Q2 2019 Earnings Call
This conference call is being recorded I would now like to introduce your host for today's conference Mr. Larry Busnardo.
Vice President of Investor Relations Sir Please go ahead.
Good morning, and thank you for joining us this morning for the Highpoint resources second quarter 2019.
Earnings Conference call joining me on the call today, Scot Woodall, Chief Executive Officer, Paul Gallagher, Chief Operating Officer, and Bill Crawford Chief Financial Officer.
Before we begin.
Encourage you to review the disclosure statements provided within the forward looking statements our earnings release, which you can find on our website at H.P. Rose Dot Com you can also find them at the end of our press release.
I will now turn the call over to Scot Woodall for prepared comments.
Good morning, and thank you for joining us today to discuss our second quarter of 2019 financial and operational results.
I will provide some overview comments before handing the call that wouldn't pollen bill, but the operational and financial update.
We continue to deliver on our operational plan and posted a solid quarter that was driven by strong operational execution and financial results that came in line with our expectations.
Notable accomplishments for the second quarter include.
Successful executing the large scale hurford optimization program that is delivering immediate performance insight and has significantly advanced our geological understanding on the field.
All the data has been collected.
23 wells within the program have been completed and placed on flowback.
We placed 30 wells on initial flow back during the second quarter of an additional 20 wells were placed on flowback in July .
This was consistent with what we had outlined and gives us strong confidence that we will deliver on our second half production profile, while maintaining our planned capital expenditures.
The significant number of wells turned on line over the past several months has brought our total current net corporation production to over 37000 Boe per day and continues to incline as new wells ramp up.
This will drive an approximately 18% sequential production growth for the third quarter over the second quarter.
We continue to see strong well performance from our northeast Wattenberg asset as the initial high food intensity completions are averaging approximately 20% above the base type curve expectations.
We also placed on line seven wells on the western flank northeast Wattenberg acreage position editor living strong early performance results and are tracking above a million BLE type curve for this area.
Lastly, we continue to maintain a disciplined approach to capital investment and are on track to achieve our target of generating positive cash flow in the second half of the year.
As you can see with the highly successful quarter in a great job execution by our entire team.
Now I'd like to provide some additional detail around our hertford asset execution that well performance optimization of this asset is a top priority of the company.
We initiate our optimization program with the goal of achieving increased capital efficiency enhanced well performance and improved well economics.
We are extremely pleased with the immediate performance insights gained and we'll be delivering associated well performance results that will become evident to the investment community.
This program has validated our conviction in the quality and potential of this asset.
With that I will now turn the call over to Paul to provide more details with respect to our learning and the early results we've seen occur.
Thank you Scott and good morning, everyone.
First I would like to thank our field and office personnel for delivering on our numbers safely.
We're pleased by the operational results we've seen in the first half a year.
I'm very encouraged about our momentum into the second half of 2019.
We successfully execute on corporate development optimization program and are realizing the sustained benefits higher fluid intensity stimulations in northeast Wattenberg and early time Herbert.
I will expand on both of these in more detail in a moment.
As Scott mentioned, we placed 30 gross wells on flow back during the second quarter and an additional 20 gross wells placed on flowback in July bringing our total current net production to over 37000 barrels oil equivalent per day.
Most of the new wells still ramping to peak monthly production.
This has us very well positioned relative to our third quarter guidance provided today.
Now moving on to operations.
And Herbert total production volumes sales volumes for the second quarter average 70, 145 barrels equivalent per day.
And current gross field production has reached a record high of over 10000 barrels oil equivalent per day.
During the second quarter, we successfully completed the field implementation of the extensive development optimization project within DS you 11, 60, 316, and D. as you allude to 60 317.
The project encompasses over 1800 60 total stages evaluating every aspect of completions, including fluid loading of 30 to 60 barrels per lateral foot sand loading of a thousand 20 250 pounds per lateral foot.
Cluster spacing of tend to 40 feet.
Stage spacing and 40 to 240 feet and variable treating rates per cluster.
During this work Microseismic data was gathered from 18 square mile Ray well well spacing of eight to 16 wells per D. as you were evaluated.
