Battalion Oil Corp (BATL) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2009 RAM Energy Earnings Conference Call. My name is Sue and I'll be your coordinator for today. At this time all participants are in a listen only mode. We will be conducting a question and answer session towards the end of this conference.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would like now to turn the presentation over to your host for today's call, Mr. Bob Phaneuf, Vice President, Corporate Development. Please proceed.

Thanks, Sue. And thanks to everyone who's joined us for the RAM Energy conference call to discuss our first quarter 2009 operating and financial results. With us today on the call is Larry Lee, our CEO; Les Austin, our Senior VP and CFO; Larry Rampey, our Senior VP of Operations; Drake Smiley, our Senior VP of Land & Exploration; Sabrina Gicaletto, our VP of Finance.

And without further ado, we will review the financial and selected operating results for the first quarter, as well as provide an update for our guidance for 2009. Two quick housekeeping items. The first, we will not have slides per se on the first quarter. Many of the things that we'll talk about today in our discussion were actually part of our IPAA presentation in New York a couple of weeks ago. If anyone wants to access some of the slides that will be referred to in our presentation, you can go to our website and under the IR tab we have that IPAA presentation. So, feel free to do that if you'd like at this point.

The second housekeeping item is our Safe Harbor statement. And as you know, in our call today we may make statements that are other than historical fact. All such statements that refer to management plans or expectations including capital spending, drilling plans, derivative positions, interest costs, project inventory guidance, and other company or industry conditions are forward-looking statements within the meaning of the Securities and Exchange Act of 1934.

So the Company cautions that such forward-looking statements aren't necessarily based on certain assumptions which are subject to risk and uncertainties, which could cause actual results to differ materially from those we indicate today. Further information on these risk factors are included in the Company's filings with the SEC, and the management of RAM encourages you to review the disclosure in these documents.

So at this point, I'll turn it over to Larry Lee for a review of financial and operating results.

Thank you, Bob. And welcome, everyone, to our first quarter conference call. We're pleased to report that RAM again had record high production both for the quarter at 655,000 barrels of oil equivalent, which is 7% above the same quarter a year ago. And also, sequentially, production was up almost 3% in the first quarter on a daily basis, as compared to our production in the fourth quarter of 2008. And we were pleased that we had 7,278 barrels of oil equivalent a day, or 43,668 Mcfe a day, if you want to put it in gas equivalents.

Also for the quarter, we did invest $13.3 million. About $12 million of this went into our lower risk development activities, $300,000 in exploratory activities, and about $800,000 in the acquisition of proven properties. We participated in 14 gross -- 11.5 net wells, of which eight gross were completed during the quarter. The remainder of them were of the various process. I would point out that if you look at our overall drilling results for all of 2008, we participated in 90 gross wells and we had one dry hole last year to report. We continue to have a very excellent success rate with our drillbit.

Our capital plan, which is slide four in our IPAA presentation, is that we're consistent with our strategy in the past, which is to reinvest our free cash flow. Our aim this year is -- in this sort of uncertain hydrocarbon price environment, is to literally offset our production decline, and we have reaffirmed our guidance for 2009 at 2.5 million barrels of oil equivalent that we expect to produce for the full year.

We are going to focus our -- continue to focus our development projects in our lower risk to high internal rate of return projects. This is primarily our mature fields at Electra/Burkburnett, N.E. Fitts and Allen, as well as South Texas in our La Copita field. In addition to spending money in those areas, we also are working on strategic projects for 2010 and 2011. We're continuing to reprocess all of our seismic over our South Texas acreage, and working that very diligently identifying additional drilling opportunities for us.

We also have now in house our share of the 50 square miles of seismic that we shot with Devon and EOG last year, and has been processed and we're evaluating that. And, it is identifying additional drill sites for us in our Barnett Shale core area, when we see prices return to a level that we think makes sense to begin to drill there again. Also we have this 50 square mile concession in Osage County. We're going to begin to shoot the seismic on that during the summer of this year, with an eye towards having that seismic in house and available to identify drill prospects for us beginning in 2010.

One thing on slide six, which was in our IPAA presentation -- this is something that I think is extremely important for us in that we have 355 identified drilling locations within our inventory, and almost all of these are on acreage that is helped by production. So, we're not really facing any substantial lease expirations that we have to protect in 2009. So, we are in a position to let the commodity prices continue to recover, and we will drill these projects when prices make sense for us.

