Q2 2019 Earnings Call
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<unk> Robinson you may begin your conference.
Thank you and welcome everyone to the conference call with me today are Paul Mckenney, President and Chief Executive Officer, Mike Johnson, Chief Financial Officer, and John Theater, Chief Operating Officer.
We would like to remind you that in conjunction with our earnings release and conference call. We have posted slides on our website under the Investor Relations tab that we'll be referencing during the call keep in mind. Today's call contains forward looking statements and assumptions, which are subject to risk and uncertainty and actual results may differ differ materially from those projected in these forward looking statements.
We will also make reference to adjusted EBITDA and adjusted DNA and other non-GAAP financial measures reconciliations of these measures can be found on our website.
Also you will see US file our 10-Q later this afternoon now let me turn the call over to Paul.
Thank you John and good morning, everyone. Thank you for taking the time to join US today and for your interest in Sandridge, We plan to review with you our second quarter results and to provide updates on our operations and guidance will be referencing the investor presentation. John Imagine just now we posted on our website earlier. This morning, so our current judo.
You can follow along.
[noise] Sandridge as an independent oil natural gas and oil exploration and production company headquartered in Oklahoma City with principal focus on acquisition exploration and development of hydrocarbon resource in United States on page three of our corporate presentation. We provide an overview of the company that includes a map that highlights the location of our operations and a few tables I summarize updated market financial information in our company production reserves and asset statistics, We hope you find a consolidation of this information useful.
Moving on to page four this is the summary, we include remind our investors of our business strategy and the key components. We believe lead to both near term and sustainable long term success for our shareholders. We have discussed this strategy with you in the past and it continues to guide us and provide us with the flexibility to change as industry.
Conditions change later in this call we will discuss some of the changes we observed happening in our industry and how sandridge is responding to them.
Moving on to page five you'll find a summary of our second quarter highlights Mike Johnson will review our results with you, but before doing so I want to leave you with one important point our results this quarter demonstrate our ability to deliver on our promises and commitments. We made earlier. This year. We believe it is important to demonstrate quarter over quarter, our commitment to financial discipline cost control and to be other aspects of our strategy. We believe lead to success.
So with no further Ado I will turn it over to Mike Johnson.
Challenged by low commodity prices. They also reflect our progress in Ti in two key areas first they demonstrate our operational success and adding more oil to our product mix.
Second they reflect our ongoing efforts to reduce our cost structure.
We believe these accomplishments will enable us to meet or exceed our expectations and guidance and 2019.
We posted a net loss of $13 million in the current quarter compared to a net loss of 34 million in the same quarter last year.
Adjusted EBITDA was 35 million in the current quarter compared to $33 million last year.
The slight increase in adjusted EBITDA was accomplished during a period, where we saw commodity prices decrease across the board.
Well head prices were down 13% for oil.
53% for Ngls and 18% for natural gas.
In the aggregate, we had a 13% reduction in the blended price of our commodities, yet we still increased adjusted EBITDA year over year.
This was achieved primarily as a result of our development efforts and the North Park basin that drove the increase in our higher margin oil sales.
As evidenced by the 30% increase in oil production year over year, and a roughly 200% year over year increase in our operating margin for this important asset.
We also made the difficult decision this quarter to reduce our workforce, which is expected to decrease our annual cash Jan a run rate.
By at least 6 million and this is reflected in our revised 2019 full year guidance for adjusted DNA.
The current quarter's results reflect a charge of $4.5 million related to this staff reduction.
Although we had no derivatives in place during the second quarter, we've since added swaps on 20% of our expected oil production during the remainder of 2019 at a strike strike price just above $60 per barrel and we intend to layer in additional derivatives during 2019.
As the right opportunities arise.
Because our 2019 capital expenditure plan is front end loaded with roughly 65% of our capital allocated to the first half of the year, we exited the second quarter with 52 million drawn on our revolver and $8 million in unrestricted cash based on the current strip for oil and natural gas, we expect to exit 2019 modestly drawn on our credit facility, demonstrating our commitment to financial discipline.
In June we also amended our credit facility, primarily to extend the maturity date and additional year to April 2021.
