirements and to work toward our 2020 plugging and abandonment plan.
We will meet or obligations to the state as we always do.
I want to reiterate that the Berry business model is designed to create value in any cycle, including this.
For his leadership has weathered several downturns in the past and we're navigating through this one as well.
As exemplified by the strategic initiatives, we have already implemented we're well positioned for the market to return, which it will I will now turn it over to Gary.
Thank you trim and thanks, everyone for joining us today, the second quarter was challenging with the acute swing in pricing due to both cobot 19, and eco political market conditions to meet that challenge Barry was able to move quickly and decisively with a focus on cost and returned to solid quarter, while creating value.
Cycle Love.
Full operational details can be found in our earnings release of 10-Q, but I would like to touch briefly on a few of our results.
Our sales total sales volumes were down 5% quarter over quarter as a result of ending our drilling activity in early April any impact from some of our current steam reduction, which I'll speak to shortly.
Additionally, eight of the 19 wells were drilled in the previous quarter, where Youre delineation wells were steam injectors, which would not have any current production impact.
Based on our plans and expected drilling activity for the remainder of the year. We currently expect 2020 volumes to be inline with our 2019th annual volumes.
Total operating expense per BOE, he was down 9% quarter to quarter, while our unhedged operating expense per BOE was down 16% during the same period.
These results are due to our continued focus on managing partner, our entire operating cash cost structure, including operating expense capital and abandonment to ensure our operations are safe and compliance.
Just trim mentioned, we had been reducing cost and manageable and sustainable ways.
These are not personnel or salary cuts, but rather efficiency opportunities like vendor rate reductions and well servicing efficiencies.
To highlight a few examples surface repair and maintenance was down 18% well servicing was down 20%, our chemical usage was down 13% quarter over quarter.
Even more telling is that those three areas were down 50%, 41%, 19% respectively from January Keiji.
We also actively decreased our steam volumes during the quarter through effective steam management without impacting our reservoir conditions, reducing our total gas burn rate, 11% quarter over quarter.
We burned 72500 MBT per day during the second quarter, an average unhedged price of $1.74 cents per annum BTG.
Furthermore, we've been calibrating, our cost and volume reduction associated with production.
As we reducing our water disposal requirements increase which can have a negative production impact in the short term.
We continue to balance cost savings with potential production impacts concentrating on incremental value creation as always.
Moving to capital capital for the quarter was 16.5 million. That's we again, we stopped drilling early in the quarter.
We did finish certain infrastructure projects that are necessary for when we restart our drilling program.
And on that note, we're going to start one rig in October and currently plan to drill up to 23 sandstone wells going into 2021.
We have continued with our permitting process on all other projects and as of today, we have roughly 185 drilling permits in hand offer sandstone wells as we finished 2020 permitting programs begin our 2021 program. We also have approximately an additional 190 permits either at Cal Jim.
We are waiting to send to count Jim.
While we reduced capital and paused our drilling program, we have not reduced our abandonment or a our activities and we remain fully committed to our obligations under the California mandated idle wealth management plan and our role as a leader in environmental social and governance initiatives.
We have abandoned 79 wells to date in our annual plan targeting approximately 150 to be completed by year end.
During our last call trim mentioned that Barry had been proactively engaged with county in the Lawrence Livermore lab on their study concentrate concerning excuse me safe operations and best practices with high pressure cyclic steam injection.
Since our last call we participated in to update meetings with count Jim handle that.
But he is progressing we continue to supply information and data as requested.
We are still expecting this study will conclude later this year.
Storage has been a hot topic across the industry over the last several months to the oversupply situation in the spring.
Then supply levels have returned to more normal levels and storage is no longer a concern at this time. However, we do have a certain amount of storage available to us we have procured through June of next year, and we use it opportunistically marketing.
Looking forward, we will continue to focus on our costs and production analyzing everything we do through our value creation linens and with that I'll now turn it over to carry.
Yes.
Thanks, Gary.
As highlighted by boat Tremont, Gary we are continuing to plan for a two year cyclical low crude price environment. Our second quarter was centered on improving our free cash flow physician and it will continued to be the focus as we head into 2021, we again achieved.
