Q2 2019 Earnings Call

At this time all participants are in listen only mode. Later, we'll conduct a question and answer session and instructions will follow at that time.

If anyone should require operatorship piece first are starting to zero carrying a touchtone telephone.

As reminder, this call will be recorded.

I'd now like to introduce your host for today's conference Scott Andrew. Please go ahead.

Good morning, everyone and welcome to Bonanza Creeks second quarter 2019 earnings conference call and webcast.

On the call. This morning, I am joined by Eric Rager, President and Chief Executive Officer, Brent The Muse Executive Vice President and Chief Financial Officer.

And Dean Temporally senior Vice President of operations and engineering.

Yesterday, we issued our earnings press release posted a new investor presentation and filed our 10-Q, yes.

All of which can be accessed on.

The Investor Relations section of our website.

Some of the slides in the August investor presentations will be referenced during our prepared remarks. This morning.

Please be aware that our remarks will include forward looking statements that are subject to many risks and uncertainties that could cause actual results to differ materially.

You should read our full disclosures regarding forward looking statements contained in our 10- Q1 0-K and other SEC filings.

Also during this call we will refer to certain non-GAAP financial measures because we believe they are good metrics to use in evaluating performance.

Reconciliations of these measures to the most directly comparable GAAP measures are contained in our earnings release and Investor presentation.

We will start the call with prepared remarks, and then moved to Q and right now it is my pleasure to introduce air Gregor President and CEO Eric.

Thanks, Scott Good morning, everyone and thank you for joining us for our second quarter earnings call.

The Bonanza Creek team delivered a strong second quarter with production, increasing 18% over Q1, while reducing our unit cash cost excluding production taxes by 24%.

We will keep our remarks brief in order to get to queuing day, but there are a few points from yesterday's earnings release and the operations update a few weeks ago and I want to highlight.

First our average daily production for the quarter 24428 Boe per day was up 18% over Q1.

This was higher than the mid single digit growth. We had suggested last quarter, primarily due to the wells coming online in Q4 of 2018, and Q1 of 2019 performing stronger for longer than forecasted.

As a result of our production performance year to date, we're raising our annual production guidance to a midpoint of 23 Mboe per day and a range of 22 to 24 Mboe per day.

Consistent with our plan, we Didnt turn any wells to sales during the second quarter, we will bring 23 wells online during the third quarter.

Because our production grew at a faster rate than we had planned to the first half of the year. We're now expecting production to be flat to slightly up for the remaining two quarters, which is simply a result of having already achieved 38% production growth over Q4 2015.

On slide 11, a buyout of our IR presentation, you see the results from our legacy East area, where additional production history on the pronghorn be 28 Pat.

Demonstrates results to continue to exceed our east X or L. type curve.

We've also added production results from the white tail, a four well to the same production plot on slide 11.

We continue to be encouraged by the early results from this well that is tracking with the east ex oil type curve.

On slide 10, we've added another 90 days of production for the I 21 pad.

As a reminder, this pad tested both our contemporary high intensity completion designs and down spacing at 16, well per section density and we're encouraged that this pad continues to exceed our west type curve.

The team continues to find opportunities to lower costs as well with L., we probably down slightly from the first quarter to $2.87 per Boe we.

Year to date, we're tracking in the guidance range, we revised downward after the first quarter.

Cash DNA per BOE eat decreased 24% from port all or 77 cents per Boe in the first quarter to $3.61 per Boe in the second quarter.

We couldn't be more proud and encouraged by the focus our team places on safe and cost effective operations with that I will turn the call back to the operator for Q and I.

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Great. Thanks can we go to Kunaev. Please.

Yes, ladies and gentlemen, if you have a question at this time please press the star and once you're on your Touchtone telephone.

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Our first <unk>. Our first question comes from Welles Fitzpatrick with Suntrust. Your line is now open.

Hey, good morning.

Good morning Wells.

Oh can you talk a little bit about what you're seeing in the market for.

For acreage prices from mineral acres I mean has it been relatively sticky like we've seen in the past or or is is is the slow down a vaccine that I know you talked a little bit too.

Oh.

I'm, sorry, I apologize.

Pizzi day.

Can you guys talk about the rates on the updated rates up.

The GL war on or the newly updated type curves that you are that you put in a in the presentation.

Yeah, Yeah, you bet so.

The GR remains pretty consistent you know it did we really haven't seen.

ER market changes to digital or other you know beyond.

The sort of the guidance in prior quarters and the performance we've seen in the past it is a solution gas driver environment.

In DJ and were in a little bit Oilier rock and so a little lower.

Thermal maturation, but like every place else you know as you put the wells on production the GR tends to rise a little over time. This is really the whole point for our enhanced recovery flow back as to.

