Q2 2019 Earnings Call
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Later, we will conduct a question and answer session and instructions will be given at that time.
If anyone should require assistance during the call you May Press Star then zero on your Touchtone telephone.
It is now my pleasure to introduce <unk> director of Investor Relations John Crane.
After I cover the forward looking statements day, French our president and Chief Executive Officer will provide opening comments in key highlights for the quarter.
Finally, Dave will be Brian Freeman Senior Vice President of operations, who will provide an operational overview prego and Chief Financial Officer, who will provide a review of financial results for the quarter.
We will then have a question and answer session then Dave will close the call with some brief comments also joining us today on the call is Brian Air Senior Vice President Geology, and David Moore, Vice President of commercial and reserves.
I'd like to remind you that today's call includes forward looking statements and certain non-GAAP financial measures. We believe our expectations are based on reasonable assumptions. However, a number of factors could cause results to differ material materially from what we discuss.
We encourage you to read our full disclosure on forward looking statements and resi see filings and the GAAP reconciliations included in Yesterdays earnings release with that I will now turn the call over to Dave.
Thank you John and thank you everyone for attending Rosales second quarter 2019 earnings call today.
Since the time of our last earnings call Admittedly early days for me here I've had a chance to really appreciate the strength of our portfolio the capabilities of our team and the wide range of opportunities in front of us I'm convinced we have a bright future.
It has been a busy summer catching up with many of our investors and I look forward to meeting more of you in the near future.
Moving to our update second quarter 2013 was as expected very active in both of our operating areas.
Ryan will provide greater detail, but in general we shifted our attention to our northern area drilling and completions. After an active close out of the first quarter in the south.
As planned we shut in some producing wells early in the second quarter, the north to ensure safe operating conditions and minimize well interference.
These impacts from simultaneous operations, our son lives, partially dampened the early part of the second quarter.
We have nine three to 19 completions planned in the north that we expect will drive volumes upward over the back half of the year and we can reconfirm full year 2019 production guidance.
We're also pleased to announce our most recent results in the southern Delaware.
As we previously released the rationale behind our recent farm in agreement was twofold, Firstly increased our acreage position in an area, we see potential and secondly provide the adequate lease configuration that will enable us to drill two mile laterals where applicable.
We were very excited last quarter to highlight the operational execution of the state and the Alesco 12, 10, two mile lateral with leading drill times and overall costs and are not equally excited to announce the first production results.
We believe the combination of attractive rates low per foot well cost and high oil cuts further crystallize the potential of our southern Delaware assets.
Along with optimizing DMC activities. We're also pushing on the equally important work of lowering cost in the southern Delaware area.
Especially associated with power and water management.
The combined improving well costs and operating expense profile only served to reinforce the choices of our 2019 balanced capital plan.
Turning to our plans for the remainder of the year reinforce previous guidance on a cheaper capital program in the second half.
Our activity will be laser focused on a couple of key portfolio objectives first in the north we're turning our attention to multi well drilling in the Wolfcamp b.
We've historically drilled several wolfcamp b wells in the north but this 2019 full program is set up for 2020.
Designed to tune, our well spacing model.
Well also returned to the south and drill another two mile lateral and a delineation well in the eastern block of the acreage setting up for 29 plans there as well.
Given our balance 2019 plan, an expected increase in our liquidity profile going forward, we do not expect additional funding needs for the remainder of the year.
Should be a busy fall and I look forward to sharing the results.
With that I'll now turn the call over to Brian Friedman for review of our operational performance in the second quarter.
Thank you Dave the second quarter was indeed very busy as we operated two rigs for a good portion of the quarter drilled eight wells and completed nine wells.
We exited the quarter with 12 drilled uncompleted wells or Ducs.
As was our plan entering the year, we released both rigs late in the quarter as we took a pause to catch up on our DUC inventory and now anticipate resuming drilling in the weeks ahead.
Which I'll talk more about in a few minutes as Dave mentioned, most of our drilling and completion work in the second quarter occurred in our northern Delaware area, where we were.
Active on both our Z into 20 and Weber leases.
Provided results in our press release for the DNC 28, 006, well targeting the second bone Springs formation.
Demonstrating the strong economics or this interval. We also provided extended production results for the DNP 32, three well pad brought on late last year.
Which continues to produce at an average rate.
Over 250 barrels of oil equivalent per thousand foot lateral.
After more than six months on production, we maintained our exceptional operational performance, averaging 15 days per well drilling and just under five stages per day on the completions for the northern wells in the quarter.
Our Weber leaf in the northern Delaware.
We made the prudent decision to shut in 10 wells during the quarter to avoid potential safety issues and adverse impacts to the wells turn pressure pumping operations.
As Dave mentioned, this calls and negative impact to second quarter production.
We estimate production for the quarter would have been over 1200 believe per day higher had we not taken these preventative measures.