Levered free cash flow in the second quarter, even higher than the first quarter and we expected to continue to improve the remainder of the year, we're already seeing a cash build up with current cash balance of about 20 million and nothing outstanding on the RBL.
Based on our current hedged portfolio and operating performance. We currently expect Levered free cash flow at 2020 to be nearly $100 million.
We have continued adding to our 2021 hedge position. We currently have about 19000 barrels per day of oil hedged in the first half the 2021 at just under $46 barrel and slightly more than 11000 barrels per day hedged in the second half a 2021, it slightly more than $46.
As a barrel the combination of lower cost improving commodity prices and our hedge positions.
By does what visibility into our 2021 cash flow and increases our confidence to put at least one rig back to work the last quarter. This year and all of 2021 as training Gary have highlighted we have implemented cost cut it savings and efficiency initiatives and there are more.
We are in process. Some of these are short term concept designed to help us conserve cash in these trying times. However, many of these items are sustainable over the long term.
One of the short term cash saving initiative was to temporarily suspend our regularly quarterly dividend. This say that nearly $10 million a cash per quarter. However, we are committed to returning value to shareholders as the economy and our financial position allows we will reconsider reinstituting our dividend well.
We have more clarity on long term prospects of oil prices and we'll explore this when Brent prices reached a sustainable $50 a barrel.
One financial item I'd like to give more color is on our greenhouse gas costs, which are historically the largest part of our taxes other than income taxes line item.
We saw nearly a 6 million dollar decrease and these cost in the first quarter due to temporary market dislocation in the second quarter. This year ghd allowance market stabilize and cost returned to historical levels and we expect them to remain in that historical range going forward.
However, we will take advantage of any market disruption to further improve our GHG cost position like we did in the first quarter.
As we announced in late June after completing our semi annual bank Redetermination, we reduced our RBL elected commitment to $200 million. This reduction equates to a annual savings of $1 million, we primarily used the RBL facility to manage working capital fluctuations and have no outstand.
King borrowings on the line today.
Our plans anticipate that we will not use the RBL through 2021, given the cash position. We're currently in the process a building.
The RBL capacity at getting tougher.
Mark at more banks will lead the sector and larger banks reduced their exposure, we will continue to partner with our banking group to ensure Barry has adequate liquidity.
And the banks had the opportunity to meet their return requirements.
We are different than most companies in the space as we have always lift within our levered free cash flow and use our RBL facility, primarily to manage working capital fluctuations.
On the note a being different and before I hand, it back over to trim I wanted to reiterate our investment thesis and five point number one Barry is a conventional oil producer with low corporate decline rate, 13% to 14% annually.
Number two we live out a levered free cash flow, which include interest the required cash to maintain our production flat and dividends number three we have higher cost than the typical oil resource play because we are about we are weighted 88% oil and we.
Energy in the form esteem tend to produce the majority of our oil and don't have a large barrel of oil equivalent from gas production masking our oil production cost because we are primarily oil and Brent based our revenue per BOE is higher as is our cash margin compared to the typical.
Resource oil producer.
Number four we do return capital to our shareholders 115 million in dividends and share repurchases since going public in July of 2018. This is top tier for any small cap.
Oil and gas producer, we will reinstate a dividend when the market support and market gives us value for paying one.
Number five we aren't a capital intensive drilling completion company and can scale up and down very quickly in plain terms, we're not a resource oil play in fact, the only thing we share with them is that we produce oil berries properties have been producing oil in the San Joaquin basins since the early.
1900, and will be producing for many years to comp.
Many investors wrongly put us in the same boxes, a resource oil plays but in reality reality, we just don't fit.
We are different and that is good at buried this management team will always manage this company for value not volume not EBITDA, but value we will continue to operate efficiently.
Deeply and at the lowest possible cost during these challenging times.
While we don't know when the market will improve we are working to ensure that Barry isn't the best positioned for continued success. This means taking advantage of opportunistic acquisitions like bolt on hedging prudently lowering our cost and living aren't than our levered free cash flow and now I'll turn it back over to trend for final remarks.
