Q2 2019 Earnings Call
If anyone should require assistance during the conference. Please press Star then zero on your touched on telephone as a reminder, this conference call is being recorded I would now like to introduce your host for today's conference Mr., Steve Harris, Chief Financial Officer, Mr. Harris you may begin.
Thank you, Josh and welcome to the rock Petroleum second quarter 2019 earnings Conference call.
Bob Watson, President and CEO of Abraxas joins me today. In addition, we have our chief accounting officer, and our Vps of operations slanted in it and engineering available to answer any questions. You may have after Bob's overview.
As a reminder, the call today is being taped and a webcast replay will be available immediately after the conclusion of the call.
I'd like to remind everyone that any statements made during this call that are not statements of historical fact are considered forward looking statements.
And that actual results could vary materially from those contained in these statements.
Factors that could cause our actual results to vary are described in our filings with the securities and Exchange Commission.
And we would encourage everyone on everyone to review the risk factors contained in these filings and in our press releases.
With that I'd like to turn the call over to Bob.
Thank you Steve good afternoon.
Considering all the headwinds not a great quarter, but still a good one I wanted to let you know in advance of a policy change we are considering.
Natural gas and gas liquids represented 29% of our BLE production in the second quarter, yet generated less than 2% of our combined revenue.
Due to unpredictable shut ins and flaring due to third party processing issues.
Gas and Ngls calls about 80% of our production variations.
So I asked the question why do we even report production and be always when be always are all that really matters.
That's our consideration of changing our forward guidance to be owes instead to be always.
Reporting primary production and be OWS, and still reporting M.C. absent barrels of Ngls and leaving it up to the reader to decide if they want to convert to be always for somewhat of a meaningless comparison.
If gas and Ngls ever regain some relevance in the future we can always change back.
Operationally things are running fairly smoothly.
In the Bakken the four new Lillibridge wells average of approximate working interest of 33%.
We're successfully fracked with 244 stages and had been coming online over the last two months.
The 12 older Lillibridge wells were shut in for Frac protect them. The decision was made to do some summertime workovers on some of these older wells.
Two and a half production in the future and hopefully avoid winter workovers.
Blank intensive think continues to be an issue, especially in the Bakken, where we flared an average net 752 relatively meaningless be always per day during the second quarter.
Maybe some relief on the horizon as one oak has new infrastructure scheduled to come online in the fourth quarter.
Raven drilling rig number one is slightly ahead of schedule on the six well Jore Federal East pad, just starting the third lateral with three more remaining.
We have successfully drilled and run casing on our first test of the three forks second bench on the Jore Federal 14 age.
The second bench has shown good success and offsetting spacing units operated by Continental resources.
And success on the second bench will give us additional inventory that is currently on book on our existing operated spacing units.
Due to a partner in the joint Federal unit going non consent, we now own an average approximate 90% working interest in the Jore Federal East extension pad wells.
The rig is currently scheduled to move to a six well jore federal northwest pad, but since we own the drilling rig we have tremendous flexibility on timing, which gives us the opportunity to consider oil prices and budget and issues such as gas take away.
In the Delaware Basin, we have recently started flow back on the two well Woodbury pad, where we own 100% working interest.
The initial flow rates and flowing pressures have been quite encouraging.
Both of these wells were drilled and completed under a fee.
We're currently starting the second lateral on the Greasewood pad, which is also a 100% owned after successfully setting casing below 17000 feet and the Wolfcamp b and the first level.
When the second well is finished we will release the drilling rig, giving us the opportunity to work on production enhancement for the rest of the year.
We currently have just three commitment wells to be drilled in 2020 on our existing Delaware leases.
To maintain our 100% HBP status, giving us significant flexibility in our program going forward.
Free Accountants out there I'm sure you will understand the relevancy were about what I'm about to say.
But I don't.
It looks like from our cash flow statement that we had a significant outstanding capital expenditures. So far this year, but in this case accounting principles threw up a smokescreen over the actual facts.
Capital expenditures from the cash flow statement for the six months ended June 32019 of 63.6 million and 33.9 million in the second quarter.
Both include 3.2 million.
For a decrease in capital expenditures and accounts payable.
Net capital expenditures of 60.4 million so far this year and 30.7 million during the second quarter was applicable to our announced 2019 capital expenditure budget.
In other words, we used 3.2 million to decrease accounts payable and us and increased working capital in <unk>, and <unk> and and liquidity there had to be accounted for as a capital expenditure.
