Amplify Energy Corp (AMPY) 2015 Q2 法說會逐字稿

Good morning. My name is Nan and I will be your conference operator today. At this time I would like to welcome everyone to the Midstates Petroleum second-quarter earnings call

(Operator Instructions)

I would now turn the conference over to Mr. Al Petrie, Investor Relations co-ordinator. Please go ahead, sir.

Thank you Nan. Good morning everyone and welcome to Midstates Petroleum's second-quarter 2015 earnings conference call.

Joining me today as speakers on our call are Jake Brace, President and CEO; Nelson Haight our Executive Vice President and CFO; and Mark Eck, Executive VP and COO. Jake will begin today's call with an overview of the quarter and some operational highlights. Nelson will follow with the financial details for the second quarter and provide guidance for the third quarter, and Mark will provide additional details on our operations. After Mark, we will take questions.

Before we begin, let's get the administrative details out of the way with our Safe Harbor Statement. This conference call may contain forward-looking information and statements regarding Midstates.

Any statements included in this conference call or in our press release that address activities, events or developments that Midstates expects, believes, plans, projects, estimates or anticipates will or may occur in the future, are forward-looking statements. These include statements regarding reserve and production estimates, oil and natural gas prices, the impact of derivative positions, production expense estimates, cash flow estimates, future financial performance, planned capital expenditures, future potential drilling locations, resource potential and other matters that are discussed in Midstates' filings with the SEC.

These statements are based on current expectations and projections about future events and involve known and unknown risks, uncertainties and other factors that may cause actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. Please refer to Midstates' filings with the SEC in the second-quarter form 10-Q that we filed shortly for discussion of these risks. Also please note that any non-GAAP financial measures discussed in this call are defined and reconciled to the most directly comparable GAAP measure in the table in yesterday's earnings release.

I will now turn the call over to Jake for his comments.

Thanks Al, good morning everyone and thank you for joining us today and thank you for your interest in Midstates.

We've been quite busy during the first half of the year, the commodity price decline weight last year dealt us, along with much of the industry, some meaningful challenges as we entered into 2015, and we've been very active in navigating through this difficult environment. We've taken numerous operational and financial actions to improve our situation.

We entered the year having exited the Anadarko, drilling in the Anadarko and reduced our active rig count to four rigs. During the second quarter we substantially enhanced our liquidity with a comprehensive financing transaction, executed in May, and the sale of our remaining Louisiana producing properties in April. These transactions quadrupled our near-term liquidity position while holding our debt level essentially flat.

We are very pleased with the results of those transactions as they provided us a liquidity and flexibility to execute the multi-year business plan we outlined in past filings. We continue to be intensely focused on operating and drilling efficiently in the Miss Lime, while we begin to explore the opportunities that our liquidity enhancing transactions permits.

Production for the second quarter came in at approximately 34,000 Boe per day, essentially flat with the first quarter even though we had sold our Dequincy area properties in the meantime.

Our new wells in the Miss Lime continue to perform well and we have also successfully focused on optimizing our base production during the first six months of the year. As a result of our strong performance on both fronts, we are increasing our -- increasing and narrowing our full-year production guidance to 31,500 Boe per day on the low end to 33,500 Boe per day on the high-end, up from the range of 30,000 to 33,000 Boe per day we last communicated to you.

In early 2014 we initiated a plan to generate adjusted EBITDA in excess of CapEx by focusing on increasing returns and reigning in capital spending. While we didn't quite achieve it in 2014 we did so modestly in the first quarter of this year. And I'm happy to say in the second quarter of 2015 our adjusted EBITDA out-paced our operational CapEx by $29 million, bringing us to having generated $37 million of adjusted EBITDA in excess of CapEx for the first six months of the year. We expect this trend to continue for the remainder of the year, and we are currently on track to meet our guidance of adjusted EBITDA exceeding CapEx by $75 million to $100 million for the full year of 2015.

Additionally, our capital cost management initiative has been very successful thus far in 2015, as we have already achieved our year-end well cost target for the Miss Lime. We are currently AFE in wells for $3.3 million and believe there are further reductions to be captured as we move through the remainder of the year. At this new well cost, even at the current strip pricing, our Miss Lime wells are generating IRRs greater than 30%.