And to lower the interest rate pricing grid by 100 basis points.
I'll now turn into John for his thoughts on our second quarter operational results and his outlook for the remainder of the year.
Thanks, Mike.
Total company production for the quarter was 3.2 million barrels of oil equivalent comprised of 30% oil, 20%, 6% Ngls and 44% natural gas.
Our lifting cost averaged $7.77 per Boe leave for the quarter.
The company brought nine wells to sales to end North Park basin and seven in the northwest stack play.
Capex for the quarter was $35 million.
With $23 million and drilling and completion costs, primarily from North Park rig activity.
Rig utilization will be substantially reduced in the second half of the year.
We're preserving the option to utilize a rig in the fourth quarter, depending on various lease commitment requirements, while still staying within capital guidance range.
Let's now look at the North Park asset on slide six.
As mentioned last quarter, we initiated drilling on a six well pad on the north side of the field.
Two Peterson Ridge unit XR Els were drilled to reach the farthest limits north today.
From the same pad, we drill for Patriot XRF wells to the south.
With the four Patriots were testing a 15 well per section to row wine rack pattern based on technical evaluation of our initial microseismic results.
From the previous Peter as well spacing test.
We finished drilling all six wells and released the rig as planned in early June .
We initiated stimulation operations on all six of these XR Els plus a refrac of a legacy srl within the same section in mid June .
We anticipate being completed with stimulation operations this week.
After finishing remaining completion activities, we anticipate having all these wells tied into infrastructure and on production by early September .
We look forward to this production information to help optimize our spacing plans for future development.
Additionally, we're anxious to see how refracs on legacy wells can be beneficial as we continue infill development and existing producing areas.
On slide seven you can see updates on well results from three surprise wells located in the southern extension of the play that were turned in line near the end of Q1.
These wells targeted three new Undrilled sections.
Aggregate cumulative oil production from these wells is 13% above type curve after 120 days.
Additionally to re ranch Srl wells on the east central edge of the field or turned to sales in the second quarter.
These wells have produced for roughly 90 days and have cumulatively cumulatively produced 19% above the oil type curve in aggregate.
As we delineate new areas of the field.
We continue to be excited about well performance that consistently meets or outperforms type curve results.
Leading to higher returns.
On slide eight our North Park net daily oil production plot.
Shows that we achieved a record second quarter 2019 oil rate, averaging 4920 net Boe per day.
This was accomplished as we brought on our previously mentioned surprise and Ray Ranch Wells in April .
With peak production from these five wells in May.
We will have spent the first two months of the third quarter stimulating and completing our northern six well pad.
The fourth quarter will realize the full benefit of these six new wells.
Which should generate 4500 barrels oil per day gross initial rate assuming type curve performance.
This will be a great addition to our current base oil production to end the year strong.
Now I would like to move from the North Park basin to our assets in the mid continent on slide nine.
As mentioned earlier, we brought seven new northwest stack Meramec wells to sales during the quarter.
That produced a 30 day IP per well average of 511 Boe per day.
70% oil.
We concluded our drilling obligations within the drilling participation agreement as we brought these last seven wells to sales.
The drilling participation agreement successfully established 1.7 million barrels of oil equivalent.
Of new cumulative gross production to date.
From drilling 26 wells, while holding 13200 net acres by production.
Additional high quality northwest stack locations exist for development as commodity pricing and capital allocation allows.
Our Mississippian assets contributed 2.5 million barrels of oil equivalent, 16% oil, 31% Ngls and 53% natural gas.
In closing I am excited about our continued progress toward our North Park production with a record Q2 oil rate as well as strategic objectives, we are accomplishing there.
Most of all I'd like to thank the Sandridge team for another important record achieved that we haven't mentioned.
We have now achieved one year was zero recordable incidents for company personnel.
I'll now hand, it back to Paul for closing remarks.
Thank you John .
Sandridge delivered another solid quarter executing on key elements of our work program and the strategy, we laid out to shareholders earlier this year as John pointed out our teams are doing so in a safe and environmentally responsible manner. Congratulations to all of you and I am speaking to all of you that work here at Sandridge, your hard work and commitment to our values make my job easier and thank you very much.