Thanks, Kerry and Gary.
There's no better word to describe 2020 than the unprecedented.
We started this year with the price of Brent as nearly $70 per barrel.
We finished the first quarter and began to second quarter with Brent in the low Twentys and.
And now Brent has returned to the low fortys.
With all of this volatility areas remain committed to its promises we are living bar financial policy cutting costs, improving our DSG program and partnering with the state to reach their energy goals all in an effort to continue to create value for our shareholders.
We're planning for the eventual return of the market and as noted we plan to start a drilling rig in the fourth quarter. We also anticipate that we will see a lot of changes in the industry, including restructuring activities and consolidation as the downturn continues.
This creates opportunity for Barry we will be proactive in pursuing these opportunities.
We are proven safe environmentally friendly producer oil and we're positioned for growth.
With our focus on value and cash flow and our very first approach, we will be in a position better positioned than many of our fellow producers when the market recovers.
Oil is now more than ever an integral part of the energy solution for all the states, where we operate but especially in California.
For far too long, California has been reliant on energy from risky warrants or source oil with terrible human rights Records, we are providing a safe and healthy working environment with high paying jobs for the people of California.
And by working with a renewable energy providers together, we can reduce California supplements on okay.
Let Carrie noted about our investment thesis we are different from other resource oil companies in a very positive way.
Managing cash flow is nothing new to Barry.
As we have historically demonstrated an exemplified just this past quarter, we will manage the company on value creation as oppose to ensure it is strongly positioned to capitalize on the eventual market improvements.
Lastly, I'd like to let you know that Gary growth has decided if you will be retiring by the end of the first quarter of next year.
We all Gary an immense amount of gratitude for his dedication to this organization and his leadership.
There is involvement was critical in helping Barry emerged from bankruptcy and are becoming a publicly traded company on asset.
He has also been instrumental in creating a flexible and nimble organization driven by value creation for our shareholders that has been able to pivot during the numerous unprecedented circumstances and challenges we face.
Active executive search is underway and Gary is engaged in finding a successor and ensuring a smooth transition.
Thank you Gary for everything.
Now I'll open it up for questions.
Thank you as a reminder, Truskin audio question you need a press star one on your Touchtone phone.
To withdraw your question press the pound key.
Please stand by all the compiler candy roster.
Your first question goes from Lira, Leo Mariani of Keybanc.
Hey, guys just wanted to touch base on the guidance here I know you guys have the 65 million of capital guidance just wanted to verify that thats still intact with the rig addition here in the fourth quarter and also I was hoping you could.
Published a little bit would the directionality on production just given the lack of activity I'm kind of assuming it comes down a little bit more in the third quarter and maybe starts to stabilize live in the fourth quarter is all that about right.
Yes, Leo this is carry help I'll jump on it real quick and then Gary will fill in any holes that I missed that.
You're right the third quarter will be the one where we see the drop continued then we'll start seeing flattening out as the rig comes on in the fourth quarter.
As far as guidance right now we're still in the approximately $65 million range. As you know, we do have the ability to scale up and scale down very quickly.
If opportunities arise when we started to the 2021 plan with the capital that we put into work on the facility side, we can move quicker on that plan if we so choose.
It will give you more color if we decide to do that starting in the at the third quarter call, but right now everything as we've talked about is in place.
Okay. That's helpful and I guess, just with respect to the activity restart here. Obviously you got the one rig in place you guys didn't talk about the potential.
At least one rig in in 2021, there was a little bit early on 21, but you got some good hedges in place a certainly got a solid base of the cash flow just wanted to kind of make sure that the way you guys look at it is sort of that the government activity is more just living within that Levered free cash flows to the extent that oil prices keep going up and leverage.
Free cash flow rises in 21 is it reasonable to expect that will get at least another rig that comes in next year, if oil keeps going up here.
I'll answer that carry again by dialing bantered again, we were looking over a two year horizon ride in the year for this year with the build up the cash to take advantage of the hedges that we had in place had the cash to give us the flexibility in the 2021 and add that right. Now I mean, you can work your model things have improved versus where we originally planning 2021.
