DENVER Aug 7, 2015 (Thomson StreetEvents) -- Edited Transcript of Bill Barrett Corp earnings conference call or presentation Friday, August 7, 2015 at 2:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Larry Busnardo Bill Barrett Corporation - Senior Director, IR * Scot Woodall Bill Barrett Corporation - CEO and President * Bob Howard Bill Barrett Corporation - CFO and Treasurer ================================================================================ Conference Call Participants ================================================================================ * Brad Carpenter Cantor Fitzgerald - Analyst * Jason Wangler Wunderlich Securities - Analyst * Brian Corales Howard Weil Incorporated - Analyst * Steve Berman Canaccord Genuity - Analyst * David Beard Coker Palmer - Analyst * John Gerdes KLR Group - Analyst * Neal Dingmann SunTrust Robinson Humphrey - Analyst * Ryan Oatman Cowen and Company - Analyst * Dan McSpirit BMO Capital Markets - Analyst * Josh Silverstein Deutsche Bank - Analyst * Mo Dahhane Northland Capital Markets - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, ladies and gentlemen, and welcome to the Bill Barrett Corporation second-quarter 2015 earnings conference call. (Operator Instructions). As a reminder, this conference call is being recorded. I would now like to turn the conference over to Mr. Larry Busnardo, Senior Director, Investor Relations. Please go ahead, sir. -------------------------------------------------------------------------------- Larry Busnardo, Bill Barrett Corporation - Senior Director, IR [2] -------------------------------------------------------------------------------- Good morning, and thank you for joining us today for the Bill Barrett Corporation's second-quarter earnings call. Joining me on the call today are Scot Woodall, Chief Executive Officer; and Bob Howard, Chief Financial Officer. A few quick notes before we begin. I need to remind everyone to read the disclosure statements provided in the earnings release posted to the homepage of our website at billbarrettcorp.com. During our discussion, we may make reference to non-GAAP measures such as discretionary cash flow and adjusted net income. Additional information may be found in our second-quarter 10-Q, which was filed yesterday afternoon. With that, I will turn the call over to Scot Woodall to get started. Scot? -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [3] -------------------------------------------------------------------------------- Good morning, and thank you for joining us this morning to discuss our second-quarter results. Before I provide the second-quarter operational highlights, I would like to speak about the current status of the Company. While our industry faces many headwinds in this challenging commodity price environment, the Company is well positioned; and, more importantly, delivering execution, as demonstrated in our second-quarter and first-half performance. We have repositioned the Company and are investing in one of the top five financially performing basins in the country. Our acreage position and execution deliver sound economics, even in this period of low commodity prices. Financially we remain solid, with $101 million in cash; a hedge book worth today $168 million, with 80% of our projected volumes hedged in 2015, and 40% of our volumes hedged in 2016. Additionally, we are undrawn on our $375 million credit facility. Strategically, our focus has been to maintain flexibility in our portfolio, our operations, and financially. These factors, coupled with our execution, positions our Company to succeed in the current environment. I will now provide a summary of our operational highlights for the quarter, before turning the call over to Bob to do the financial results. In many ways, in the second quarter was a continuation of the first quarter, as we posted very solid results and continued to execute on our strategic plan, meet all of our operational objectives, and continue to demonstrate that our DJ Basin extended reach lateral program is a top-tier asset. Our positive momentum is driven by our execution of the items we control: production, capital, and lease operating expenses. First, we maintain a sharp focus on execution of production. This can be seen in our second-quarter production volumes, which exceeded our guidance by 9%. Similar to the first quarter, the production beat is a direct result of the performance of our extended reach lateral program in the Northeast Wattenberg Field. Clearly, our extended reach lateral program is delivering results and is a testament to the strength of our entire operations team. Our excellent performance through the first half of this year allowed us to increase our 2015 production guidance for the third time. We are now guiding to a production guidance of a range of 6.1 million to 6.5 million barrels of oil equivalent. And this translates to a 23% growth over 2014 at the midpoint of our guidance range, when excluding asset sales, with oil volumes increasing approximately 25%. This performance is expected to provide growth as we look forward into 2016. We are highly encouraged by the early production data from our extended reach lateral program, as we implement technology refinements and operational efficiencies to deliver improving results. Our preferred completion design is proving to be the best method to complete our extended reach lateral wells, and is delivering strong early well performance. We now have 90-day production history for our initial four wells, and they continue to meet our expectations and are clearly outperforming wells with early completion designs. We continue to demonstrate capital cost reductions. Our second-quarter 2015 capital cost in DJ were 25% lower than they were in Q4 of 2014. We expect further reductions in the second half of 2015 as we continue to drive efficiencies. On a dollar per BOE basis, our second-quarter 2015 LOE was 20% lower than in Q1, despite inclement weather in May. The Company's total LOE was $7.01 per barrel in the second quarter versus $8.72 in the first quarter. Our flagship asset, the DJ, was $5.84 per barrel in Q2. Recapping, strong execution in all areas: production, capital, and LOE. I'd now like to talk a little bit more about our extended reach lateral program. As discussed on our last call, our preferred completion technique includes completing the wells with plug-and-perf versus sliding sleeves using approximately 1,000 pounds of sand per foot, completing the 55 stages versus 40 stages, and controlling both the water and gas flowback. Although it is still early in the life of the extended reach lateral program, we now have several additional months of data from these wells that we reported last quarter. This data continues to validate our performance assumptions about the play, and provides increasing confidence as to its potential. The latest four extended reach lateral wells placed on sales now have 90 days of production history. Each of these wells is completed with plug-and-perf in 55 stages. Today, we are reporting that these wells have an average 30-day IP rate of 649 barrels of oil equivalent per day, a 60-day average rate of 615 barrels of oil per day, and a 90-day IP rate