DENVER Nov 6, 2015 (Thomson StreetEvents) -- Edited Transcript of Bill Barrett Corp earnings conference call or presentation Friday, November 6, 2015 at 3:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Larry Busnard Bill Barrett Corporation - Senior Director of IR * Scot Woodall Bill Barrett Corporation - CEO * Bob Howard Bill Barrett Corporation - CFO ================================================================================ Conference Call Participants ================================================================================ * Brad Carpenter Cantor Fitzgerald - Analyst * Neal Dingmann SunTrust Robinson Humphrey - Analyst * Chris Stevens KeyBanc Capital Markets - Analyst * Jason Wangler Wunderlich Securities - Analyst * Mike Kelly Seaport Global Securities - Analyst * Steve Berman Canaccord Genuity - Analyst * Gabe Daubs JPMorgan - Analyst * Brian Corales Howard Weil Incorporated - Analyst * David Beard Coker and Palmer - Analyst * Drew Venker Morgan Stanley - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, ladies and gentlemen, and welcome to the Bill Barrett Corp. third-quarter 2015 earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Mr. Larry Busnard, Senior Director of Investor Relations. Sir, you may begin. -------------------------------------------------------------------------------- Larry Busnard, Bill Barrett Corporation - Senior Director of IR [2] -------------------------------------------------------------------------------- Good morning and thank you for joining us today for the Bill Barrett Corporation third-quarter earnings conference call. Joining me on the call today is Scot Woodall, Chief Executive Officer, Bob Howard, Chief Financial Officer. A note before we begin -- today I need to remind everyone to read the disclosure statement provided in the earnings release and posted to the home page of our website at www.billbarrettcorp.com. You can find and review these, and they're referenced in our third-quarter earnings release and other filings with the SEC. And you can also find them in our third-quarter 10-Q which we filed yesterday afternoon. These documents can also be found at www.SEC.gov or also on our website. With that brief introduction, I will now turn the call over to Scot Woodall. -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO [3] -------------------------------------------------------------------------------- Good morning and thank you for joining us today to discuss our third-quarter results. I'd like to spend some time reviewing some operational results before turning the call over to Bob to review the financial results. Operationally we posted a very solid quarter with a production volume beating expectations for the third consecutive quarter, and we made progress with respect to our cost initiatives on LOE and on capital, with all spending coming in lower than our expectations. This out performance at all levels led to the earnings discretionary cash flow and EBITDAX all meeting or exceeding consensus estimates. We captured further capital efficiencies in our extended reach lateral program through faster drilling times and lower completed well cost while also achieving a meaningful reduction in controllable costs. In the release, we also summarized all of the non-core assets that have been closed or are pending to close in 2015. All in total, proceeds are expected to be $122 million in 2015, including the proceeds from the Cottonwood Gulch settlement received earlier this year. These proceeds are being used to fund our Northeast Wattenberg development program, maintain debt levels and enhance the Company's liquidity position. Bob will touch on this in a little bit more detail in his comments. I would like to now discuss our operational highlights for the quarter before providing an update on our extended reach lateral program. First, we had significantly higher production volumes during the quarter. Total equivalent volumes of 1.7 million barrels of oil equivalent compared very favorably to our guidance of 1.5 million barrels of oil equivalents. This out performance was led by the extended reach lateral program in the DJ Basin that saw production volumes grow 72% as compared to the third quarter of 2014 and 14% sequentially. This increase more than offsets a decline in volumes from our Uinta oil program. Our performance to date keeps us on track to meet recently updated full-year production guidance of 6.3 to 6.5 million barrels BOE equivalent. Keep in mind that we will achieve guidance despite realizing the impact of shedding in approximately 1000 barrels of oil per day in the UOP program in the second quarter, and also factoring in a reduction of volumes associated with the asset sales that are expected to close in November. Moving on to costs, we continue to make meaningful cost reductions as recent Northeast Wattenberg extended reach lateral wells are now averaging 32% less than they were a year ago. We've improved operational efficiencies for all of the XRLs by reducing the number of drilling days today by 50%. Our most recent wells are