Finally, as Mark will go into in more detail, we've dropped one rate rig recently, this is not because we didn't have good and economic opportunities in the Miss Lime for that rig, but because of our efficiency and partner, we were able to drill the same number of net wells as we originally planned to. It also has the further benefit of enabling us to stay within our capital guidance that we originally put out for the year.

In summary, I am pleased with our results for the second quarter and the first six months of the year. We've built a solid foundation to execute on our strategy in order to fully unlock the value of our premium asset position.

With that I will turn the call over to Nelson our CFO, to give you more financial detail on the second quarter. Nelson?

Thanks Jake. Before I review second-quarter results and provide forward guidance, let me quickly review the liquidity enhancing transactions that we undertook in April and May.

On April 21 we did close the sale of our remaining producing properties in Louisiana and realized net cash proceeds of roughly $42 million. On May 21 we sold $625 million of 10% second lien notes due 2020, and used a portion of the proceeds to repay the outstanding balance of our credit facility of roughly $468 million, with the remainder held for general corporate purposes.

We also exchanged $504 million of 12% third lien notes due 2020, or $280 million of our 10.75% unsecured notes and $350 million of our 9.25% unsecured notes, representing an exchange rate at 80% of par. Additionally on June 2, 2015 we exchange another $20 million of third lien notes, or $27 million of our 10.75% unsecured notes and $2 million of our 9.25% unsecured notes, representing an exchange rate of 70% of par.

In conjunction with these transactions, we also entered into an amendment to our credit facility to provide additional covenant flexibility and ultimately reduced our borrowing base to roughly $252 million. These transactions substantially increased our liquidity and provide us with a significant runway to manage the Company through an extended period of low commodity prices. We are very pleased with the timing of this transaction, as the capital markets and commodity markets have changed significantly in recent weeks and that transaction likely cannot get done today on those terms.

Turning to the second quarter, we were pleased with our financial results and we achieved production at the very high end of our guidance and our costs were well within the guidance range as we established. Most importantly we again achieved, as Jake mentioned, our goal of generating adjusted EBITDA well above our operating capital expenditures during the quarter. Our results benefited from production volumes that were essentially flat with the first quarter, despite the sale of our Dequincy properties that closed on April 21.

And our Mississippian Lime volumes continue to grow despite having only four rigs active during the entire quarter, which helped offset the loss of the Dequincy volumes. Adjusted EBITDA totaled $98.7 million before $34.6 million of debt restructuring costs, while our operational capital expenditures totaled $70 million. Our operational capital spending in the second quarter was at the low end of our guidance, with about $68 million spent in our Mississippian Lime properties, $1.5 million in our Anadarko basin properties and the balance in our Gulf Coast properties.

For the third quarter, we expect our operational CapEx to be approximately $55 million to $65 million, with $50 million to $60 million in the Miss Lime and the balance spent in the Anadarko basin. These estimates reflect the plan that Mark will describe, with three rigs operating in the Mississippian Lime. We expect our adjusted EBITDA to again exceed our operational capital in the third quarter. Additional details is available in our supplemental information packet posted on our website this morning.

Adjusted net income for the second quarter was a loss of $3.9 million or $0.58 per split adjusted share, compared to net income of $14.4 million in the same period a year ago and $4.9 million in the first quarter of 2015. This excludes the impact of unrealized gains and losses under derivatives and debt restructure costs, along with the related tax impact. Our reported second-quarter 2015 GAAP net loss, which includes a non-cash $498 million oil and gas property impairment charge due to the current commodity price environment, was a loss of $598.4 million, before $669,000 in preferred dividends.

Production in the second quarter totaled 33,893 Boe per day, which was essentially flat with 34,164 Boe per day in the first quarter. 80% came from our Mississippian Lime properties, 19% of production came from our Anadarko basin assets, with the balance from our Dequincy area properties in the Gulf Coast area, that were sold on April 21. Our Miss Lime production of 27,029 Boe per day was up 2% from the first quarter of 2015 and up 31% from the second quarter of 2014.