of 580 barrels of oil per day. We are pleased with these early results, as the wells are performing significantly better than previous wells that were completed with older techniques. This data is confirming our view that wells utilizing our techniques will exhibit shallower production declines. During the second quarter, 10 extended reach laterals were placed on sale with peak initial oil production expected to be reached in the fourth quarter. In addition, extended reach lateral wells were placed on early -- four additional wells were placed online in early July. All of these wells were completed with plug-and-perf and 55 stages. So you can see we have a significant number of extended reach lateral wells that are in the early flowback stage. And we anticipate they will reach [peak] production later in the fourth quarter, providing a significant news flow later in the year. Lastly, we TD'd our initial well in the Niobrara A formation. This well is an extended reach lateral well that is located in the northern part of our acreage position. Moving on to cost, we continue to maintain discipline as our contracted Northeast Wattenberg extended reach lateral wells are averaging $6.25 million to drill and complete. We have been able to garner significant efficiency gains thanks to faster drilling times on these wells. Specifically, the seven most recent extended reach lateral wells, with laterals of about 9,500 feet, were drilled 40% faster than earlier pads. This will positively impact our estimated drilling and completion cost. Our most recent pad averaged 10 days to drill, and include a best-in-class well of eight days, while we continue to drive operating efficiencies and identify opportunities to lower the overall cost structure. In summary, we have worked extremely hard over the past two years to successfully reposition the Company. We believe the DJ Basin is a high-quality asset that provides a large, multi-year inventory of high-margin drilling opportunities. It is providing to be an exceptional asset that positions us to achieve our strategic goals while providing a strong foundation heading into 2016. Although these are currently challenging times for our sector, we remain focused on the items we can control -- operational performance and execution -- to increase the efficiencies of our overall operations. Now. I will turn the call over to Bob to discuss more detail about our financial results. -------------------------------------------------------------------------------- Bob Howard, Bill Barrett Corporation - CFO and Treasurer [4] -------------------------------------------------------------------------------- Thank you, Scot. We are pleased to report very good second-quarter financial results, as our adjusted earnings, cash flow, EBITDAX, and production volumes were all above consensus estimates. This strong outperformance can be attributed to continued execution of our DJ Basin drilling program and lower lease operating cost. Although we and the entire industry are experiencing a challenging macroeconomic environment, we maintain a strong financial position with a significant cash balance, an undrawn revolving credit facility that provides ample near-term liquidity. I'd like to discuss some of the key items for the second quarter. Second-quarter production volumes of 1.6 million barrels of oil equivalent exceeded our guidance of 1.5 million barrels of oil equivalent by 9%. Total equivalent volumes in the DJ and the Uinta Basins increased 29% compared to 2014, and oil volumes were 31% higher on a year-over-year basis. DJ Basin quarterly production grew 76% from last year, and was up 8% sequentially, which more than offset declines from the Uinta Basin. Importantly, first-half production surpassed our initial forecasted guidance by over 10%, and was 35% higher compared to the first half of 2014. Our strong performance is a primary driver behind increasing 2015 production guidance. We are now projecting that production will average 6.1 million to 6.5 million barrels of oil equivalent for 2015. This is the third time we have increased guidance this year. At the midpoint, guidance represents a 23% increase over 2014 volumes from the DJ and Uinta Basins, and it is 11% greater than the midpoint of our initial guidance. We expect third-quarter production will be 1.5 million barrels of oil equivalent, which is down slightly to the second quarter, due to the timing of well completions of our XRL program, and the fact that we reduced drilling activity to one rig for a portion of the first half of this year. As discussed last quarter, we continue to expect that uptick in production volumes for the fourth quarter. Total cash operating costs for the second quarter averaged $9.92 per BOE, which was a 9% [production] from the first quarter. Lease operating expenses averaged $7.01 per BOE and were 20% lower than the first quarter, due to operating efficiencies and a reduction of workover activity in the Uinta Basin. We also reduced LOE by shutting in certain Uinta Basin oil wells that are uneconomic in the current lower oil price environment due to higher unit operating costs. I'd also like to note that LOE in the DJ Basin was $5.84 per BOE in the second quarter, which is significantly lower than the Uinta Basin LOE. We expect LOE per-unit will stay relatively flat for the remainder of the year. Capital expenditures for the second quarter were approximately $65 million, which came in 19% lower guidance of $80 million, primarily due to the timing of drilling and completion activities in the DJ Basin. First-half 2015 capital expenditures totaled $179 million. CapEx continues to trend within the $320 million to $350 million guidance range for the full year. But the split of capital expenditures between the third and fourth quarters of 2015 will depend on the timing of completions that are currently scheduled for the third quarter. G&A came in at $11.9 million for the quarter, which was higher than the first quarter due to certain accruals and expense payments made during the quarter. We are projecting that G&A for the second half of the year will be lower than the first half of the year, but it appears G&A will come in near the higher end of -- $36 million to $40 million guidance range. Lastly, based on our expected production for the remainder of the year, we should be roughly 80% hedged at a WTI oil price of $89.81 per barrel; and a Rockies natural gas price of $4.13 per MMBtu, with no NGL hedges. For 2016, we have approximately 40% of expected oil and gas volumes hedged at a WTI price for around $80 per barrel; and a Rockies gas price of $4.10 per MMBtu. At the end of June, our hedge position was valued at $119 million. You will find the full summary of our hedge position on the hedge table in the press release. Turning to the balance sheet, we remain well positioned in the current low oil price environment. We have zero drawn on our $375 million revolving credit facility, with $349 million available when taking into account a $26 million letter of credit. As we contemplate the mid-year borrowing base redetermination, we anticipate that the increase in proved producing reserves will offset the impact of lower commodity prices. We ended the