In total this project will generate over 500 terabytes of data, which were analyzing to enhance drilling and completion performance.
Foundationally that thermal maturity at saturation data gathered from the study confirms strong reservoir characteristics and a significant hydrocarbon resource of 30 to 40 million barrels of oil in place per section, which is approximately 25% greater than our northeast Wattenberg.
We're very pleased with the media performance insights gained by employing real time fiber optic monitoring during execution of the program.
This technology provides real time observations during completions on the fiber optic wells, which we apply this optimization stages later in the job on the same way.
In this way generations of completion enhancements were accomplished in a single project instead of over several years.
Recall the primary goal of the project is to determine the well spacing and completion design, resulting in maximum value generation for future development.
We are confident that the project is leading us to this resolution based on the design execution and learning to date.
Specific conclusions to date include design changes in the rate.
Clusters and stage spacing as.
Opportunities to materially increase the stimulated rock volume, resulting from our completions.
Some of these advances were products of real time optimization during completions.
Ongoing monitoring of the fibers during well flowback will quantify opportunities to further improve well economics through customized completion designs for both the Niobrara and Codell formations.
Very early well results support disposition.
Moving on to recent well results.
Seven wells on the eastern portion of DS You 11, 60 316 placed on flowback in June .
Development included well density and 16 wells for DS you incorporated higher intensity completions of approximately 30 barrels of fluid per lateral foot.
At approximately 1500 pounds of sand per lateral foot.
During early control flow back the wells have achieved average cumulative production of approximately 10000 barrels of oil, which is 92% of the equivalent to phase volumes per well after 30 days.
The completion improvements designed into these wells have been performing as well or better than the adjacent pad of DS. You 11, 60, 315, which was developed on a wider density patterns 12, well spacing.
The remaining four wells on the Western portion of DS You 11, 60 316 were placed on flowback in July .
These wells use higher fluid intensity custom completions and the density of eight wells per D. as you.
Very early data on these wells indicate significantly higher initial pressures and productivity that previous her for DS use.
Recall that we placed six wells located in the Western portion of DS you 11 60 315.
On flow back in April of 2019.
These were the last wells use the lower intensity Gen. One completion of approximately 18 barrels of fluid per lateral foot.
These wells have achieved average cumulative production of approximately 30000 barrels of oil per well, which was 88% of the total to shrink equivalent volume after 100 days.
This compares favorably to the offsetting wells located on the eastern side of the deal.
We're also seeing continued improvement in our drilling execution, which supports our efforts to maximize well rates of return.
Our recent well averages in her part are under nine days spud to rig release that are trending downward.
These successes have driven cost for the drilling portion of our wells below $1 million.
We expect this improvement to match the historical averages achieved in northeast Wattenberg as we continue to drive execution efficiencies and herb.
Now turning to our legacy northeast Wattenberg asset.
For the second quarter of 2019 12 gross wells were spotted intend to gross wells were placed on flowback in northeast Wattenberg.
We continue to see improved well performance through high intensity type alluded to the completions.
As the 11 initial pilot program wells have reached average cumulative production of approximately 100000 barrels of oil after 270 days of production.
These wells continue to track more than 20% above the base northeast Wattenberg type curve.
In June we placed an additional seven zero wells on flow back Mds you forward 63, five on the western edge of the northeast Wattenberg acreage.
These are the first wells in the western portion of our acreage to be completed utilizing high fluid intensity completions.
Underperforming consistent with a 1 million barrel oil equivalent to you our type curve.
We remain highly encouraged by the results of the program as we continue to use this design as the new standard for future northeast Wattenberg completions.
Our northeast Wattenberg drilling program is continuing to lead the way towards robots, well economic outcomes with improved drilling performance.
Our most recent pad averaged under six days from spud to rig release, which is among the top times delivered during our entire northeast Wattenberg development.
The team also drilled several wells curb sections in under four hours, demonstrating our focus on high quality and efficient execution throughout the drilling process.
Similar to our Hertford expectations were pleased to see this continuous improvement of our well results.
I would also like to highlight that all of our completion crews in the quarter average over 16 hours per day pumping.