In light of the current commodity prices and our desire to maximize cash flow and value from our production stream, we continue to reject ethane from our Mississippian Lime natural gas production during the second quarter. We expect our third-quarter production to be in the range of 33,000 to 34,000 Boe per day. We expect our Miss Lime properties to range from 27,000 to 28,000 Boe per day, with the balance coming from our Anadarko basin assets.

For the full-year 2015 as Jake outlined, we are tightening the range of our expectations to 31,500 to 33,500 Boe per day, up from the previously announced 30,000 to 33,000 per day. Additional details on the product mix of this volume guidance, along with price and transportation differentials are included in the supplemental information packet that was posted to our website this morning.

Now turning to our hedging. During the second quarter we further increased our 2015 oil hedge position. We have not added any new gas hedges. For the balance of 2015 we now have about 85% of our projected oil production hedged at roughly $72.00 per barrel, and about 60% of our natural gas production hedged at $4.13 per MMbtu. We do not have any oil or gas hedges in place for 2016. A detailed summary of our current hedge positions by quarter is included in the release and is posted on our website, along with all the guidance I am providing today.

Our hedging strategy continues to focus on protecting against the downside to our cash flow generation which would allow us to execute our capital program. We will add additional hedges as market presents appropriate opportunities. I will now review our second-quarter expenses and provide guidance for the third quarter.

Second-quarter cash operating expenses, which includes Loe, production taxes and cash G&A, but excludes acquisition transaction and debt restructuring cost and expenses associated with the previously announced closure of the Houston office, totalled $36.3 million, which was down 8% from $39.4 million in the first quarter of this year and down 8% percent from $39.6 million in the second quarter of the prior year. Costs fell $3.1 million on absolute basis versus the first quarter, but fell even more significantly on a Boe basis.

In the second quarter our cash operating expenses totaled $11.75 per Boe, which was down 8% percent from $12.82 per Boe in the first quarter, and down 14% from $13.63 per Boe in the second quarter of 2014. The improvement was primarily due to increased production volumes and lower Loe and G&A.

Our lease operating and work-over expenses totaled $21.8 million which was down almost 6% from $23.2 million in the first quarter, even though our volumes were essentially flat. Second-quarter Loe of $7.06 per Boe was within our guidance range of $6.75 to $7.25 per Boe. The reduction in rate came primarily from the Mississippian Lime, where Loe fell to $4.78 per Boe, as we continued to benefit from operating leverage provided by past investments in electrical and saltwater disposal infrastructure, and a lack of seasonal winterization expenses in the second quarter.

We also benefited during the second quarter from the removal of the Dequincy properties, where average Loe rates were higher. For the third and fourth quarters we expect our Loe and work-over expenses to be in the range of $6.75 to $7.25 per Boe.

Gathering and transportation expenses associated with our gas processing arrangement in the Miss Lime totaled $3.9 million, up $1 million from the second quarter of the prior year, primarily due to higher production volumes. For the remainder of 2015 we expect these cost to range between $3.5 million and $4 million per quarter.

Sales and other taxes totaled $2.5 million, or about 2.7% of total revenue before derivatives, which would be a lower guidance range of 4% to 6%. For the third and fourth quarters of this year we are lowering our guidance to 3% to 4% of revenue to reflect the lower tax rates.

Third-quarter total cash and non-cash G&A expense was $11.5 million, within our guidance range of $11 million to $13 million, and flat with the first quarter of this year, but down from $13.4 million in the second quarter of 2014. Non-cash G&A totaled $2.1 million during the second quarter and $2.2 million in the second quarter of 2014 and $800,000 in the first quarter of 2015. We expect total G&A in the third and fourth quarters to be in the range of $11 million to $13 million, with about $1 million to $2 million being non-cash.

Our DB&A rate in the quarter of $17.92 per Boe was just below our guidance of $18 to $22 per Boe. For the third quarter and the balance of 2015 we expect the rate to continue to be in the range of $18 to $22 per Boe.