quarter with cash and short-term investments of $101 million. And in June, we established an at-the-market equity offering program to increase our financial flexibility to fund our capital expenditure program, if needed. To date, we have not issued any shares under this program. We do not expect to increase debt during the year, with our cash and short-term investments being used to fund the amount that capital expenditures will exceed discretionary cash flow. And we continue to [main] operational flexibility with no long-term drilling contracts or commitments related to our drilling and completion program. We will remain capital disciplined and fiscally responsible as we preserve the strength of our balance sheet, balanced with maximizing the value of our assets. In summary, we have a strong liquidity position, excellent hedges in place, and reiterate our operational outlook is looking good with Northeast Wattenberg operations going very well. We are continuing to build momentum as evidenced by our second-quarter results, and we look to expand on this momentum during the second half of 2015. That concludes our prepared remarks. And, operator, could you please open up the call to questions? ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions). Brad Carpenter, Cantor Fitzgerald. -------------------------------------------------------------------------------- Brad Carpenter, Cantor Fitzgerald - Analyst [2] -------------------------------------------------------------------------------- Congrats on the great quarter. Scot, it was good to see the updated 60-they and 90-day rates for the XRLs using your preferred completion technique. And I know it's still early innings, but I was hoping you could provide some commentary on how you see the new wells performing with respect to potential type curve shapes, and when you think we might be able to expect an updated type curve for the program going forward. -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [3] -------------------------------------------------------------------------------- Sure, Brad. So yes, we are extremely pleased with these four wells, which are utilizing all the techniques that we described. And what it appears like is that they are outperforming our early time type curve. And then, like I say, more importantly is the flatness that you are observing in that 60- and 90-day rates. Clearly we like to see a few more months to see how that decline settles out in the next three months or so. But all indicators, it's definitely better than what we were doing six months ago. And if we can do this and repeat this for the next 1,100 wells, we have an excellent play. In terms of publishing type curves or things, probably still want another two or three months of data. So I kind of look for that to be more towards the end of the year, that we would actually put out that type of information. Clearly, if you go back to the investor relations materials that have out there, if you take our type curve of roughly that 700,000 barrels of oil equivalent in the current capital costs and assumptions, you're delivering pretty acceptable rate of returns. So we still think that's a very valid example of our economics. -------------------------------------------------------------------------------- Brad Carpenter, Cantor Fitzgerald - Analyst [4] -------------------------------------------------------------------------------- Okay, great. And then just following up on that, on economics, it was good to see another downtick in well costs. But given front month WTI is settling just north of $44, or trading right now, could you provide some color on how rates of returns are looking in this environment? -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [5] -------------------------------------------------------------------------------- Sure. If you take a strip -- which I might be a couple of days out of date on that strip price -- but with our current set of assumptions, it still delivers about a 30% rate of return. So clearly, with the volatility of commodity prices, we look at it very frequently and are also very mindful of our capital spend, and want to make sure that we have those things aligned. -------------------------------------------------------------------------------- Brad Carpenter, Cantor Fitzgerald - Analyst [6] -------------------------------------------------------------------------------- Okay, great. That's helpful. I'll let someone else hop in. Thanks for your time. -------------------------------------------------------------------------------- Operator [7] -------------------------------------------------------------------------------- Jason Wangler, Wunderlich. -------------------------------------------------------------------------------- Jason Wangler, Wunderlich Securities - Analyst [8] -------------------------------------------------------------------------------- I actually wanted to maybe jump over to the Uinta just from the commentary. Do you have an idea how much production you shut in there, and just the cost savings that you are seeing from that? -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [9] -------------------------------------------------------------------------------- Sure. We shut in, in the middle of the second quarter, about 1,000 barrels of oil equivalent per day. So when you think about still seeing that type of growth in Q2, clearly that adds another layer of efficiencies and productivity to the DJ Basin. Because the DJ Basin absorb that shut in volume and the normal decline of Utah, so really that leads to that continued outperformance in DJ. In terms of overall cost, yes, we did see an associated LOE drop with those wells in Q2, and that's what you are seeing. Primarily the drop in LOE is associated with improving efficiencies in our Utah operations and the shut-in wells. -------------------------------------------------------------------------------- Jason Wangler, Wunderlich Securities - Analyst [10] -------------------------------------------------------------------------------- And is that 1,000 net, Scot? -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [11] -------------------------------------------------------------------------------- Yes, it is. -------------------------------------------------------------------------------- Jason Wangler, Wunderlich Securities - Analyst [12] -------------------------------------------------------------------------------- Okay. Yes, that's really impressive. And maybe dovetailing that, it may be the same kind of discussion, but it looked like differentials were very strong in the second quarter. Could you just maybe talk about what you are seeing there, whether it's the same thing with more DJ production really bringing those down, or if there's other things in play right now? -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [13] -------------------------------------------------------------------------------- Yes, sure, absolutely. As DJ becomes more and more of our portfolio, it positively impacts all facets of our business. Since we were just talking about LOE, I will throw that in. The LOE of the DJ is 580-something, where Utah is $9 or $10. So the more that DJ becomes an impact or