Prior to the end of the quarter, we brought on some wells back online and this helped contribute to a total company average net production level over 20000 Boe per day for the full month of July .
Which is the field estimate on.
Two stream basis.
Turning to the activity in our southern Delaware area, we brought on our first two mile lateral.
Well I'm, sorry, well the state you'll love Gopro LPN and we're very pleased with initial production we're seeing.
Which is detailed in the press release, we're encouraged with both the production level and the total well costs achieved.
$8.5 million or approximately $850.
Per completed lateral foot.
We plan to take the learnings from this well, including completion design pump rates fluid loading and artificial lift approach to apply to additional two my well we plan to drill in this area during the fourth quarter.
We placed other wells onto production recently as well, including the silo 14, which is also detailed in our press release and we look forward to providing additional result, once sufficient flow back information is available.
Altogether the operations in land teams are making tremendous progress around our southern Delaware infrastructure, including ensuring adequate grid power flow back support water supply and produced water disposal capacity.
Greg will touch on how this translated into total cash operating cost for the quarter.
Moving to current operations, we're hard at work completing six wells and ignored by simultaneously pumping two three well pads on the call 26 leases.
After these wells were completed the crew is staying in the north and move into a three well pad on the DNP 32 lease.
As we work through this DUC inventory.
We also plan to resume drilling operations.
Initially targeting the Wolfcamp B formation in the north.
Overall, we're excited about the potential of the Wolfcamp b given the thickness of the reservoir.
Pressure environment.
And the low decline profile that these wells previously drilled in the interval.
In summary, you can see we have quite a bit of activity and progress that should drive the increase in production for the second half of the year Dave mentioned.
With that now I will turn the call over to Craig for a financial review of the second quarter.
Thank you Brian I'm pleased to report on our strong financial results for the quarter.
Second quarter revenues were $69.4 million in production totaled 18934 barrels of oil equivalent per day comprised of 70% crude oil, 15% Ngls and the balance natural gas.
Well the second quarter of 2019, Roseville reported net income of 11.2 million or 54 cents per diluted share, which included a 33.7 million noncash pre tax gain on commodity derivative instruments, and an 11.1 million pre tax gain on the sale of our northern excuse me New Mexico assets.
We generated adjusted EBITDA of 43.8 million for the second quarter, a decrease of 11% compared to the second quarter of 2018, driven primarily by lower commodity prices.
Our average realized oil price for the second quarter was $55.06 per barrel in the total equivalent realized price of $40.27 per Bailey, both on an unhedged basis.
For natural gas the current transportation constraints experienced in the Permian basin in the second quarter resulted in a realized natural gas price of negative 44 cents per Mcf.
This price was significantly impacted by Warhol, NDP Permian pricing points and is inclusive of processing costs and certain gathering costs.
NGL pricing was also challenged in the quarter due to sharp increases domestically and liquid supply, most notably ethane and propane as export capacity constraints and calls domestic stockpiles to build.
Our average realized NGL price for the quarter was $12.05 per barrel, a 45% decrease as compared to the second quarter of 2018.
We have a very strong hedge book protecting our downside commodity risk, while also providing exposure to upside price movements.
We have the vast majority of the remaining 2019 expected oil production hedged at $56.47 approximately 13000 barrels of oil per day hedged on average in 2020 and 21.
At $59.83, along with over 5000 barrels of oil per day hedged in 2022 and $59.35.
All of these aggregate positions provide us with exposure to upside price movements as well.
Turning to costs total cash operating expenses were 24.3 million or 11 72 per BOE, which consisted of direct lease operating expense of 490 per Bailey.
Cash DNA expense at $4.31 per Boe.
Gathering and transportation expense of 77 cents per Bailey.
And production taxes of $1.74 per Boe.
As Brian alluded to our cost in the quarter improved sequentially due to bringing on additional company owned and operated SWT well capacity in our southern Delaware area that resulted in less reliance on third party SWT well operators.
We continue to have adequate as their D disposal capacity in both of our operating areas, including a number of approved permits on our southern area to support our future development plans.
The net result of our operations for the quarter again was seen at the corporate level with a strong cash return on capital invested the 23%.
Total liquidity as of June 32019 was 65 million made up of cash on hand, and availability under our revolving credit facility.
We expect our liquidity to improve in the second half of the year as we experienced the benefits of expected production increases lower capital investment and our scheduled formal fall borrowing base redetermination.
Lastly, I'd like to provide a brief update on the potential sale of our water midstream assets in the northern Delaware area.
We have made extensive progress on this front. This is a complex process involving multiple parties with a number of aspects out of our control, but we continue to be optimistic that a value added transaction could occur this year.
And with that Andrew we're ready to take some questions.
Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephone.
And if your question has been answered or you wish to remove yourself from the queue. You May press the pound key.
Once again to ask a question that's star then one.
And our first question comes from the line of Neal Dingmann with Suntrust. Your line is now open.