At June 30, 2015, capitalized costs exceeded our full-cost ceiling and we recorded an impairment of oil and gas properties of $498 million. We recorded impairments of $175 million in the first quarter of 2015 and none in the second quarter of 2014. Impairment at June 30 and March 31, 2015, were primarily due to continued low commodity prices.

Total interest expense incurred in the second quarter was $46 million, of which we capitalized $1.1 million. We expect to capitalize about $1 million to $2 million in the third quarter.

As we discussed in the past, we are now utilizing a much lower tax rate in our financial statements, which in the second quarter was an effective rate of zero. To the extent we generate taxable income in the future, we will recognize a portion of our unrecorded net operating loss carry-forwards to offset the related tax expense. Therefore, for the foreseeable future, our tax rate will be between 0% and 5%, with all being non-cash.

Turning to our capital structure. As of June 30 we had $151 million in cash and $251 million available in our credit facility, for total liquidity of $402 million.

The next re-determination date for our revolver is at the end of September. While we don't know what the price deck our banks plan to use in their calculations, we don't expect much change in the facility, if any since we recently renegotiated our borrowing base as part of our liquidity enhancing transactions. Regardless of the outcome, we don't anticipate drawing on that revolver in the next 12 months.

With that, I'll now turn the call over to Mark.

Thanks Nelson and good morning to everyone. I'll start by discussing our capital cost management initiative, then review our second-quarter and year-to-date results, and provide an update on our down spacing wells. And then I'll wrap up with our operational plans for the remainder of the year.

As Jake mentioned earlier, we were pleased to have are already achieved our year-end well cost target in the Miss Lime, and are currently wells for $3.3 million. Our teams have worked diligently with our suppliers and service providers during this challenging commodity price environment. And have been able to reduce our service cost dramatically, particularly on the completion side where stimulation services cost have been reduced roughly 40%.

Most importantly, over 60% of our total well cost savings have been through efficiency gains and process refinements. Which should remain in place as service prices eventually rise with the commodity price improvement.

On the drilling side, pad drilling, an excellent collaboration between our drilling and geo-steering teams has made our operations more efficient and our cycle times have been reduced from 22 days to 19 days. Additionally on the completion side, we have implemented a new frac plug design that doesn't require drill out after the well has been stimulated. Reducing cost and shortening the time to first production. We are proud of these accomplishments year-to-date, but anticipate additional reduction opportunities to be captured as we continue through the remainder of the year.

Our premier Mississippian Lime asset continues to outperform and yesterday we announced a record production for the fifth consecutive quarter in the basin. Even with the drop in rig count from the seven rigs in the third quarter of 2014, to four rigs in the second quarter of this year. During 2015 we intentionally have allocated more internal resources to optimizing our base production and as a result our updated guidance we provided today reflect some meaningful increase in the 2015 base production, from our original budget outlook.

During the first few months of the year we experienced previously unforeseen bottleneck constraints on our water handling system that restricted initial production rates in the new wells being brought online. We have since resolved these issues in late spring and we are now back to consistently meeting our best in class, peak 30 day IPs, of over 560 Boe per day. Even with these constraints early on in the year, our 2015 average annual well performance tracks well with our PUD type curve, and further supports the increase we received from our reserve auditors at year end.

At the July 25 seven strip pricing, as Jake mentioned previously, this type curve is generating investor rates of return greater than 30%, with our current AFE of $3.3 million. Through our normal Miss Lime development we have opportunistically been able to acquire and core up acreage through a combination of acreage trades and partnered non-consents. This is proven to be a very efficient and cost effective way of adding to our existing footprint.

Turning to an update on Anadarko asset, as Jake mentioned, with the downturn in commodity prices towards the end of 2014, our single well economics in the Anadarko became a challenge and we see sterling activity in the basin last November. Our focus thus far in 2015 has been on high return, capital expense workover program, designed to offset some of the natural production decline and reduce lease operating cost.

As a result of this program we are forecasting a significant increase in 2015 production from our budget outlook. Due to these successes, we intend to continue this program on a limited basis for the remainder of the year. Even without active drilling we continue to monitor offset operators and refine our geologic understanding of the multiple phase zones in the basin, as well as identify future development opportunities as well costs are reduced.