a higher proportion, obviously the LOE will continue to trend downward. Same with the differentials. We still the model about a $9 differential for DJ, but we have observed most recently that differential has been less than $8. So it seems like it's trending the same way. So when you think about all the things that we can impact, I think we're doing it positively when you think about differentials, lease operating expenses, capital, and just overall production well performance. It all seems like it's going our direction. -------------------------------------------------------------------------------- Jason Wangler, Wunderlich Securities - Analyst [14] -------------------------------------------------------------------------------- Great. I will turn it back. Thank you. -------------------------------------------------------------------------------- Operator [15] -------------------------------------------------------------------------------- Brian Corales, Howard Weil. -------------------------------------------------------------------------------- Brian Corales, Howard Weil Incorporated - Analyst [16] -------------------------------------------------------------------------------- Just a question. You all are TD'd on your first A bench well. Can you remind us, have you all tested the C, or what other benches have you all tested? -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [17] -------------------------------------------------------------------------------- We have tested the C and the B and some Codell on the west side of our acreage, but predominately it's been B and C. -------------------------------------------------------------------------------- Brian Corales, Howard Weil Incorporated - Analyst [18] -------------------------------------------------------------------------------- Okay. And when all the extended laterals that you all have done, has that all been in the B? -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [19] -------------------------------------------------------------------------------- No. There's been a proportion of those that are in the C, as well. And I don't have that breakout sitting right here in front of me, Brian; but, yes. It's something along the lines of two-thirds B, one-third C, roughly. -------------------------------------------------------------------------------- Brian Corales, Howard Weil Incorporated - Analyst [20] -------------------------------------------------------------------------------- Okay. -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [21] -------------------------------------------------------------------------------- And then the A test is going to be kind of interesting. That's stemming from all of the work that our G&G group has done. If you remember, we discussed going and taking some cores throughout our acreage position and trying to take that information, coupled with the seismic; and a lot of hard work has gone into determining that we think the A has some prospectivity over that northern portion of the Basin, which has led to us doing this test. -------------------------------------------------------------------------------- Brian Corales, Howard Weil Incorporated - Analyst [22] -------------------------------------------------------------------------------- Okay. And is there any other A test planned, or are you going to wait to see the results here before deciding what to do going forward? -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [23] -------------------------------------------------------------------------------- I think we'll see the results, so those wells are at TD; that's the last well I think in this section. So completion operations should start fairly soon. -------------------------------------------------------------------------------- Brian Corales, Howard Weil Incorporated - Analyst [24] -------------------------------------------------------------------------------- Okay. Thanks, guys. It was helpful. -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- Steve Berman, Canaccord. -------------------------------------------------------------------------------- Steve Berman, Canaccord Genuity - Analyst [26] -------------------------------------------------------------------------------- Scot, can you talk about the $6.25 million XRL well cost? How much more to you think you can take out of it, and how much of that would be from further efficiencies versus further service cost reductions? -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [27] -------------------------------------------------------------------------------- Sure. First off, I'll just say about -- when I quote capital cost of the $6.25 million, that's actually what we're performing to date. So that is not a target cost; that's an actual cost to date. Clearly, our operations team has goals and targets that are significantly below that. In terms of additional cost savings, I would expect that we could see another 5% or 10% materialize in the second half. And that's probably a combination of some service cost; but I think, more importantly, it's probably more driven by our own efficiencies. When you think about those drilling times that I quoted, the 40% reduction, that definitely translates into cost. The completions team is doing a lot of things in terms of water management. The production team is doing a lot of things in terms of how we are spending money doing the flowbacks and facilities. So it definitely is a lot that's coming from our side of driving efficiencies going forward. -------------------------------------------------------------------------------- Steve Berman, Canaccord Genuity - Analyst [28] -------------------------------------------------------------------------------- Okay. And one more if I may. Just your general thoughts on infrastructure in the DJ. We've got Lucerne II ramping up. Just your overall thoughts there. -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [29] -------------------------------------------------------------------------------- Definitely Lucerne II is going to help us. Almost all of our gas flows towards Lucerne II. And since it has had some pretty good run times here of recently, I think we are observing, plus or minus, a 100 PSI drop in wellhead pressures because of Lucerne II. -------------------------------------------------------------------------------- Steve Berman, Canaccord Genuity - Analyst [30] -------------------------------------------------------------------------------- Great. Thanks a lot. -------------------------------------------------------------------------------- Operator [31] -------------------------------------------------------------------------------- David Beard, Coker Palmer. -------------------------------------------------------------------------------- David Beard, Coker Palmer - Analyst [32] -------------------------------------------------------------------------------- Congratulations on a good quarter. Most of my questions have been asked, so I wondered if you could give us some color relative to raising additional capital, if how long, or would you -- or how low would oil prices would need to stay for you to reconsider that? And then maybe a different big-picture