consistently being drilled in less than eight days. Our best in class well is now just under seven days. Keep in mind that this is for a 9700 foot lateral. This focus of capital efficiency across the operational chain is translating into tangible cost savings as completed extended reach lateral wells are now averaging $5.6 million. We have identified other cost saving opportunities that we are working to capture and expect to realize further reductions from these levels as we continue to drive down efficiencies. On a dollar per BOE basis, our third-quarter 2015 LOE was 19% lower than the second quarter as a result of capturing field level efficiencies and lease operating expense cost reductions in both our basins. Total LOE was $5.67 per BOE in Q3 versus $7.01 per BOE in Q2, strong performance by our operational team. So to recap the operations, we had strong execution in all areas -- production, capital and LOE. I'd like now to provide an activity update of our extended reach lateral program in the Northeast Wattenberg area. Year to date, significant improvements have been made in our cost structure and performance since initiating the extended reach lateral program in mid-2014. We are currently operating one rig and in the progress of drilling a 15-well extended reach lateral spacing unit. The pad is located in the southern portion of our acreage position and is targeting Niobrara B and C development. Completion operations should commence by year end. There are a total of 27 extended reach lateral wells that are in various stages of flowback operations, testing a number of concepts. There is a 10-well pad in the southern acreage position that was placed online in late Q2 that is testing 40-acre Niobrara B and C development. Proppant volumes range from 750 to 1000 pounds per lateral foot. Two four-well pads located in the central acreage position were placed to sales in Q3. These eight wells are targeting 40-acre Niobrara B and C development. Three of these wells utilize the BioVert technology. Nine extended reach laterals located in the northern area were placed online in early Q4. These wells are spaced on 40 acres to test Niobrara A, B and C. Two of these wells were completed with 1200 pounds of proppant per lateral foot. The remaining wells were completed with 1000 pounds per lateral foot. We continue to refine our drilling and completion techniques as we strive to determine the most optimum development scheme for our acreage position. In summary, while it's still early in the development cycle, we believe our DJ Basin asset is high quality, provides a large multi-year inventory of high-margin drilling opportunities. We remain focused on improving the depth of our portfolio and further driving down our cost structure. In summary, we maintain a strong balance sheet with ample liquidity that puts us in a great financial position as we move forward to 2016. I will now turn the call over to Bob to discuss in more detail our financial results. -------------------------------------------------------------------------------- Bob Howard, Bill Barrett Corporation - CFO [4] -------------------------------------------------------------------------------- Thank you, Scot. We posted another very good quarter of financial results as our production volumes, cash flow and EBITDAX were all better than consensus estimates. In addition, we continue to make solid progress on lowering our cost structure and increasing operational efficiency as lease operating expenses and capital spending all trended lower than we had forecast for the quarter. I will address these items in more detail shortly. We and the rest of the industry continue to operate in a very challenging macroeconomic environment. However, the Company remains in strong financial position as we maintain a significant cash balance with an undrawn revolving credit facility that provides ample near-term liquidity. Additionally, we recently announced non-core asset sales that further enhance our liquidity. I will provide a summary of our results and highlight some of the key achievements for the third quarter. We reported an adjusted net loss of $0.09 per share, which was in line with consensus estimates. The adjusted net loss excludes certain nonrecurring items, including the $572 million impairment charge related to our Uinta Basin assets. Discretionary cash flow was $1.11 per share or 17% above consensus estimates. And EBITDAX was $68 million or 11% above the consensus. Third-quarter production volumes of 1.7 million barrels of oil equivalent exceeded third-quarter guidance of 1.5 million barrels of oil equivalents by 13%. Third-quarter equivalent volumes in the DJ and Uinta basins increased 22% compared to 2014, and oil volumes were 14% higher on a year-over-year basis. DJ daily production of 14,250 barrels of oil equivalent per day produced 72% from the third quarter of 2014 and was up 14% sequentially, which more than offset declines from the Uinta basin. As a reminder, we shut in approximately 1000 barrels of oil equivalent production per day in the Uinta basin during the second