At the beginning of the year we brought online two down-spacing wells in the Miss Lime to test our theory of supporting 80 acre well spacing over a significant portion of our acreage. The average of these wells has been tracking above our PUD type curve for a majority of the production curve, and the individual production profiles of the two wells are consistent with the other wells in their section. With little to no apparent communication identified today. Additionally, and most notably, we haven't seen any degradation of production profiles in the offset wells or any wells in the sections. We are pleased that these results today are encouraged further tests is concept going forward.

Yesterday we disclosed we have recently reduce our recount to three active rates in the Miss Lime, due to earlier than expected drilling efficiency realizations and higher than expecting working interest from partner non-consents, we are now able to drill roughly the same amount of net wells with three race as we could with four rigs. As we move through the rest of 2015, we'll continue to monitor the appropriate level of regularizations.

But at this point, we plan to operate a three rig drilling program, drilling a mix of proved locations and extension wells in our currently undeveloped acreage. We will look to continue aggressively seeking further cost reductions to enhance our returns and opportunistically look to add to our premier Miss Lime position.

With that Al, we are now ready for Q&A.

Nan, we're ready to take questions and I ask participants to limit their questions to one and a follow-up so we can try to get everybody in the queue.

(Operator Instructions)

Neal Dingmann, SunTrust

Good morning, guys, can just talk about if you can get the well cost down bit even more from where you're at?

Neal, this is Jake. Well we definitely think we can. I might not have emphasized that as much in my remarks as I should have, but we think that there's more room to get the well cost down. We're not giving any guidance as to just how low we are going to get it, but I'm a big believer in continuous improvement and this is the stuff we talk about every day. So we're getting it down every day, little bits here and there, but have not established a bigger target, but it's clearly our goal to drive it down even further than the $3.3 million.

Great, thanks guys, and at what point would you look to maybe add some hedges for 2016 going forward?

We're looking at that, we're looking at that right now. Obviously, the prices have come down in the last few weeks and we're thinking about just what to do about that as we make our plans for 2016. But that's stuff that we're also talking about real time

Great, thanks guys.

Sean Sneeden, Oppenheimer

Hi, good morning, thank you for taking questions.

Good morning Sean, how are you?

I'm doing well. I guess maybe thinking about the, call it forward plan that you guys have put out there in connection with the strategic transactions you all did in May, and realizing, I guess, prices have changed since then. I guess that strip -- how are you guys thinking about formulating basically a 2016 plan? Would it be fair to assume that you guys are thinking about mostly a three rig program in the Miss? And then I guess along the same lines, that plan that you guys have put out suggests you might actually start drilling again in Anadarko in 2017. Is that -- at the current strip is that kind of off the table?

Well Sean, we are looking at that as I said, real-time. We're in the process of developing our 2016 and beyond plan right now and prices have in fact moved from where they were when we did that transaction and produced that set of financial assumptions going forward. So we're looking at that, we think it takes us three to four rigs to maintain production and we have not yet found a formula for the Anadarko that we find satisfactory, although we continue to look at it. So that's all our work in process. The guidance that we put out there before or the numbers we put out there before were in the guidance. And we're trying to develop our plan right now, and as soon as we have a plan that we're shaped to share with the world we will do that, but we're proceeding carefully.

Sure. Maybe just kind of as a follow-up on that, give some type of sensitivity, but if prices, like WTI is below call it, 50 for all next year, would you be comfortable in letting production decline modestly in that scenario, in order to preserve liquidity, how are you guys kind of prioritizing capital next year?

As soon as we've done that I'll let you know. We're, as I said, in the process of looking at all that right now and you identified the trade-off that there's definitely a liquidity versus production trade-off that we're, literally this week, have been talking about a lot. Looking at how to get the right balance of that for 2016, depending on what price environment you believe is going to exist then

Sure, fair enough. And then Jake, either for you or maybe even Nelson, when you kind of think about the larger plan here in thinking about the balance sheet, what mechanisms do guys have at least in your minds in order to de-lever the balance sheet from where we are today? Is it really just kind of an organic growth plan or what else could you guys look at to help on that front?