question. Scot, you've been at the Company for a while. What do you think has changed to drive these just much better completion results all the way around? What's changed inside the Company? -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [33] -------------------------------------------------------------------------------- Well, I'll take your latter question because I like talking about this, and maybe I'll let Bob talk about -- -------------------------------------------------------------------------------- David Beard, Coker Palmer - Analyst [34] -------------------------------------------------------------------------------- (laughter) I figured you would. That's okay. -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [35] -------------------------------------------------------------------------------- -- the capital raise and some of those things. Clearly, the Company has been through a huge transition. When you think back a couple of years ago, when we don't have the properties in the DJ Basin at all, we don't have part of our Utah properties, and we're still a 96% natural gas company, you've got a lot of things changing inside the organization. The portfolio is changing; the types of skill sets you need to move from a natural gas exploration company to a resource exploitation development company -- all those things factor in. And then in the middle of that, once we repositioned the portfolio -- and by the way, I think we did an excellent job of getting into one of the top five basins in the United States by going into the DJ Basin -- halfway through 2014, we flipped 180 degrees from drilling the standard length laterals to the extended reach laterals, which obviously causes some turmoil in your planning and your forecasting and your execution. The way I see things now, obviously we're doing basically one type of well, one type of completion, and we're just going to continue to do it for the remainder of this year and for the foreseeable future. You should get very good at what you're doing. So I have all the confidence in our operations team to be out there and go and repeat and deliver and drive those efficiencies. Similarly, I have all the confidence in our forecasting teams that they ought to be able to predict this one type well and just repeat it a number of times. So I would expect us to be able to plan very accurately and continue to drive efficiencies and execute. And I think you're starting to see that in Q1. You saw it again in Q2. I would feel pretty confident that we'll do it again in Q3. So inside the Company, we feel pretty good about where we stand and our performance. -------------------------------------------------------------------------------- Bob Howard, Bill Barrett Corporation - CFO and Treasurer [36] -------------------------------------------------------------------------------- And I will address some of the -- where we are financially with respect to our operations. And we're very deliberate on how we invest some money. We are still generating pretty good cash flow from our operations, and we have the hedge positions to protect that in the current environment. I realize oil prices are low. But we have the hedges in place to protect against that in the foreseeable future and have a nice, established hedge position for next year. Also have cash on the balance sheet; we have the credit facility that's undrawn. And we'll be going through the redetermination here soon, but our expectations are that availability should not change much. And we still have some properties that aren't being invested that there may be a market for. So those are all primary sources with which to fund our activity levels, and we'll balance that against those sources. As we mentioned in the call notes, and as everyone knows, we did put an ATM into place a couple of months ago, and that was with the intent of giving us flexibility and the ability to continue to manage the profitable investment in our programs. It's there. We think it's a good option to have available to us if needed. But we have a lot of other sources to put to work in our business first. And we aren't anxious to try to issue equity, but we'd appreciate having the ability to do so, when and if needed. -------------------------------------------------------------------------------- David Beard, Coker Palmer - Analyst [37] -------------------------------------------------------------------------------- Good, great. Appreciate it, and thanks for the color on both questions. -------------------------------------------------------------------------------- Operator [38] -------------------------------------------------------------------------------- John Gerdes, KLR Group. -------------------------------------------------------------------------------- John Gerdes, KLR Group - Analyst [39] -------------------------------------------------------------------------------- Scot, in terms of your thought process -- yours and the Board's thought process on this ATM program, can you walk us through what the thinking was? And maybe give a sense of maybe where you see the sequencing or timing of possible execution in that program? Or is that even potentially just a contingent program, rather than something that probably does occur in terms of capitalization as you move out into next year? And thank you. -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [40] -------------------------------------------------------------------------------- Sure, John. I guess I look at it as the ATM program is another tool to put into our toolbox when we think about maintaining the health on our balance sheet. And that's just, kind of like I say, that's one tool. Obviously we have asset sales of non-core things that could be executed, that could be a source of capital. Clearly driving the well performance like we are, and reducing capital spend, and reducing LOE drives cash flow as well. So we thought the way we approached the ATM, it was just good business sense to have another tool in the toolbox and to have some flexibility when we think about managing through these trying times. Obviously our intent is not to dilute our shareholders to someplace that we don't like. Obviously it was not our intent back in May or June when we put this in place. We didn't like the share price, and we did not execute any shares or do a block deal. And so we thought this was the right balance and the right tool. Specifically, when you think about, at the time, we had $150 million in the bank; today we have $100 million in the bank, and we can use that. We don't have an immediate need to put additional money in the bank and earn basically 0% interest on that money. And then also as Bob said, is we're completely undrawn on that credit facility right now, and we do expect it to probably get reaffirmed again this fall at the same level. So when you think about the cash and you think about an undrawn credit facility, those seem like better sources of capital today than issuing shares underneath the ATM. But we put it in place as an option to have, and I think it still sits there as an option to use going forward. -------------------------------------------------------------------------------- John Gerdes, KLR Group - Analyst [41] -------------------------------------------------------------------------------- Scot, you just laid out a whole series of liquidity alternatives, which is great. In a way, then, why even lay out there this as an alternative? And I guess maybe to build on that for just a moment, it's my sense is from your commentary -- and correct me here, please -- is that the probabilities are somewhat limited or remote, or could I characterize as nil in the use of this program. And again, if any kind of sense that you would give in terms of the equity price levels and the magnitude of this program that you may use would be helpful, and thank you. -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [42] -------------------------------------------------------------------------------- Sure. And I will back up to the earlier part of your question. We put it in place because we were adding the second rig and we are spending more money. And it just seems like you have to address liquidity when you think about continuing to spend more capital. And I thought that was the right thing to do versus saying, we're going to go out and sell $100 million worth of assets and then go to our business development team and say, you have to sell $100 million worth of assets in the next 60 days. Guess what? Whoever you are going to sell them to is probably going to lowball your prices. So you don't really want to put that sitting out there, I guess. And so all the things that we have within our control, I would like to do on our timeline versus with a gun to our head, if you kind of understand what I'm trying to say there. -------------------------------------------------------------------------------- John Gerdes, KLR Group - Analyst [43] -------------------------------------------------------------------------------- I do. -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [44] -------------------------------------------------------------------------------- So we put it in place to give us choices and to give us flexibility. And as you picked up from my earlier comments, we do have a number of sources for capital and for liquidity. I probably can't comment on a share price of when we would issue things or anything like that. But, clearly, we are in a much different position than most people with the cash and the undrawn credit facility. -------------------------------------------------------------------------------- John Gerdes, KLR Group - Analyst [45] -------------------------------------------------------------------------------- Do you have any sense of probability of the utilization of this program? Any kind of rough sense -- 25%? A quarter of it gets used? Any rough sense of what you would envision, with what you can understand today about the marketplace, what you would envision in terms of the exercise under that program? -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [46] -------------------------------------------------------------------------------- I'd probably not like to comment, John, just because there's so many moving parts of everything. So probably wouldn't want to comment on that one. -------------------------------------------------------------------------------- John Gerdes, KLR Group - Analyst [47] -------------------------------------------------------------------------------- Scot, thank you for your responses. -------------------------------------------------------------------------------- Operator [48] -------------------------------------------------------------------------------- Neal Dingmann, SunTrust. -------------------------------------------------------------------------------- Neal Dingmann, SunTrust Robinson Humphrey - Analyst [49] -------------------------------------------------------------------------------- Scot, could you just talk a little bit -- I'm looking at this Northeast Wattenberg, your thoughts -- have anything changed really on the thoughts about the spacing between the northern area, central, southern? I'm just looking at wells per 1280. -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [50] -------------------------------------------------------------------------------- No, I think we're still at 80 acres per bench. So, if you have one bench, eight wells; two benches, 16 wells. That is still our basic thinking right now. -------------------------------------------------------------------------------- Neal Dingmann, SunTrust Robinson Humphrey - Analyst [51] -------------------------------------------------------------------------------- Got it. And then secondly, some guys were talking -- you know, on this BioVert that some of your other peers are using to break rock and some of these things. Are you looking at anything like that? -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [52] -------------------------------------------------------------------------------- We actually have pumped a number of those, test, both in new wells and in some older, re-frac wells. And those have all been done just in the last couple of months, so it's probably early to comment on production results. But yes, it is a product that is something that we are considering and actually did pump on a number of wells. -------------------------------------------------------------------------------- Neal Dingmann, SunTrust Robinson Humphrey - Analyst [53] -------------------------------------------------------------------------------- All right. Thanks, guys. That's it for me. -------------------------------------------------------------------------------- Operator [54] -------------------------------------------------------------------------------- Ryan Oatman, Cowen and Company. -------------------------------------------------------------------------------- Ryan Oatman, Cowen and Company - Analyst [55] -------------------------------------------------------------------------------- As already discussed a couple of times, I noticed the updated 90-day production history for the first four XRL wells was better than that of the first one, suggesting that the latest three have been stronger. Wanted to see if you can provide any color there -- any key differences between these well results, whether it's geography, line pressure, et cetera. -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [56] -------------------------------------------------------------------------------- Not really. They are on the same pad. So obviously when you got one well data set versus four well data set, there's a little bit of variations to it, but they are on the same pad. -------------------------------------------------------------------------------- Ryan Oatman, Cowen and Company - Analyst [57] -------------------------------------------------------------------------------- God you, got you. And moving forward, are you experimenting with any sort of differences in terms of completion, lift to landing, or do you feel like moving forward it's almost a cookie-cutter deal at this point? -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [58] -------------------------------------------------------------------------------- I guess I'd probably characterize that the basic design that we have now is probably not going to change. But I think as