We've said all along our budget was front end loaded due to the most recent does the most economically efficient drilling and completion schedule and we are right on our schedule with actual capex. Despite picking up the additional average 15% working interest in six wells and on the currently drilling Jore Federal East pad.
In addition to higher than expected elouise during the second quarter were due to costs for frac protect and subsequent clean out as well as the summertime workovers on the lillibridge pads.
All of this is attempted to be explained in our soon to be released 10-Q.
But I assume most of you don't read cues I don't know if I didn't have to I wouldn't.
With a relatively clean and simple balance sheet to good solid assets, we have a number of options to consider with the ultimate goal of enhancing shareholder value you can rest assured that management and our board are very attuned to shareholder value enhancement.
And with that I'll open for questions.
Thank you ladies and gentlemen, if you have a question at this time. Please press. The Star then the number one keeping your touchtone telephone. If your question has been answered or you wish 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 have seen please place your line on mute. Once your question has been stated our first question comes from Joe Allman with Baird.
You May proceed with your question.
Thank you good afternoon, everybody. The Mike My first question is in terms of the Williston basin asset sale process Bob is that.
Is that concluded or is that still ongoing and it just kind of give us an update on that.
And it's still ongoing Oh are still our our.
Retained bankers Petri partner is still discussing the issue with the number of people.
We've made it very plain that we're not going to give that asset away at it for some ridiculous multiple of cash flow so I'm still ongoing.
Okay. That's helpful and could you also update us on yeah, its limit the older but the eagleford shale asset sale process.
No that's still ongoing two we oh, we've kind of taken over from our sales agent and are doing it ourselves and weve uncovered a number of people that.
Have indicated an interest so those discussions are ongoing.
Okay. That's helpful. And then one of the same topic are there any other asset sale sales or marketing processes going on at this point.
Yeah, we're putting together a package of operated non Bakken assets in the North Dakota, and Montana area, which we have we get no credit for it but there were some money.
And also a package of our overriding royalty interest that we've accumulated over the years throughout the nation.
So we'll be going to market with those fairly soon and obviously the objective is to raise cash but it also to clean up the portfolio considerably.
Okay. That's helpful and last for me.
Is there any change in the full year guidance I didn't see any anything in the press release I didn't see in your presentation out there.
No we haven't changed it yet obviously with all the gas that we have shut in that's affecting the BLE number which I've said before is kind of a meaningless number.
So pending board approval in our arc are nearby board meeting will be changing our guidance at that point.
And just guide to a barrels of oil as opposed to be always.
Okay and help me understand that Bob. So can you just run through how are you gonna going forward.
We're just we're if the board approves, we're just going to guide two barrels of oil production per day.
We will also continue to report Mcf and oil and Ngls.
For anybody that wants to meet what I've called meaningless comparison.
But since oil is generating more than 98% of our revenue. We just think it's kind of ridiculous to give us credit for gas and Ngls that are somewhat meaningless at this point got it. Okay. So you're gonna reported a similar way you just kind of guide to.
Oh boy, you're just not you're not going to guide for natural gas and NGL.
Right got it okay.
Thank you very much.
Thank you Joe.
Thank you and our next question comes from Noel Parks with Coker and Palmer you May proceed with your question.
Hey, good afternoon.
I know.
Hey.
Just a couple of things you were talking about the.
The summer work over and you did it that lillibridge about how much capex went into those.
Well, it's booked is Ela Lee.
And there were various.
Projects, we had a couple of wells that had never been cleaned out after being fracked.
So we've had successful clean outs on them and are in the process of putting them back on production.
But I'm going to say.
700, 700000, total and all of them.
Okay.
Great.
And.
See you know I was also thinking about as you talk about.
I'm looking at or a sale in the Bakken and <unk>.
Owning your own rig up there.
[laughter] times, you've talked about the possibility of a moving the rate down to the Delaware.
Once you pretty much finish up inventory up there. So of course, you said, you're getting some more second bench.
Locations in inventory.
Do you think that's something you.
Still have any have you do you have any timing on that and I guess.
If you want to leaving the rig up there are for instance, you know you are slowing down and on Delaware activity later in this year.
I guess there are about 60 rigs running in the Bakken fairly steady or would you.
You know, we set out to third parties for use in between.
Well I guess you would say that's an option that is not one that we discussed what we have discussed is sometime in the future may be moving that rig down too.
The Delaware. It has certainly proven itself is a very efficient a piece of equipment and has allowed us to become one of the lowest cost if not the lowest cost developer in the Bakken and we would hope to be able to use use that rig maybe to be able to say the same thing in the Delaware, it's an extremely efficient walking rig.