quarter of this year due to wells having a higher operate cost. Third-quarter production mix was 63% oil, 22% natural gas and 15% natural gas liquids. The proportion of natural gas and NGL volumes relative to oil volumes is higher than previous quarters, primarily due to increased natural gas yields due to the expansion of regional processing capacity in the DJ Basin. We anticipate that our longer-term oil ratio will revert back to the high 60% range which is similar to past quarters. We remain on track to meet our full-year production guidance of 6.3 million to 6.5 million barrels of oil equivalent for 2015. As it relates to the fourth quarter, we expect production to be down compared to the third quarter as we take into consideration the impact of asset sales. Unhedged oil price differentials in the third quarter averaged $7.72 per barrel less than the WTI benchmark price of $46.43 per barrel. The DJ Basin oil differential averaged $7.43 per barrel less than WTI, and the Uinta oil program oil differential averaged $8.56 per barrel less than WTI. We expect fourth-quarter differentials to be slightly lower in the DJ Basin and similar to the third quarter for the Uinta basin. We continued to reduce cash operating cost during the third quarter. Total cash operating cost averaged $8.23 per BOE, which is a 17% reduction from the second quarter. Lease operating expense averaged $5.67 per BOE and was 19% lower than the second quarter, primarily as the result of increased operating efficiencies in both of our basins and further lease operating cost reductions. Reflecting the continued progress we've made in reducing our LOE throughout the year in both the DJ and Uinta basins, we're decreasing full-year LOE guidance by 8% at the midpoint to $45 million to $47 million, down from $48 million to $52 million. Capital expenditures for the third quarter were approximately $63 million and have totaled $243 million for the first nine months of the year. We recently lowered our full-year guidance to $315 million to $325 million. Based on the timing and sequence of expected drilling and completion operations, we continue to expect that CapEx will fall within this range. I want to give an update on the balance sheet. We remain well positioned in the current low oil price environment. Our semiannual borrowing base review was completed in September 2015 with the bank group reaffirming our $375 million borrowing base. We ended the quarter with zero drawn and $349 million of available capacity after taking into account a $26 million letter of credit. In addition, we had cash and short-term investments of $113 million, which is higher than the $101 million balance at the end of the second quarter, primarily due to the timing of cash flow subsequent to the end of the third quarter. In total, we ended the fourth quarter with liquidity of $462 million. We've executed agreements to divest non-core assets for proceeds of $79 million during 2015, which includes the recently announced transactions in the DJ and Uinta Basins and transactions made earlier this year in the DJ and Powder River Basins. All of the assets are non-core to our future development plans. Including the $43 million of proceeds we received from the settlement of the Cottonwood Gulch litigation in February of this year, we expect to receive net proceeds of approximately $122 million from asset divestitures this year. We anticipate closing the Uinta Basin and the latest DJ Basin divestitures by late November. Cash flow sheets from the divestitures will be approximately $58 million in the fourth quarter, which will further enhance our liquidity. We continue to opportunistically seek to divest additional non-core properties as we focus on our core Northeast Wattenberg acreage position. While marketing our Uinta Basin asset, we were approached by multiple interested parties regarding divesting all of our assets in the Uinta oil program. To that end, we have just initiated a marketed process to pursue the possible sale of our remaining oil properties in the Uinta Basin that would be led by Wells Fargo Securities. Lastly, as it relates to 2016 planning, we're running a variety of operating plan scenarios incorporating a range of commodity price assumptions. We plan to announce our 2016 plans during the first quarter. However, I should remind you to adjust your models for production associated with our recent divestitures. In summary, although it was a challenging quarter, we were able to post very solid results with higher production and lower cost across the spectrum as compared to the second quarter. With a solid balance sheet and ample liquidity, we continue to be financially well-positioned. This concludes our prepared remarks. We're now ready for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Brad Carpenter, Cantor Fitzgerald. -------------------------------------------------------------------------------- Brad Carpenter, Cantor Fitzgerald - Analyst [2] -------------------------------------------------------------------------------- Good morning guys and thanks for your time