To ensure that we use you know each unit of Alaska solution gas drive energy to bring the oil out first and.

Other than that we really haven't seen any.

Anomalous behavior in terms of JLR, it's a little higher to the west and a little lower to the east.

And that's pretty consistent with with what you would expect wells does that kind of get out the question.

Yeah, No no that's perfect and then on the pronghorn or are you seeing a you know obviously that hasn't turned over quite yet. It's it's it's been relatively flat and you know were almost a year here are you seeing anything down hole on the pressures that might indicate to you when when that will start to turn.

Well, that's a great question well. Thank you and you know we're asking ourselves. The same question and you are definitely starting to see it or you know maybe roll closer to flat, but it is still slightly inclining and what that tells US is there still MSR v. still you know stimulated reservoir volume that is logging into the well as as compartments.

That had previously logged in have have dropped in pressure you know they are delivering there there.

Load recovery, and then delivering some of their resource potential and we don't know where that asked RV ends necessarily there are there are markers that were watching.

MP companies like Us will watch.

The quality of the flow back water.

You look for chloride signatures and other.

Geo chemical signatures to try to indicate that you may be.

Seeing the full.

Extensive the S. RV and at this point.

We aren't seeing anything that indicates that the well is ready to begin kind of fulsome decline.

If you if you asked me to bet on it I would tell you that we're probably not going to be saying the same thing a quarter from now my hunch is it's probably going to roll flat and then it's going to stay flat.

For a period of time, and then we're going to see a slower decline than normal and the reason I say that is because everything we've seen so far in.

Whether you are talking about flowing bottom hole pressures or other markers of reservoir performance Ines RV they indicate that it's.

Genuinely.

Bigger than we had anticipated.

And that indicates to us that theres more fracture complexity as more fracture surface area and.

There's.

There's more here than we had even anticipated, but these were big stimulation jobs and it's the first time that we put.

This this kind of large stimulation and four wells simultaneous.

And and there is still a lot to learn so.

I'm going to leave it there and if you want to follow up feel free.

Yes, no no. That's that's great and then just just one last one for me any any update.

Your partners on on French like given the.

The turnover there.

Yeah, you know those guys I've got a lot going on and I'm not sure that upsets French Lake is that at the top of their priority less but our conversations with our partner have have indicated.

They're still making progress and they're still.

We talk to them all the time.

And.

You know other than the fact that they've got so much going on that they can't help but be distracted with.

Everything feels pretty good what I would suggest is you know at this point, where we're talking about Q2 in the rearview mirror, it's probably realistic for us to think about.

We go into our budget cycle.

Maybe not picking up a rig in early January , but but talking about something.

Deeper into the year and we continue to work with our partner on that they're making great progress. They continue to be very constructive on that progress, but we're thinking it's probably more like.

A few months into the year rather than right at the start of the year as we had previously indicated and that's just a practical that's just us being practical about how we.

How we view the matter.

Okay, No that's that makes sense and given my given my first question I don't think I can criticize anyone's 15, a little distracted. Thanks.

Thanks Wells.

Thank you and again, if you would like to ask a question, ladies and gentlemen that is stored in the one key on your Touchtone telephone.

One moment for questions.

And our next question comes from the line of Nicholas Pope with.

Tom is capital your line is now open.

Hey, guys good morning.

Morning, Nick Nick.

Hey, I just.

I wanted to ask.

About that a little bit about the wells are going to be coming on and then the third quarter.

Should we expect.

Yeah.

That they're going to look similar than the wells that you all you all brought online.

You know in the first half of the year.

And you'll see that that big fluid on loading that.

In the graph that takes.

Production.

For the first five or six months and I guess trying to understand what that kind of means for.

For the rates as we as we exit 2009.

Yeah. So that's a great question Nick Thank you.

What.

So we're bringing on two pads in Q3, while it's a number of pads. It's three pads, they're very they're in two areas. We've got a.

Some some west you know higher pressure much higher thermal maturation.

To the west that we're bringing on early in Q3.

And those are going to those are going to unload very quickly. They are going to cut hydrocarbon very quickly and there are going to start contributing.

You know to production numbers fairly quickly that those those are happening literally right now it kind of as we speak.

And those are that's a pad in the west.

Deeper into the quarter, we'll be bringing online two pads further east and those are going to take a little bit more time.

And all of this is all of this timing is sort of built into our flat to slight.

Upward trajectory on the sequential quarters.

And these are you know when we talk about kind of flat to slightly up.

Those are risk adjusted forecast so to the extent that we outperform our risk adjustments then there is perhaps a little upside there.

But but you know our timing of these 23 wells in Q3 is built into that.

Kind of flat to slightly up trajectory that answer your question.

Yeah, I think that that's great. Thank you.

Thanks, Nick.