Well, I think our primary focus right now, and I'll let Nelson jump in here too, if you want, but our primary focus right now is in fact organic growth. We have some great assets, we know the assets real well and we think we can produce very high IRR wells in those assets on a very reliable basis. And so, that is primarily our focus but we are also opportunists and other things present themselves, we certainly would not rule anything out

Hi Sean, this is Nelson. I think that's right what Jake said, I think in the near term we are focused on executing in the Miss Lime and continue to reduce the cost and improve the returns there and evaluate options with respect to the Anadarko basin. And I think one of the key things we have here too is flexibility with our rig contracts. We're not fully committed beyond this year, so we can kind of quickly respond to changes in the commodity price environment.

Whether it's dialing those numbers up or down as we kind of move through the rethinking of the plan that was put out on the website that Jake talked about earlier. And we are trying to, we are managing this on a real-time basis and I think in the near-term it is about the execution, so.

Okay great I appreciate that, thank you.

Thanks, Sean.

Chad Mabry, MLV Company

Thank you. I had a follow-up question to the well cost savings that was previously asked and we appreciate the detail on slide 8. Just kind of drilling down into that, can you help us out, what is that $3.3 million entail right now? Is that a 4,600 foot lateral kind of 10-stage frac design and then does that include any saltwater disposal infrastructure in that cost?

Why don't we have Mark address that, Chad?

So that $3.3 million accounts for DC&F, drilling, completion and facility cost associated with individual wells. Our typical wells we actually spend a little bit more money because we do back builds so we get a 5,050 foot lateral, effective lateral link that we are able to perforate. It's a typically a 16-stage frac job and the frac job is typically about 100,000 barrels of fluid pumped

That's helpful And just to follow up on the saltwater disposal system, I guess first of all, any need to build that out further based on kind of current development plans? And then secondarily you know, you'd mentioned last year some attempts to maybe monetize that position, just curious what the update is on that?

Let me the start and then I may have Mark jump in here. So on the second part of your question, monetizing the saltwater disposal system, we've put that on the back burner. We're very focused on getting our operating activities, our drilling and our getting our base production up and so that's where we're focusing the energy in the Company on.

We have drilled a couple of saltwater disposal wells this year and may drill another one. So it's a little bit of activity going on there and that's because of where we're drilling our wells relative to where our saltwater disposal wells are. So there's a little bit, it's not a ton of money we're spending on that, but we are drilling a couple, we did drill a couple of wells and we may drill another one. Mark, anything to add?

Yes. The only thing I'd add is that's exactly right. We just evaluate the cost of drilling additional wells versus adding pipelines to connect up our existing wells. We've got plenty of capacity, but it ends up being in many times it can be cheaper to drill the SWD well rather than build out the pipeline systems, so.

Does that answer your question?

Yes it does, I appreciate it guys

(Operator Instructions)

Stephen Karpel, Credit Suisse

Hi, good morning

Hi Steven, how are you?

Good. Maybe one clarification question. First for Nelson, can you explain the debt number that's on the balance sheet? I think it's probably inflated for some accounting reason or versus what the actual is, that's one. And then secondly, given the level of returns that you have probably for you, Jake, is what's the opportunity to bring in some incremental,, maybe well-level capital, so you can accelerate drilling? Is that something that you've consider doing?

Let me answer the second part of the question and we'll see if Nelson wants to answer the first part of the question. I'm certainly not going to touch that one. But yes, we have a lot of liquidity, we have a lot of flexibility, if there are opportunities at well level investments, that's something that we would consider. We have, as I say a lot, we think we know the secrets [of] the Miss Lime and so we're not hugely enthused about sharing our returns in the Miss Lime, but that's something obviously we're, would consider if we needed extra capital to accelerate a drilling program for the right reasons. So that's, I think hopefully that gets to your second part of your question and basically we'd consider it, but we're not enthused about it. Nelson, do want to answer the first one? I'm interested myself

Hi Steve, how are you doing. Yes, you saw in the press release the carrying value post of the transaction that we completed in May of all the debt was about $1.9 billion. One of the things that's in here is when we did the exchanges with the third lien notes we did extinguish almost $135 million of unsecured debt. But because of some accounting literature and guidance out there we were not able to recognize a gain. So that gain will be amortized over the life of the second third lien notes, but today it's embedded in the debt balance.