Hi points operations team set a new company record in the quarter with over 21 hours pumping in a single day.
To summarize we are pleased by the operational progress made in the second quarter of 2019.
We've come a very long way since the first ever fully developed DS you interpret came online in October of 2018.
We expect a significant ramp up our production during the second half of the year as we benefit from the high number of wells that were placed on production over the past few months and the greater productivity of our proved completions.
We're on track to deliver high points high as to you our wells ever in northeast Wattenberg at our newest Herbert wells are demonstrating significantly increased pressures and productivity.
As a leading indicator of improved well performance.
I'll now turn the call over Bill.
Thank you Paul and good morning.
Our second quarter financial results reflected our strong operational performance as we achieve production sales volumes increased 18% from the second quarter of last year as Paul outlined we expect a significant ramp up in production volumes during the second half of the year as we benefit from the high number of high intensity fluid Fracs that came on that were placed on production over the last couple of months.
July's production.
Thats high confidence towards achieving this growth up I will provide an update shortly on our guidance in the second quarter, we generated EBITDAX of $71 million and delivered a base an operating margin of $30 or 30 cents per Boe, we which should be amongst the highest of the DJ basin names due to high oil cut low WCS differentials and low operating costs.
I'd now like to touch on a few items that impacted the quarter.
We continue to see weakness in Ngls at second quarter prices averaged about 16% of W.
This is lower than prior quarters as a result of higher transport and fractionation costs, we expect to see some improvement going forward as fractionation capacity increases later this year.
Second quarter production taxes averaged approximately 8% of revenues, which is reflective of our historical run rate and in line with our expectations. We expect production taxes to average about 8% to 9% pre hedge revenues for the remainder of the year.
Now onto the balance sheet.
We completed our semi annual borrowing base review during the second quarter and our borrowing base of 500 million remain unchanged. We do not expect any changes in the fall cycle.
Protect ourselves from oil price volatility, we have a strong hedge position with more than 70% of our expected oil production in the second half of 2019 and more than 50% of expected oil production in 2020 hedged both periods that greater than $59 per barrel.
This provides us with added predictability and visibility into our future cash flows and protects our capital investments.
You can find the full summary of our updated hedge position in the press release or in the 10-Q.
Now an update to our guidance outlook.
We anticipate total production sales volumes for the third quarter to be 3.3 to 3.4, and then the week with oil, making up about 62% of total volumes.
This represents strong sequential growth of approximately 18% at the midpoint as we benefit from the significant number of new wells that Paul mentioned.
We are on track with 37000 net via we per day in July , giving us a lot of confidence for our full year guidance.
We have made some minor adjustments to our Ela, we mdna guidance to account for first half actuals, which you can find in the press release.
Capital expenditures for the third quarter are expected to total $70 million to $80 million as our completion activity was front half loaded.
We are committed to capital discipline and are reiterating our full year capital guidance and as Scott mentioned, we expect to be cash flow positive in the second half of the year.
All in all we executed on our business plan and have confidence that production will ramp.
In the back half of the year as we guided we have a very stable financial position with ample liquidity and a manageable debt profile and we are supported by an underlying hedge position that protect the majority of our cash flow at $59 per barrel over the next several years.
With that.
I'll turn it over to the operator for questions.
Thank you ladies and gentlemen, if you have a question at this time. Please press. The Star then the number one key on your Touchtone telephone. If your question has been answered all your west to remove yourself from the queue. Please press the pound key again, that's star then one to ask a question to prevent any background noise. We ask that you. Please place your line on mute. Once your question has been stated our first question comes from Derrick Whitfield with Stifel. Your line is open.
Thanks, and good morning all.
Perhaps for Scott or Paul beginning with the Hereford.
How should we think about optimal DNC in spacing design for future wells based on current learnings from that could 15 16 wells.
Yeah, Good times pie say deck, it's still a little early so.
I think what Paul was saying in his prepared remarks, the fiber optics real time data that we gathered enables you to kind of.
Optimized.
Your actual design of your stimulation treatment the microseismic tilt meters in the VSP data that we collected is the one that kind of leads you to optimum spacing of the Niobrara and the Codell and it's.