One reason, we put in more hedges, so we could lock in that cash flow to but at least one rig to work, but the focus where 2021 well at least be around keeping production flat year over year will be our intent at this point time.
And you're right if the opportunities improving cash flow improves then we'll start thinking about do we need more capital go to work on the agenda in the in the field or do we want to start thinking about the returning of capital. So yeah nice problem to have that you're exactly right I'm describing them all the ability to flex up if market prices input.
Well that's helpful. Maybe just lastly on the acquisition front, you've talked a little bit more color on this recent deal I know, it's not a big deal. It 5 million Bucks, but just wanted to get a sense as this completely undeveloped is there some kind of plan to attack. This asset potentially next year and then just obviously, there's a you know a company in your name.
Hi, there that just recently filed for bankruptcy wanted to see them, maybe some attractive asset there that you might look at as well in the near term.
Yes.
Leo I'm going to start is and this is trend.
And then I'll, let Gary Philbin, because these super excited about this fold on that we did.
First of all.
I don't want to disagree with you, but I'm going to use your choice of words. So it is a big deal 740 acres in the field like Midway Sunset given the volume of oil is a is actually a this is a big full time in the best part about it is an extension of our prolific.
What we what we discovered over.
Over a year ago Potter trends in which we drill horizontal wells so it's.
We're very excited to have consolidated our position sprint.
So that got.
These are good.
For us So Gerry did you want to add and then I'll come back and talk about good.
[music].
Yes, so we do like to trend as Tim mentioned it sits right just north of existing properties set and it allows us to continue drilling horizontally in that direction as far as timing goes we again. It's so it's it's currently does not have any production on it but it.
It's not undeveloped it had been developed previously that vertical wells like similar locations areas around it again, where we've been successful coming back into and re developing with the horizontal program. So thats our expectation, we would look to drill potentially some delineation wells to help us guide or horizontal wells as always around.
Earlier in 2021 again.
And everything that Carey mentioned about are modeling what pricing is going to do and where we protect ourselves out.
As a caveat to that but ultimately the way that would work as we go hand delineation would start drilling.
Honestly south to north in that direction. So hopefully that's helpful.
Very helpful going on.
On disruptions in the industry.
Doing doing due to things like restructuring I'll, just remind you we are always looking at opportunities to grow up but any activity in that area must create value for berries shareholders. So it's a good some ongoing conversation.
In that respect.
Okay. Thanks, guys.
Your next question comes sign of Charles Meade of Johnson Rice.
Good morning trial to you yeah. Good morning to you and your whole team.
Got you guys I know you you touched on some of your inventory targets on the in your prepared remarks, but.
I'm wondering if you just go back over some of that because I'm not sure.
The question I have is whether it's covered not can you talk about what kind of targets are which of your targets. This one rig that you're bringing it back in October is going to is going to be going after and.
It is that going to be is there just one sort of a target that are one sort of area that you're going to be.
Really focused in through Fourq, you will not into 21 or is that going to bounce around just your color on bound.
Sure Charles This is Gary again.
So it'll be a combination of they'll all be sandstone wells right now as we're where we we talked about the thermal dynamite studies still continuing.
But they're all sandstones with a combination horizontal and vertical wells and they're all in the west side of the Kern County, or Bakersfield at San Joaquin Valley.
Some will be up in beverage there'll be vertical wells in the to Larry formation. As an example, and then the others will be down in midway Sunset.
To bluntly I will be horizontal wells similar to the opportunity I just talked about and the remainder will be.
Sands down in South Midway Sunset.
Got it that Thats helpful detail. Thank you Gary in there.
Charles Yes go ahead, so I try to them.
Just because the nature of the call I want to remind everyone that when we talk about horizontal wells going back to carries investment thesis. These are very shallow in terms of total vertical depth and very low cost okay.
In the one 650 range to drill and complete okay. So they're not resource play type horizontal wells just want to make sure everybody's aware.
Yeah, I think thank you for that that added a clarification.