Getting back to business as you can see our operating team continues to deliver according to our capital and operating plans and we have advanced several important strategic objectives in North Park and continue to do so with our completion.
Operations currently underway there.
We rate we remain encouraged by our well results in both North Park and the northwest stack and now that we have completed our drilling program for the first half of the year. We are focused on developing our future drilling completion and development plans as we continue to evaluate a multitude of Andy opportunities, we have encountered in the marketplace.
Earlier this year, we told you that our capital spending programs were going according to budget and they still are but due to lower commodity prices. We may end the year with a minimal amount of debt on the balance sheet something slightly different than what I predicted in our last call.
We are reaffirming.
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I apologize for that we are reaffirming our guidance with exception of two changes we are reducing our adjusted GNS expense down from a range of 34 to 37 million.
31 to 35 million, reflecting the changes we made this quarter associated with our reduction in force. We are also decreasing our price realization for natural gas liquids from 37% of wet West, Texas intermediate to 25% of WT, reflecting the prices, we anticipate for the rest of the year.
Now with respect to the current market conditions, and our ambition to grow through M&A, we have observed fail asset sale attempts.
And unsuccessful to strategic alternative process is leading us to believe there remains the gap between the expectations of buyers and sellers.
We believe there are a multitude of issues contributed to this perceived gap volatility in hydrocarbon prices being one of them in light of this we intend to be patient disciplined and creative as we evaluate all opportunities and our M&A efforts will be guided by our strategy to improve our margins and lower our breakeven costs. We also intend to evaluate the acquisition of producing as as a distressed companies. The important thing our shareholders need to keep in mind about our efforts. In this regard is that we are focused on acquisition and merger opportunity that we believe generate attractive returns having said all that at this point I would like to express my sincere appreciation to all of you joining us on the call today, we will now turn the call over to our moderator and open it up for questions.
Ladies and gentlemen to ask a question. Please press Star then the number one on your telephone keypad well pause for just a moment to the topic you any roster.
Your first question comes from Bill.
This is Alan with Titan capital Your line is open.
And thank you.
Let's start with your last point relative to acquisition said first of all.
Hi, Thank you.
Referenced in your commentary a multitude of A.M.D. and D. would be for divestiture did you add to what degree is that part of the evaluation process today, and then secondarily on the acquisition front.
Oh, how many would you characterize how many transactions that you're looking at today versus a one quarter ago. Please.
Well with respect to divestitures.
We do have properties that are that we operate and we are contacted by various different operators associated with potential acquisitions.
As you and I have talked bill in the past.
Anything I have is for sale for the right price.
And anything you have I'm willing to buy for the right price.
And so that's the nature and so we did actually sell a small portion of some of our mid continent assets earlier.
This last quarter or a small amount but.
But it was meaningful for us to clean up some accounting and some other things and so yes, we continue to participate there nothing big at this point, but.
Pretty much.
Minor dispositions.
Now with respect to acquisitions, we've actually gained a lot of momentum during the second quarter.
Up to now I'm not going to give you numbers, but we are we are in a significant number of data rooms right. Now we have signed a significant number of SBA days. Some of these are actual processes that are out there and being marketed by a company that specialize in that.
One or two of these are with companies, where we contacted them and we've agreed to.
To exchange the aid and so the I guess the point I'm, making is that were very very active.
As as we've seen.
This year go by Weve, we've seen a lot of properties.
Hit the streets, we've seen a few fail sales and.
Strategic alternative processes and so.
This is a key component of our future growth plans and so we are like I said, we're going to remain patient, we're going to remain disciplined and we're going to.
Remained creative in the process.
Paul have you had much churn in that list of acquisitions.
Or properties that are you're evaluating meaning that oh, some dropped off.
Dropped off the list compared to three months ago, but new ones have come on.
Which I understand is part of the normal process I'm just wondering if a lot of that has taken place with the difference between the bid offer spread.
Or yeah.
If your analysis has has really been a.
Yeah, rather continuous on a I am more static group properties.