an operations organization, you are always tweaking little things. So you are always tweaking sand volumes or fluid volumes, or how you are running your gas lift and how you are flowing the wells back. So I think there's always a minor tweaks. But I guess I would say that, by and large, we don't see things changing too much. -------------------------------------------------------------------------------- Ryan Oatman, Cowen and Company - Analyst [59] -------------------------------------------------------------------------------- Okay, that's helpful. And then I wanted to make sure I heard you correctly on the fourth quarter. Third quarter, obviously down a little from 2Q levels. Can you just confirm, fourth quarter -- you are looking for sequential growth from third quarter? -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [60] -------------------------------------------------------------------------------- I think the answer to that question is yes. If you picked up on the math, we've got 10 wells flowing back in the early flowback stages. We have four more wells that have started flowing back in the early flowback stages. And then we are about to move off of a nine-well pad that those completion operations will take place somewhere in the third quarter. So you've got 10 wells, plus four wells, plus nine wells, that all should be contributing at various levels to Q4 production. So I would think it is sequentially higher than Q3. -------------------------------------------------------------------------------- Ryan Oatman, Cowen and Company - Analyst [61] -------------------------------------------------------------------------------- That's helpful. And then on more of a macro question here, with some of the pipeline changes across the United States here, your experience with Rockies gas historically -- was curious if you guys have any views on Rockies gas prices and any thoughts on hedging the Rockies differential here. -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [62] -------------------------------------------------------------------------------- Not really. Since we're more of an oil company, I'm not even sure I'm informed anymore. -------------------------------------------------------------------------------- Ryan Oatman, Cowen and Company - Analyst [63] -------------------------------------------------------------------------------- That's totally fair, totally fair. Figured I would try it. All right, I'll hop back in the queue. Thanks. -------------------------------------------------------------------------------- Operator [64] -------------------------------------------------------------------------------- Dan McSpirit, BMO Capital Markets. -------------------------------------------------------------------------------- Dan McSpirit, BMO Capital Markets - Analyst [65] -------------------------------------------------------------------------------- Looking into 2016, can you speak about the relationship of CapEx to cash flow next year, and what that means for leverage to achieve the 10% to 15% production growth at strip pricing? -------------------------------------------------------------------------------- Bob Howard, Bill Barrett Corporation - CFO and Treasurer [66] -------------------------------------------------------------------------------- As we planned into 2016, we haven't set everything up for 2016 yet. We're still doing the budgeting. And we'll be looking at all those numbers where we end up with the funds available; because, again, we have the credit facility available, and be able to fund that. And that -- we'll likely, as we look next year at current commodity prices, we are hedged somewhat, but we will have a capital investment need into next year. We want to keep the balance sheet in good shape. If you look at our debt to EBITDAX levels, and that's one of our drivers of some of the decision-making and how we manage the capital allocation. And if it gets up towards 4 times, that's just probably a level that we need to try to manage around, and managed to keep it under that; and try to bring it down, as we continue to increase production, 2016 into 2017. So we've got some leverage we'll need to pull on that. But that's kind of the benchmark we have as we plan into next year with programs that -- we're still learning what the programs can do. We put out some indicative numbers for 2016, just to get people thinking the same way we are, the performance we get that the end of the year, and what were able to do; both well costs and production and bringing in cash flows from that will be very much determinate to how we plan the whole year and the timing, and then how would the balance sheet works out. But we do have some guidelines within the balance sheet that we want to stay within. -------------------------------------------------------------------------------- Dan McSpirit, BMO Capital Markets - Analyst [67] -------------------------------------------------------------------------------- Okay, great. And as a follow-up to that question, does the 2016 production growth guidance of, again, 10% to 15%, incorporate any positive revision to the EOR or the momentum that's starting to build in the DJ Basin, at least based on the current rates? -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [68] -------------------------------------------------------------------------------- I would say no, Dan. Those numbers, we put out back in May or June, and probably have not been updated since then. It was to provide some directional sideboards, is the way I would look at that. -------------------------------------------------------------------------------- Dan McSpirit, BMO Capital Markets - Analyst [69] -------------------------------------------------------------------------------- Okay, great. And then just quickly maybe one or two more here. When do you achieve peak rate on the XRL wells? That is, how long do they take to clean up? And is there much change when the wells are completed with the preferred technique versus, say, the old technique? -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [70] -------------------------------------------------------------------------------- I would say to get to that peak 30-day production rate is about five months, and that's the way that we budget or plan our timing. In terms of changes, the biggest change is really just in doing the controlled flowback of both the gas and the water. And so, that probably is irrespective of number of stages or number of volumes of sand or of water. It's more trying to keep the gas in solution, maintain a particular flowing barrel per hour type of a rate, and all coming into that pressure dependent perm and keeping the gas in solution. So, that number I think is going to be pretty solid going forward, even as we tweak other operational things, in that five-month range. -------------------------------------------------------------------------------- Dan McSpirit, BMO Capital Markets - Analyst [71] -------------------------------------------------------------------------------- Okay, very helpful. And then lastly here, just to revisit the subject of field level returns in the current price environment. What is the economic limit or