Good morning, guys. This is actually Jordan.
Just wanted to ask how you guys view balancing kind of internal growth with external growth.
What kind of maintaining spending within cash flow.
You kind of see that progressing going forward.
Hey, John This day as I think.
My my take on internal external growth or at least certainly how we try and for the portfolio.
The first couple of years the company since inception, and we grew very quickly from sort of 5000 to 20000 barrels a day, we focus we focus this year really on balancing capital or cash and we don't think the market is really going to pay for.
Growth, that's going to require a lot of tapping up topping up on our on our capital from external sources and so when you think of internal external for us it's going to be about trying to find the right balance within our portfolio. As we said we sit in by any league table, an exceptional resource in the northern Delaware and and we think people are going to be very excited and and really understood. When we truly understand and unpack the southern Delaware potential we think it's going to bring people to the story, we don't think doing that in a way that's going to outspend, our cash makes a lot of sense. So we certainly focused on.
Moderating growth this year to put a balanced portfolio, but we think will still put together a focus on both 2019 and 2020, they're going to provide very interesting rates of return self funded if that answers your question.
Yeah, absolutely. Thanks, David and then if I could just ask one more kind of thinking about the wolfcamp b in the north Delaware could you just give us.
Little more color, Brian maybe on kind of the geologic properties.
You guys are going to approach that interval when do you start test.
Having a strong technical team you do have you kind of think about that interval in terms of the overall inventory in the north.
Yes.
We have drilled three wells in the B back in 20 cents 70.
Watch those wells over the last two full four years and while we've been doing that actually our peers have also been.
Very very reactive and gained in starting to de risk that play.
If you've been following me at all when I've talked to folks about this for the last three plus years, I've been saying and and still feel strongly that ultimately the wolf b interval will rival that would say when it comes just two.
Flow rate sticks and.
Just the size of the resource that would be in the core work, where we're at is 700 and plus feet thick.
We see at least three sub sub bench plays there be want to be three and a BB for target.
From a stick count standpoint, I wouldn't be surprised if we don't.
Ultimately significantly increase our well count that we have in the B now.
It's it's <expletive> its poors its rich you had say silty shale that.
Given that I think really has.
Legs to it.
Great. Thanks, so much Brian Thanks, Dave.
You bet.
Thank you and as a reminder, ladies and gentlemen, if you have a question. Please press Star then one.
Our next question comes from the line of Mike Ski Yellow with Stifel. Your line is now open.
Good morning, guys. This is Jared for Mike.
Yeah. Thanks for the quick quick update on the water assets in the North I was just curious on what kind of synergies you guys were looking for for a potential buyer. So I'm assuming that you guys would still want to utilize that infrastructure for your water disposal.
Sure Jared this is Craig and yes, as we progress through the year.
Looking for a partner that yes.
This is not their first rodeo they've done it before we've got to be comfortable with a partner that knows what they're doing operationally so they've been out in the field they.
We can't move our water, we can't move our production. So it's very important that relationship will be important obviously that.
Fits like a glove ideally with the overall deal, but certainly looking for someone who's who's got a track record in the business of water water movement water management.
Hey, Jared I might ask.
Quick, but I don't think this is Dave the one thing that is important for us and we talked about on the last.
Earnings call as well is that it's important for us to go to put our own volumes through there. We don't think we want to be in the business, though marketing that capacity. So part of the synergy there as we are we providing what we think is sort of a base load for that SWT disposal, but we're offering the ability for folks to look into that infrastructure, who might want to use other operators volumes as well, which just isn't a good role of an ERP company to spend your time to market that yourself. So we think that natural blend will provide our volumes as base load and somebody else to do the work of also thinking about bringing in volumes that they can enhance their returns on we think is a good business model.
Perfect. Thank you.
And then one more quick question.
With the wells that were shut in in this quarter for due to Simops.
Do for your guidance going forward is that incorporated if there is going to be any other shutdowns. This year or is that something we have to keep in mind.
That's correct certainly for the rest of you I reconfirmed our firm guidance for the rest of year. So we have we have summer operations, whether it's going to be some volume taken offline, but in general the focus of the second half of the year will be pretty minimal seim ops effect and certainly for 2020.
We'll roll it into our expectations for the year.
Perfect. Thanks, guys.
Thank you.
And I'm showing no further questions. So with that I will turn the call back over to CEO , Dave French for closing remarks.
Thank you Andrew I'd like to thank everyone for joining the call today I Hope we gave everyone. A good sense of the spring and early summer Rochelle activities and a preview for the fall.
For us there really is no substitute for good execution on picking the right targets on drilling solid wells.
We also will create shareholder value through relentless and disciplined delivery on the potential of our acreage expects nothing less from us as a company take care and enjoy these last waiting days of summer.
This concludes our second second quarter earnings call. Thank you for interest in Rochelle and have a great day everyone.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect everyone have a wonderful day.
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