Sure Yeah, maybe fruit for this might be best for you but of course, you can kick it anywhere the I'm curious you know.
I'd like Leo's question.
Zeroing in on this 740 acres for 5 million boxing and I appreciate the color you've already added to it I Wonder if you could give us your thoughts.
This is this representative of the sort of opportunity.
That you see are emerging you know through the back half of 20 into 21 or more or is this just kind of up a small bites and we should expect bigger bites further down the line.
It's a it's a very good question Charles I would expect.
We are going to we have this bolt on that we just talked about we've done a number of fees over the last.
Three years since since becoming.
Public and we will continue to do those kind of normal clause course of businesses various companies.
Go through number Brew review, what they what they can operate what they want to put us on what we want offers so thats just normal.
I would expect bigger chunks.
The future.
I can't talk much about all of that but.
There's a clearly some disruption going on the market and given that we've worked very hard Charles to position Barry to thrive through the cycle.
And therefore puts us in a unique position, particularly in California to take advantage of opportunities. Okay. So hope that helps you there.
That is help thank you for for sharing your your thoughts there too.
Hey, Charles Charles This is Terry I'm at just called I have to talk tape is when the other two talked I feel left out but at but also I just want to highlight we add as trimming Gary both said, we do have a lot of permits in hand.
And so where does give us flexibility to do what are to be very nimble in the fourth quarter, where we put the rig on the sandstones and it also gives the ability to scale up quicker. If the market allows at market did something crazy and pricing became even that much better I just want to make sure everybody understood that as well.
Thank you carry we're hoping for something some crazy like that thanks luck I guess.
Thanks.
Your next question comes from the line of Greg total of Simmons energy.
Hey, good morning, and take on to answer some questions Greg.
Quick just in your prepared remarks, you talk about a.
And overall corporate decline of 13% to 14% and I'm curious as to the 6% that we saw.
Quarter over quarter, like what drove that 6% weather and shut ins that we need to think about or can we think maybe about a higher decline going forward.
Yes, Greg This is Gary let me, let me talk about that real quick so two two or three things go into that so first let's just talk about that 13 to 14 person. That's our annual decline PDP decline and that's where we talk about having low declines overall as a company and as a corporation and that is still in place today that number.
Things change.
I've mentioned before that it's very difficult to look at us on a quarter to quarter basis, because of things that can swing being a thermal producer as an example.
Things can move.
They're just not the IP of the well, it's never sometimes not the highest ever will produce as an example separate thinking the single well model, we think of drill this well its peak rate in the declines off of that that isn't necessarily the case that thermal application even in producers, sometimes they produce more or less depending on when we cycled.
In a particular quarter.
As as you can understand its little bit time related im sorry for the detail here, but I'm I'm, hoping to give you a little more information that you can feel comfortable with this.
So in the first quarter, we actually had some carryover.
That allow that rate to be a little bit higher as we had some work that we did 2019 now came online in the first quarter. So first quarter was slightly.
Up from some of that work and that work did not continue through you know the into the first quarter and into the second quarter. This year as I mentioned, so that has a little bit of effect that kind of.
Overrides, if you will that 13% to 14% annual PDP decline. That's one we did have a little bit impact from shutting in some steam in the second quarter not a lot and then we did have a little bit of impact from certain wells that we.
Did not bring back online if they went down during the quarter due to the pricing in the quarter, we expect both of those to come up.
In the future as we continue to look at our properties sets on a well by well basis and make those individual judgments on is that well economic and current environment, just like always does it add value.
I would tell you that no the into the corporate decline has not changed its not higher you're looking at a one.
Quarter cycle that is not indicative of the annual rate.
Okay perfect.
Absolutely. Thank you so much for the color on that.
Shifting gears.
Curious as to.
Or year end 2020, how do you guys think about the cash balance and then any efforts that you guys may have to be mitigating like a working capital drag.
Yeah, and Greg I'll make sure I get so cash balance it's fairly easy so it will be as pointed out 20 million today and growing.
Al later by have their model out, but it will be significantly higher than that at yearend.
Contact we plan exceptionally based upon our.
Our $65 million.