breakeven in the UOP versus what you are drilling in the DJ Basin? That is, what is the NYMEX-WTI price that covers your hurdle rate? -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [72] -------------------------------------------------------------------------------- It's significantly higher, so I don't know -- I don't have that sitting in front of me, Dan. But I would guess it's in that $70 to $80 type of range. And that kind of is an average across the entire Uinta Basin. East Bluebell numbers would be something lower; South Altamont might be something lower; Blacktail Ridge might be something higher. But as an aggregate across the whole 160,000 acres, maybe something like that. -------------------------------------------------------------------------------- Dan McSpirit, BMO Capital Markets - Analyst [73] -------------------------------------------------------------------------------- Got it. Thank you. Have a great day. -------------------------------------------------------------------------------- Operator [74] -------------------------------------------------------------------------------- Josh Silverstein, Deutsche Bank. -------------------------------------------------------------------------------- Josh Silverstein, Deutsche Bank - Analyst [75] -------------------------------------------------------------------------------- Just a follow-up question to one a few ago. Now that you guys have a better understanding of the production profile here, and that it takes 5 to 7 months to [reach] peak production, can you just talk about the pad development going forward, needing to balance CapEx and cash flow? Are these maybe going to be smaller four-well pads? Or are you thinking you can get better efficiencies of the bigger 10-well pads? -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [76] -------------------------------------------------------------------------------- Right now, what we've been drilling most recently is four-well pads, but we may go ahead and do an entire section. So if you think about the -- if there's eight wells, it may be if we're only targeting the Niobrara B, we would do two, four-well pads and drill those with two rigs. So that way, you are accelerating the cash flow a little bit. And then, similarly, there's times that we can bring in two frac fleets and do that, so you are accelerating the cash flow. You're still doing the flowback period of the five months, but it moves that cash flow forward. So, when you think about if we have a section that has B and C potential, and you're doing something like 16 wells, we might split that into four, four-well pads and do it with the two drilling rigs and the two frac fleets and manage things that way. So we are trying to accelerate the cash flow, but still maintain our discipline on how we flow these things back. Because, clearly, we think it's impacting our production declines. -------------------------------------------------------------------------------- Josh Silverstein, Deutsche Bank - Analyst [77] -------------------------------------------------------------------------------- Got it. That's helpful. And then as you move into the 2016 program with the XRLs, any thoughts of whether there would be a difference in performance in wells -- northeast, south, or to the west -- in terms of whether that declines would be any different or if flowback would be different? -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [78] -------------------------------------------------------------------------------- I don't think it would be any different. We primarily have been drilling the western portion of both the north and the south, and the 2016 program is very similar to that. We are very methodically stepping out. We aren't jumping out into whole new areas, really because of our infrastructure. And we're being very methodical about how we lay out the infrastructure and how we pick locations. So we haven't observed any difference yet. -------------------------------------------------------------------------------- Josh Silverstein, Deutsche Bank - Analyst [79] -------------------------------------------------------------------------------- Great. Thanks, guys. -------------------------------------------------------------------------------- Operator [80] -------------------------------------------------------------------------------- Mo Dahhane, Northland Capital. -------------------------------------------------------------------------------- Mo Dahhane, Northland Capital Markets - Analyst [81] -------------------------------------------------------------------------------- Appreciate you guys providing us with the 30-day IP rates and 60-day, as well as the 90-day for the extended reach lateral wells. I'm just curious if you guys can provide us with the oil cut for those averages. -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [82] -------------------------------------------------------------------------------- The oil cut is just short of 70%. So we run about, like, a 69% oil cut in our model. -------------------------------------------------------------------------------- Mo Dahhane, Northland Capital Markets - Analyst [83] -------------------------------------------------------------------------------- And it's pretty much flat throughout the 90 day? -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [84] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Mo Dahhane, Northland Capital Markets - Analyst [85] -------------------------------------------------------------------------------- Okay. Appreciate that. And just quickly, do you guys have any plans to drill an extended reach lateral into the Codell formation maybe sometime early 2016, or what are your thoughts on that? -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO and President [86] -------------------------------------------------------------------------------- Don't know quite yet. I haven't seen the drilling schedule and plan from our technical teams yet to know if we've got Codell slated for 2016 or not. -------------------------------------------------------------------------------- Mo Dahhane, Northland Capital Markets - Analyst [87] -------------------------------------------------------------------------------- All right. Appreciate it. Thank you. -------------------------------------------------------------------------------- Operator [88] -------------------------------------------------------------------------------- Thank you. At this time, I would like to turn the call back over to management for any closing remarks. -------------------------------------------------------------------------------- Larry Busnardo, Bill Barrett Corporation - Senior Director, IR [89] -------------------------------------------------------------------------------- Okay. We'd like to thank everyone for joining us again today. Please feel free to contact us if you have any questions, and we look forward to updating you on future quarters. Thank you. -------------------------------------------------------------------------------- Operator [90] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may now disconnect. Everyone, have a great day.
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