That in a multi well.
Pad or acute development program would be very very efficient and drilling Delaware wells.
Okay, Great and I'm, just wondering anything new as far as what you for.
Observed or heard from from offset operators to your.
Uh huh.
Your neck of the woods in the Delaware.
Really good there are some probably things wind with private companies that we wouldn't otherwise hear about.
As you May remember, we have confidentiality agreements signed with a number of offset operators.
So we do get their information and we are able to incorporate that information into our thought process.
But under the confidentiality agreements were not able to divulge what were what the knowledge were gaining from them.
To outsiders, so I really can't answer that I wish I could but I can't.
No problem could you, maybe just kind of characterize Jeff, maybe where you're you're seeing or hearing about progress being made whether it's more clarity on spacing or different wolfcamp benches.
Looking a little bit better or or whether it's more on the engineering side progress being made.
I think all of the above certainly we've incorporated what we've learned from them and our current thinking on spacing, which is in our current corporate presentation of 880 feet between wells horizontally in 200 feet between wells vertically.
Which gives us a new new look net location count the certainly the prime driver on that was that the information we gained from our own down spacing test, which now has been on production for.
Close to a year or little more than a year.
So everyday we're gaining more and more knowledge on that and certainly the more knowledge. We have the better we can make those decisions, but were pretty comfortable now that we're not the only ones thinking that a <unk> 880 feet or 900 feet between wells is it seems to be the optimum too.
Minimize if not avoid the parent child issues.
And fracking into the neighbors when you're when you're doing your frac jobs. We've made some considerable progress on the Frac side of business. Obviously, we're very proud of our Woodbury Fracs are they came in under budget and so far the wells are outperforming.
So we continue to incorporate what we learn from our own work and what we learn from offset operators and in our Frac design. So that should continue to improve going forward.
Just as it has very dramatically in the back and if you look at our corporate presentation you can see the the.
The the progression of Frac protocols and what it has done too.
Production and decline curves and you'll see that it's the same rocks because all our DS user adjoining each other.
So the difference in production has to be attributed to the Frac protocol. So.
We learned to considerably up there, but we have a you know about an eight or nine year.
Head start in the Bakken and then what we have in the Delaware and what basically everybody has and the Delaware. It's just that much of a newer play and people are still learning.
To the advantage of the whole industry.
Great. That's all for me thanks.
No.
Thank you and our next question comes from done Mackintosh with Johnson Rice you May proceed with your question.
Hey, Bob with the.
Sounds like after the Jore east.
Yeah, the Raven or you've got some optionality I think it's jordy northwestern maybe as northeast on what are some of the drivers that would go into deciding to pursue drilling on next jore pad or not.
I guess, you would say that a capital budget Oh, we have made the statement that we want to be in a free cash flow position this year and at current oil prices were not.
So oil prices would would impact that as well.
And gas take away a where we are.
Pretty pretty tired of flaring, a bunch of gas and and we want to see.
The impact of the new one oak infrastructure, that's going online supposedly during the fourth quarter.
If that if that greatly eliminates or at least greatly reduces our our gas flaring than that would be a positive if oil prices recover from where they are right now that would be a positive.
But I guess, the overall driver would be a capex budget.
Okay, great. Thanks, and then so assuming no the rig goes down what what's the what's your corporate decline rates its.
Without any drilling after this.
Just kind of look at production you know at the end of the year and then heading into 2020.
Yeah, It's a we state that in our K and Q I know what's in this this month skew and I I'm trying to I know the first year, 35% second here is.
22% or 19, or 18, and it goes down to 11 in year five and eight thereafter, I think and that's a PDP decline. So that that's not influenced by drilling wells are not drilling wells.
All right great. Thanks, that's it for me.
Thank you and our next question comes from Michael Gallo with Stifel. You May proceed with your question.
Hi, good afternoon guys.
On your Oh, Hello, we.
You mentioned that you had the workovers.
For the second quarter.
I wanted to get your sense for where the.
Good run rate is for Perello, either should we look at the first quarter as a guide there.
Or.
Do you see some inflation going on on the Hello, He said.
No we definitely don't see any inflation and I'd say, we're getting better at what we do and certainly as we as we.
Generate math and our operations, we have more wells to spread fixed cost silver.
So I know internally, we look at about $2 million a month, maybe a million nine as our as our.
A day to day operating expenses, excluding a what we would book is nonrecurring.
We don't anticipate any shut ins for frac protect for the rest of the year and consequently, we don't expect to see those costs.