Thank you and our next question comes from the line of Irene Haas with Imperial Capital. Your line is now open.

Yes, so just to follow up on the last question. So you get you know 22 wells in the third quarter.

And fourth quarter are you going to complete any wells at all if not then you know could you give us a little color as to how it's Wendy 20 might might unfold. So so well, we'll just have a feeling as to what what could happen.

You bet and good morning Irene.

The.

So we brought on wells strong wells in Q4 Q1, no wells in Q2, but you had some stronger for longer performance flowing through.

Q2, and then we're bringing on a slug of wells on three pads in Q3, we don't currently have scheduled and don't intend or plan to turn wells online in Q4.

Just to be clear that we will continue completing wells that are that are under progress and so as we flow into Q1 of 2020.

You know the way we're thinking about 2020 is in terms of absolute production numbers its going to be about the way we have soft guided so far we're not really we're not really seeing indications that suggest anything different from.

The absolute numbers, we've been talking about now for a couple of quarters. When you think in percentage terms, though you know we've been soft guiding 20% and because 19 is so much stronger as a base you shouldn't expect to the performance.

To.

2020 over 2019 in percentage terms to remain at 20%, So I say and we're kind of holding what we believe to be the 2020 production.

Forecast.

But it's not going to be 20% because 19 is so much stronger and we're raising that that base guidance. So does that answer your question about kind of leaning into 2020, and what the balance of 19 looks like.

Yes, so so even though you do that can continue to complete full quarter. So presumably you can write on some wells on the first quarter of <unk>.

Splendido any.

That's right, Yes, and then would you kind of do a similar pattern when you kill full quarter and then turning more wells on it's going to be similar to yet.

That's right and it's just to be clear were not deliberately chill in for a quarter, although that it's kind of the cadence that setting itself up it's more a result of the way we engineer the deliberate sequential growth and.

And on the on a risk adjusted forecasting basis, we engineer that that sequential growth.

And also the way we work to to achieve kind of the maximum operational efficiency. For example, you might recall at the beginning of the year, we talked about.

Having no frac crew running at the beginning of the year and then we picked up our Frac crew kind of midway through Q1, and we were going to run one continuous frac crew for several months and we were going to pick up a second.

And then we are going to go back to one and then possibly to zero at some point later in the year.

As we've been able to pace ahead in Q2, both on the drilling side and on the completion side. The fracture stimulation side, we were able to avoid picking up that second frac crew and maintain hundreds of stages ahead of schedule just with the one frac crew and that's really an efficiency story.

So we're we're five rig releases ahead of schedule and were hundreds of stages ahead of schedule on the fracture stimulation side and this gives us optionality.

To manage on a on a much more efficient basis and kind of capture some of the opportunities that that efficiency.

Lends itself to and I explain all of that primarily because I just don't want you to.

Miss understand that we're sort of going hard for a quarter and then deliberately skipping a quarter. It's just the way it sets itself up it sets itself up as a consequence of our engineering, the sequential guidance and trying to be predictable and methodical about maximizing our efficiencies.

Okay.

And maybe you can give me a little color as to how the stair stepping on production might look like in 2020, I mean is it going to be more than pretty steady sequential double it's going to be more lumpy.

Yeah, we're going to we're going to work to engineer a steady sequential pace.

These are pads, though and so to the extent that.

The pads outperform our risk adjusted forecasts.

Or something about the environment. It just it just maybe we get we get some really superior circumstances and things outperform they'll they'll be there may be some lumps in the profile, but those we intend to be pleasant surprises and not lumps to the other side.

Okay.

All right.

And one more quick follow up the 10 million acquisition I know you did in this quarter any color on that.

Yeah, Yeah from from time to time, so we budget for this we we've got accounts like everybody else in our in our proposed budget that we carry for opportunities that present themselves and.

You know acreage in the DJ is just not something thats, that's happening acreage purchases and sales.

Upside in terms of just.

Well inventory and upside inventory on acreage is just not something that's that's moving very very effectively in the DJ but from time to time, we get opportunities to acquire working interest in our own operated pads.

Where were not already 100% working interest partner.

And.

To the extent that those are value accretive to our company, we're going to capitalize on.

Great. Thank you.

Thank you.

Thank you.

And as a reminder, if you would like to ask a question. Please press the star in the one key on your Touchtone telephone.

One moment for questions.

All right and at this time I'm not showing any further questions on the phone line I would now like to turn the call back to Eric Gregory for any further remarks.

Thanks, Chris.

Thank you all for joining us on the call. This morning, and your continued interest in Bonanza Creek as a reminder, we will be attending Entercom Doyle and gas conference in Denver next week I know I know many of you will be there and I hope to see you. Thank you bye bye.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's conference you may all disconnect everyone have a great day.