No there has been quite a few opportunities that we've evaluated that have dropped off the list and that's just kind of the nature of of that kind of work.
As you very well know I mean, the success rate or I should say the capture rate for Andy is typically pretty low so you'll kick a lot of tires before you'll find that that deal that works you got to remember there's two people on either side of that negotiation have to agree.
And so.
The they are perceived gap in the expectations between buyers and sellers is the primary reason.
That.
Transactions haven't happened yet.
But we're representing our shareholders and we believe we are doing the right thing by being patient and disciplined.
And that gap do you perceive it it has a a narrowed or widened with the most recent.
Consternation in the industry.
I don't have a feel for that to be honest with you I do believe though that both sides of those transactions need to become a little bit more creative to get deals done.
I think this volatility.
It is frustrating for a lot of us that are in the industry that are trying to make a living drilling and completing wells.
And developing resource that there's world desperately needs right.
But.
I don't have an opinion on that but I don't.
I just know that the gap exists.
Understood.
I have a group of more questions would you prefer a step back in queue or or shall I continue.
Actually you're welcome to call back here afterwards.
For a long conversation, you're you know that you're welcome to call here and we'll we'll schedule something at your convenience.
Great I'll turn it over then thank you.
[noise] begin to ask a question. Please press Star then the number one on your telephone keypad. Your next question comes from Floris profit prop company. Your line is open.
Hi, how are you.
Hi, I'm doing well how are you. Good good. Thank you very much taking my call, obviously, though the big in <unk>.
Let's see in the room is that.
You're looking or distressed property.
You know at a at a small fraction of book value Europe pretty distressed property yourself.
And.
My question is rather than spending a nickel on on more assets.
Thinking about actively buying back shares.
Well that is a strategy that other companies have pursued and.
The point that you make it a very valid one okay. The challenge that we have for a company our size is that if I.
Take the liquidity that we have and buy back shares.
Then that robs us other liquidity, we need to grow and you know I joined this company with a clear mandate to grow this company and so in.
Yeah, we had a similar and that now with you and I had a similar question once before I think it was our and our when we will review in our annual report or annual 10-K, similar question and so all I can tell you that I agree with you from a strategy standpoint that as a valid.
You know request now and a valid position to hold that we're gonna we're committed to growing the company I need the liquidity to grow this.
Okay can I continue.
If you're interested in growth, let me tell you that I'm a shareholder not an outlet.
And.
It actually in the share price I'm interested in how I return on my investment and I couldn't give away about how big you are whether you become an exon or whether you don't.
I'm interested you're doing your job and I want to tell your board of directors.
That this is Doug.
Yeah, Yeah pools mission.
Oh, you have enormous book value either write down that book value is really what you think it's worth it or you should be buying a hell out of itself.
And I don't care, which as I said about your growth I care about how my investment your company does.
Oh no.
With the question that if that was just a comment my question is on your.
Does your balance sheet and accurately reflect the value of your assets or are they overstated and if they are overstated I would suggest that you start writing them down to a place where.
I don't have to ask the question as to why you're not buying shares back.
[laughter].
Well first of all they're not overstated.
And as a shareholder I really do appreciate your your feedback I really do.
We have a difference of opinion.
I will do everything and my team will do everything we can to address their primary concern, which I have as well.
And that is with respect to search share price growth.
And we believe that we are taking the right steps.
And my only request for you as to be patient because I'd like to encourage you to remain a shareholder with us.
And allow us to earn your your confidence.
Thank you very much different weight, we have a philosophical difference on the one hand, you're interested in growth on the other hand, I'm interested in creating value.
So how do you how do you reconcile.
I really don't think it's productive for United continue this debate I encourage you to call me directly and we'll have a longer conversation about the us.
Later so please thank you very much color to it.
You're welcome you're very welcome.
There are no further questions queued up at this time of the call back over to.
Management for closing remarks.
Thank you everyone for participating in this call. We're excited about what the future holds for sandridge and to our investors and are encouraged by your support that in the end of our call. A you are also welcome to call US here directly to talk to me and.
Other members of the management team.
And so.
Thank you again.
This concludes today's conference call you may now disconnect.