today. I was hoping we could start in the DJ, and obviously those 18 wells that were started to be brought online in late 2Q, you had those under your belt for some time now. And I know we're maybe a few weeks out from getting official results on those. But I was hoping you could maybe first touch on just the timing of when we could expect those well results. And then I don't know if you could add any additional color on what you are seeing from those well results just to help us frame what to expect when we do see those. -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO [3] -------------------------------------------------------------------------------- Sure, Brad, The 10 wells came on the end of Q2, beginning of Q3, and then the other eight wells are sometimes more in the middle of Q3. And then the nine-well pad just went on a couple of weeks ago. So all in, there's about 27 wells that are in various stages of flowback, all testing a few different concepts. So we have some wells in the North, we have some wells in the South, we've got some wells that were volume-wise with 750 pounds per lateral foot all the way up to about 1200 pounds per lateral foot. So a number of different concepts that we're testing on the drilling and completion side. I think as soon as we have the data and have some conclusions drawn, our estimation is to share that. I would expect that we're going to come out at some point, Brad, with a pretty comprehensive view of all the results as well as some type curve information too. And I think that is all something that is in the works and should be delivered as soon as the data present itself. -------------------------------------------------------------------------------- Brad Carpenter, Cantor Fitzgerald - Analyst [4] -------------------------------------------------------------------------------- Okay great, that's helpful. And then Bob or Scot, if you'd like to take this one as well, I was hoping to get your general thoughts on balance sheet management. You've done an impressive job of proactively managing your portfolio of non-core assets, and to that point, congrats on the additional sales announced last night. But this is bringing up your cash balance quite substantially, I was curious to see hear your general thoughts on plans for managing that liquidity going forward. -------------------------------------------------------------------------------- Bob Howard, Bill Barrett Corporation - CFO [5] -------------------------------------------------------------------------------- We continue to work on looking at the sources of liquidity and what we have available. I think we've taken a lot of good steps this year to create some cash from the assets that we were putting capital into and lowering our cost structure to extend the cash that we have. And of course, you've seem some of the production results have been very good. As we do our planning, it's multifaceted where we will continue to balance out to getting cash from the assets and developing our assets in a very prudent manner and also keeping liquidity and managing our debt levels for a long period of time. So I think you will see us continue to try to extend our cash balances as we look into 2016 and start our planning for that. One of the tenets we have is we're going to get cash flow from our existing properties and we have the cash balances on hand, and that's a number that we like to stay as far away from the credit facility as we can for most of the year. So we will continue to work toward keeping that liquidity available under the credit facility throughout 2016. Still early to announce our plans. We went through a lot of scenarios here in incorporating some of the results that Scot just talked about into what we expect for the year and different commodity price scenarios. We're going to try to stay within the cash flow and cash on hand for as long as we can in 2016 and continue to evaluate the market on a go forward basis. -------------------------------------------------------------------------------- Brad Carpenter, Cantor Fitzgerald - Analyst [6] -------------------------------------------------------------------------------- Great. All right. I appreciate it. Thanks again guys. -------------------------------------------------------------------------------- Operator [7] -------------------------------------------------------------------------------- Neal Dingmann, SunTrust. -------------------------------------------------------------------------------- Neal Dingmann, SunTrust Robinson Humphrey - Analyst [8] -------------------------------------------------------------------------------- Good morning guys. Scot, when you look at -- I'm looking at this slide that shows all of that Northeast Watternberg and all of the XRLs you've done there. When you go after that now, when you continue, will that be exclusively XRLs in that area as well as will you continue to use the plug and perf with those? -------------------------------------------------------------------------------- Scot Woodall, Bill Barrett Corporation - CEO [9] |