I think in the Bakken, we're going to wrap up all our what would be considered pretty normal maintenance workovers. During the summertime. So we don't have to fight the cost inflation are doing work up there in the winter.
I just think that was the prudent thing to do even though it cost us a few barrels in the second quarter.
We're we're more inclined to.
To look at cash flow rather than barrels anyway. So anything we can do to enhance return and enhance cash flow is a is our prime driver. So yeah. This this this quarter's elouise or are a little high because of all those extenuating circumstances, and I don't I don't see them.
Existing going forward.
Okay.
And just sounds like you are leaning towards your mouth, but leaning toward the.
We didn't see a the six wells on the Jore Federal extension, maybe did in the spring.
If that were the case can you give us a sense of what the swing in Capex. There and then maybe in terms of the trajectory of production. If you make that decision to complete those wells this year versus next.
Yeah, I would say that there's a pretty good chance. It will go on and complete those wells next year, unless we have a nice spike in crude oil prices.
Can't see bringing on really good flush production in today's environment.
And then and you know we haven't made the decision yet whether we continue to drill the next pad or not so that would have a bigger impact on.
On a on our current budget because those wells are in the current budget.
And it's certainly gets us down closer to a free cash flow wont wont do exactly that just in the current oil price environment.
And certainly we're getting zero help in the gas and NGL environment.
So.
You know I think we're we're we're right on line for our 86 million.
And that assumes that we continue to drill so if we don't if we decide not to drill. A then then we backed that number down and I don't know exactly what that would be but it's probably going to be in the $80 million range something like that.
Yeah.
19.
Yeah.
Okay.
[laughter] ops guys are in agreement with that.
Okay.
So if a good see you delay the completions I guess the.
Well you drilled additional wells.
But that were in the budget is not going to really affect the production for this year it either way, but if you.
Push off the completions so for next year.
Do you see any potential for additional growth in production. This year would you expect production to rollover heading into.
First quarter of 2020.
No I think it's going to be a flat at worst because keep in mind. We've got the two greasewood wells to frac, they're scheduled to be Fracked in September those are 100% well.
And we do have a commitment on that lease to go on and complete those wells. So we will go forward with that.
So that means the flush production coming on probably first of November and continuing on in December .
So that actually gives us a nice little kick in the fourth quarter going into the first of next year.
Next year would be the first quarter would be down a bit we'd probably be fracking in the second quarter, but in the third quarter you're looking at.
That's six very high and working interest wells coming online.
Which gives us a really nice boost for year over year growth or 20 over 19.
[noise], Okay got it and then.
Hi, Dave.
I understand your.
Intent to forecast just on or guide just on the oil mix makes perfect sense, just curious on NGL price I mean, everybody has been experiencing weak NGL prices.
Here recently or was it was there anything particular to abraxas look like yours were extraordinarily low this this quarter.
Yeah, I guess were in the two worst NGL basins. There is a we had a negative two cents.
Yeah, he's had a gallon or barrel.
It doesn't matter, but it's a two cents per unit negative on our NGL pricing.
You know, it's just that's just.
The way life is in the in the Delaware and in the Bakken currently.
Understood. Thanks, Bob.
Thank you Mike.
Thank you and as a reminder, ladies and gentlemen that Star then one to ask a question. Our next question comes from Joe Allman with Baird. You May proceed with your question.
Yeah, Thanks, again, Hey, Bob what do you see it or what [laughter], what's the schedule for that a board meeting and is that a.
Regular board meeting or is that to address kind of issues brought up by the activists.
Well, we always we were always address a regular scheduled board meeting and.
We always discuss.
The opportunities that we see to enhance shareholder value and so certainly that's that's on the agenda for this meeting.
And you know hopefully they'll they'll be some results coming from it.
And when is that meeting bar.
Monday and Tuesday.
Okay got you and then you know in terms of the active as you know the actress put out another letter today to the board and.
Made that public any additional comments and just even if you don't want to address that specifically just any comments overall.
No I think I've made all the comments were going to make is that our board board is very attuned to enhancing shareholder value. So.
We're going to look at all the opportunities out there and see what makes sense.
Okay got it thanks very much.
Thank you.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call over to Steve Harris for any further remarks.
Thanks, Josh and we appreciate your participation in today's earnings conference call as I mentioned at the start a webcast replay will be available on our website and transcript will be posted in approximately 24 hours.
So thanks, everybody and have a good day.
Thank you ladies and gentlemen, thank you for participating in today's conference. This does conclude todays program an email disconnect everyone have a wonderful day.