Capex and no dividends kind of easy to map out.
As far as working capital.
We just don't think we don't have massive working capital.
The work will.
Well actually get some benefit front from the payable side of things.
And that time, but overall, our working capital should not Matt should not vary wildly from quarter to quarter or month to month, even as we started having a rig back or.
Okay perfect. Thank you guys very much I appreciate it.
Thank you.
Your next question comes line of Nicolas Pope with Seaport Global.
Okay.
Good morning, guys.
Good morning.
I was hoping that just kind of the follow on it that that production declined question, it's really.
Just trying to understand the opex.
I'm seeing that drop the 10 million drop from one Q.
How much it how much of that is I guess.
Animal versus.
What you saw from.
News Workovers and.
Yeah, the steam and the Cogen being cut back or are turned off for various period during the during the quarter.
So.
Obviously, we control the bulk of the and Nick This is Gary So we control a lot of that.
The steam itself, obviously, we control pretty dramatically I will tell you that at some point in the future we want to bring steam back online most likely because we'll be redirecting. So our RC management happens all the time, so there's times when we reduced seem at a particular interval, but we put it in a different interval well.
Chosen to do right now as we took the steam out of that interval, we haven't put it back into different interval due to the in the market conditions as I sit today as that moves forward. We will continue to bring that see some of it back online as far as the over the other categories.
It's we're number one let me be first and foremost we have not done anything that is that we'll get in a way of us operating safely for our employees and for those who visit our properties.
Regulatory compliance none of that we put in jeopardy at all that's sacrosanct for US we will always operate that way, we cut any costs that are associated with us sustain at those levels. So first and foremost now the other things quite frankly, we had initiatives in place before this tovia issue and the and the.
Eco political market as I called it in so we are working to move cost down in a sustainable reserve levels before that even so like chemicals excel itself. We've done a lot of things I don't expect those to go back up some of the well servicing that we've done as we look to do time in motion studies on Rick movement personnel.
That we use those are sustainable continue forward. So I would say a lot of the things that we've done the majority of them. We'll continue forward like trend mention but I can't say, 100% of them well because again market conditions will.
Thomas bring some more wells back online cannot hard numbers that real number the dollar figure will go up a little bit if that is the case, but on a per via we basis I expect us to to stabilize in and around an opportunity in this range.
Nick Nick this is strong.
I'm going to Gary's comments, you did talk about the unit unit costs.
The the mandate has been for.
Continuing to operate safely.
Then regulations et cetera, we'll never.
Do you view from that of course, but these are sustainable we're taking an opportunity as a company should during a downturn to really look at how we do things. Okay. So gary's right, we've reduced our seed in the zone and we will continue to have reductions Steve.
When we do it on a unit, we will see steam costs grow on the unit.
On an overall basis, but on a unit basis, it will stay low okay.
Because we've learned things about our reservoirs in this downturn that are very helpful versus.
Okay and there is absolutely right. We don't know is at 70% sustainable 80% I don't know what is significant piece of these costs is going to be sustainable.
And it's great.
And.
Onto that.
The electric.
Greenhouse gas.
Number two.
Should I be thinking about.
The taxes as an income.
On a unit basis on that on a percent basis of revenue I was often my numbers just because the swing from one Q and.
I guess, how do you think about that that line item in Europe in your expenses.
Hi, usually I mean, we give it add they add on a per be OE basis, and that's kind of how we look at an here what happened to first quarter, just kind of give guidance is there was a distressed seller.
And so we took advantage of that and but historically I think our guidance for the year within that four for dollar figures that range I don't think we're coming off that right now at this point on Nick I think it's consistently been in that range in right now with the pricing out there that's what we're seeing as well so a little bump that we got in the first quarter.
Now, we're kind of back to normal Darren.
Thats helpful. Thanks, Thats, all I have that I think ill.
Again to ask your question. Please press star one.
I would.
Now I turn the call me over to Jim for any closing or additional comments.
Thank you all for participating today really enjoyed the conversation and look forward to the next quarter of a great day.
Thanks for participating in today's conference that does conclude today's call have a great day you may now disconnect.