He mentioned all that data has been gathered and.
Over the next month or two our Geoscience department will be kind of analyzing all of that data and then we hope to provide a bunch of interim results over the course of the quarter both on the.
The flow backs and the optimization of the stimulation as well as our view of spacing going forward.
That's great and then.
It's my follow up shifting over to northeast Wattenberg results.
Does the improved performance of the 11, well hi fluid intensity pilot program place an upward bias on your type curve or are the wells in that area expected to be better.
So two parts to that.
As you go out West you have higher view we.
Overall, a capacity in that rock and so wherever weve tested this higher fluid intensity completion, we've generated.
20, plus percent over previous type curve wells and so that would apply to the the more typical the wide inventory you've seen in the central part of our low of or.
Acreage it applies to that western area.
That you've seen.
Specifically on the on the production quoted in this call and so we're very pleased with that and continue to use that as our standard going forward and as a as you heard in the prepared remarks, I think we continue to see the benefits and supporting our production or production levels.
Very helpful. Thanks for your comments.
Thank you. Our next question comes from Welles Fitzpatrick with Suntrust. Your line is open.
Hey, good morning.
Barnwell.
It sounds like the wells on sections 15, rather have been pretty shallow decline I mean, if I did my math on the fly right from a little bit over 300, and maybe a little bit over 200, which seems pretty pretty solid for you know the first hundred days can you talk to the pressures there and maybe any kind of updated understandably preliminary thoughts on on where those you ours might might be headed.
Sure well this is Paul.
As we've seen with start off of that section 40 units was we've moved west at 15, 16, and 17 with the implementation of a pressure wall and then the higher fluid volume completions, we think we've been able to dramatically increase the stimulation intensity on that rock as we move.
West and those are part of the I think the generations of completion improvement that we talked about it so.
How do we see that real time going forward, we've tried to give some indication of that kind of from a leading performance and productivity standpoint is that we have seen significantly increased the pressures in productivity as we move west in that ROE the manifestation of that on a controlled flowback environment. You know you don't see that your IP 30, we've got a very program for spots, where you see it is exactly where you're observing it in month, two and three where you don't see the decline that you would have seen had you got a lower productivity well and so those wells are able to maintain higher rates for longer and then you see that you've got more of a traditional controlled flowback that we've that we've experienced as a company recall the commentary earlier on the last couple of quarters about a two to four month ramp in some of those wells from control flow back across northeast Wattenberg and Herbert the.
The.
The very first wells in in Hurford had a shorter ramp too.
To their plateaued rate for controlled flow back in as we are moving west we're seeing longer ramps higher sustained pressures and higher deliverability and were attributing that to the improved stimulation and the improved overall completion intensity to connect to more stimulated rock volume there from our wells.
Okay, No that's great and then I mean to your point about controlled flow back and it's taken a couple of months do you think that.
Those section 16 wells will will that be make it into the presentation and.
Should we be thinking maybe a little bit later.
Hi did you do you see the section 16 wells or 50.
Fixing fixing.
Sure.
From from that standpoint, you know those have been on a very very short period of time.
As a result of the control flow back it's difficult to make inclusive you our segments in the first 30 or 60 days, what what as you pointed out earlier.
The.
Sustained higher productivity and higher pressures at a given rate give us indication of increased.
Increase well production capacity.
Overall, and so we are seeing that and I think.
You know as as Scott mentioned, we look forward to over the next.
A couple of months here talking about exactly what we've seen in the section 16 and 17 as we have.
These higher well productivity is translate into oil in the tank I think you see early glimmers of that with the sustained production that you mentioned that even further east in section 15, but.
Oil in the tank will prove that and so we're we're we look forward to talking about that.
Okay, perfect that makes sense and then if I could just get one more in.
Can you guys give your updated thoughts on on basin level M&A you get you guys I mean, you've been a leader and getting down LLC and Gionee per unit. There is there any desire to leverage that and your operations team across across a broader asset base or is it just not the time.
Yeah, I would say well, we always look for opportunities.
You know in the past.