So if you took the actual debt outstanding, the true principle amount is about $1.79 billion today, and you had the gain in of about $133 million and that gets you to the number that's on the balance sheet.

Perfect. And then as a follow-up, maybe not a follow-up, but a separate question for Mark, get everybody involved here. How do you improve the economics and the learnings, so to speak, from the Anadarko and match what others have done when you're not drilling today? So how are you going out to improve that and then secondly, what can you do in terms of the re-completes to hold production at some sort of level, I suppose, what kind of impact can that have?

Well, to answer the first question I think basically we are constantly evaluating our acreage position in the activity around us, and improving our geologic understanding. Certainly there's opportunities there to dig deeper in the details and understand the performance. So in taking some of our Miss Lime learnings I think there's several things we've done different and exceedingly well in the Miss Lime and we need to apply those same techniques to the Anadarko. You're exactly right though, at some point we've got to put a bit in the ground and test those theories. But today's not the right time I don't think to do that, or we're not making that decision right now. With respect to the -- what was the second question?

The re-complete workovers that I think you've alluded to and you have done, what kind of impact will that have?

It's nominal. It's a nominal impact. We've got over 350 wells in the area and so there's always well work opportunities that come up and we've got a good production team that's looking at those opportunities and doing simple acid jobs or cleanouts. We're doing some conversions of wells from gas lift to rod pump, just because it's lower cost so a lot of those kind of things that add up and help us keep our production decline relatively flat, or less, decline less, but not dramatically different.

What is that decline?

About 25% or so per year right now and that will flatten out over time as we work off new wells

Thank you

Yan Zhang with Goldman Sachs

Thanks for taking the question. You know you might have addressed earlier, I might've missed this, I apologize if I did. But could you talk a little bit about your gas realizations price you're realizing and the diff versus Henry Hub and that's how that's kind of changed over the last couple quarters? And how you guys foresee that going forward?

Yes, so this is Jake, Yan, we have a lot of that information in the supplemental information that we posted on a website this morning. But Nelson, do want to -- ?

Yes, I can. Hi Yan, how you doing? This quarter we had the impact and last quarter of some prior period adjustments, so that's kind of skewed the differential a little bit that you're seeing. Additionally, the big contract for gas is in that Miss Lime area and the indices that that's priced off have recently started to diverge from Henry Hub. So, historically they've been pretty close, last couple of quarters there's been some divergence, that's been negative to our realizations. In the near-term it's hard to predict how that goes forward as far as modeling purposes, but I think if it's a $0.30 to $0.35 differential in the near-term, that would probably be a good expectation. Hopefully they'll call us back together here shortly

Good thanks

That concludes our Q&A session for today. I'd now like to turn the call back over to Mr. Petrie for any closing remarks.

Nan, thank you I want to turn it over to Jack for some final comments.

All, right thanks everybody for participating. In closing, our accomplishments for the second quarter give us a lot to be excited about and moving forward we're going to look to preserve our liquidity through very focused capital discipline, as we've talked about on this call and continuous improvements in operational excellence. Our focus will remain on these factors as we continue to exploit our premier Miss Lime asset.

We have proven our ability to quickly respond to the downturn both financially and operationally, and now have significant time and flexibility to allow us to manage our business in a disciplined way through an extended period of low commodity prices, although we'd rather not. So hopefully, we'll get some relief in the commodity prices but if we don't, we're prepared for it.

Lastly, we have completed our transition to a consolidated corporate headquarters here in Tulsa and have brought together a truly great team here in Tulsa and out in the fields in Texas and Oklahoma, we have a very talented and focused group of employees, contractors and suppliers. They've performed exceptionally well and I want to take this opportunity to thank them, for without them none of this would be possible. Again, thank you all for joining us today, we look forward to talking to again next quarter.

Ladies and gentlemen this does conclude the Midstates Petroleum second-quarter earnings call. You may now disconnect.