Future going forward clearly the focus right now the company is on Hereford on the project area that debt that we're executing on the data that weve.
Collected and then the result of that pipe, where the focus in the near term is where the company sits right now.
Understood. Thanks, Thanks, so much for the time.
Thank you and as a reminder, ladies and gentlemen that is star then one to ask a question again Star then one for questions. Our next question comes from Jason Wangler with Imperial Capital. Your line is open.
Hey, good morning, all and.
Scott wanted to ask on the L., we decide just the <unk> ticking up in the I guess, the second quarter and then you know the guidance could you maybe just talk about around what was going on there and is it something as you move into her for more or just kind of where we should be thinking about there.
Sure Jason This is Paul.
We have that for.
For a type number in Q1 driving down below four in Q.
Two we had some significant up what I call nonrecurring in Q1, there that drove our first half overall associated with the with weather and a few other things that we have that we're a nonrecurring I think as you see us move into the second half you got two things Oh, a three things going for us continue to.
Focus on driving those numbers down the those recurring blending out into the overall rate and then the significant ramp in production and so as we see those things all combined in the second half, we're driving down to that three low three type number that we've that we've talked about.
Okay, and I think Bill mentioned you know the NGL prices you know, it's been weak obviously pretty much across everywhere, but you know.
This does the infrastructure improvements you guys kind of talked about not being constrained does that help anything there or maybe it even makes it worse or just how you think about the NGL side I know, it's not a huge portion of your stream, but just kind of what we should be thinking about for you guys. It into basin there.
Yes, Jason This is bill, yes, you know, obviously being able to.
Deliver to multiple producers gives us access to multiple pipes out of the basin and some of those do go to Con way, which also affected the pricing.
You know as the infrastructure expands and the Ngls can get towards the end of this year into more Mount Bellevue, we expect that to improve.
To your point, you know us delivering on all the oil volumes is the most important because that's driving the economics.
Great I'll turn it back thank you.
Thank you. Our next question comes from Paul Grigel with Macquarie. Your line is open.
Hi, one question on the northeast Wattenberg on some of the newer wells on the western flank could you talk about.
What you're seeing there and then maybe what kind of inventory or running room you would have.
If you wanted to kind of continue to attack that area into into 2020 or beyond.
Sure Paul This is Paul we've.
But we've been able to put together several DS use over there we've got a early time the when we talked about and then some as ourselves that we put together over there and so as we continue to look at our acreage we like the way that compete those are very.
Very high you ours, very productive wells and excellent rock, we're happy to see the.
The results in the.
Productivity improvements of the higher stimulation higher fluid the disease stimulations over there and so we do actively look for additional additional opportunities to put together a d. as use and that we will we don't have any more planned in the second half of a 19, but we'll look to continue to.
So put together drillable acreage positions over there.
In in.
2020, and beyond as far as overall, if you see on the materials the kind of the outline of our acreage that is not the big blocked up portion over there, but certainly this isn't the last of the yellow we've got to drill over there.
Okay, and then maybe just as a supplement to that what is the current environment.
Maybe more in the northeast side, rather than going up in Hereford on on acreage swaps, maybe kind of dovetailing not full M&A, but just on producers working together to to get bigger blocks could you give a thought on if everyone's working together moving on that are motivated there.
Sure absolutely a couple of things there clearly theres not a.
Large amounts of value being placed on on undeveloped anywhere in the in the DJ today, but as we go through and try to to block up we've got that big nice blocking position in northeast Wattenberg as far as swaps to to continue to block the things up I think we've had good luck in doing that to trade into two.
Additional acreage to make available dsas use into two.
Help operators get their execution done and get out of each other's here. So we continue to see success in being able to do that with the with.
Other operators in the basin.
Thank you very much.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Mr., Larry Busnardo for any closing remarks.
Thank you.
I would like to remind you that our CEO Scott will will be presenting next Monday at the Enercom oil and gas conference here in Denver at 940 Am Mountain time.
A copy of our updated presentation, we posted to the website prior to the start of the presentation.
I know many of you will be attending and we look forward to seeing you next week. Thanks again.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude todays program and you may all disconnect.
Everyone have a wonderful day.