With that, I'll turn it over to Les to kind of cover some of the financial items. Les?

Thanks, Larry. There are two items I'd like to cover. First of all, as we previously disclosed, RAM's borrowing base was reaffirmed at $175 million around April 1st of this year. That leaves our total facility at $288 million, when you include the $113 million term facility. The revolving facility is good through November of 2011, and the term facility's tenure runs through November of 2012. And the Company had $147 million outstanding at March 31st on the revolver, which left about $28 million of availability under the current facility.

The sequential increase that we saw in the revolver on March 31st, versus year end at 12/31 was approximately $10 million, and that was driven by $5 million of working capital use in the quarter and another $5 million of CapEx spent in excess of our cash flow. It's our expectation that our total capital budget for the year will still be within cash flow as we smooth it out through the remaining nine quarters of the year.

The other item that I'd like to talk about is our guidance for the balance of the year. We have, as has been previously mentioned, reaffirmed our production guidance at 2.5 million barrels of oil equivalent. And, we're able to reaffirm the lower end of our original EBITDA guidance of $60 million to $65 million, and our capital budget of $40 million to $45 million.

Even with the lower prices we experienced in the quarter year-over-year, which were 59% down from the prior year first quarter, and even using the March 31 strip prices, which were somewhat below the 12/31 strip prices our original budget was derived from, we believe that we can hold the guidance where it is because we were able to leave production expenses flat on a BOE basis in the first quarter. We were able to lower our G&A expense 26% on a BOE basis on the first quarter and because of the lower interest cost that we experienced which was about 61% lower on a BOE basis in the first quarter.

Our average debt cost was about 4.9% for the first quarter of 2009. If you look at strip pricing that we're using now for our guidance, it's about $50 for oil, $4 for gas, and $30 for NGLs. That compares to $53 for oil, $6 for gas, and $34 for NGLs based on the 12/31 strip pricing we used in the original guidance.

There is a slight difference in the implied gains in the derivative position now. We were budgeting $16 million to $18 million originally. Using the March 31st strip pricing, we would expect $24 million to $26 million in derivative gain throughout the year. And also, we had previously guided $17 million to $18 million in interest expense, based on the current run rates and the environment, we think we could save as much as $2 million to $3 million on that number.

So that's the color on guidance, and with that I'll pitch back to Larry.

Thanks, Les. Yes, I think just to wrap it up before we open for questions -- our plan this year is to sustain our value and try to focus on the opportunities in this current environment. We're pretty pleased with the fact that the commodity prices seem to be improving as we're heading into this quarter and looking out for the balance of the year.

I think the fact that we have a stable cash flow base supported by our inventory in these mature fields, we have a high degree of operating control so we are in control of the timing of our capital in terms of when we'll invest it throughout the balance of the year. I think we continue to show that we can create value through, both the drillbit, and through our acquisitions. And once again, I always like to point out management owns over 20% of the stock in this Company, and so we're very focused on improving shareholder value and protecting the value that this Company has.

So with that, I'll toss it back to Bob and we'll open it up for questions.

Thanks, Larry. So, Sue, at this point, please open the Q&A.

(Operator Instructions)

And the first question comes from [Don Crise] from Johnson Rice. Please proceed.

Good morning, Don.

How are you? As far as your CapEx is concerned, can you run through quarter by quarter the timing of it? Is it pretty flat through the year? Is it going to be kind of lumpy or back-end loaded?

Don, obviously we spent -- as I said $13.3 million in the first quarter. The second quarter is going to be a lot smaller than that. And we really don't begin to ramp up our capital investment again until the second half of the third quarter and in the fourth quarter. So, it's kind of front-end loaded in Q1 and then back-end loaded in Q4. And Q2 and Q3 will be the smaller quarters for us in the capital investment standpoint.

Okay. And moving onto the Barnett for just a minute, can you give us any color as to what kind of commodity price you'll need, given that the new seismic data and all that you have in hand that you'll need to start drilling wells there or proposing wells to EOG and Devon?

Don we think that the price needs to be at $6 for the Barnett to really make good sense from an economic standpoint. And once again, our acreage is HBP'd. If we had lease acreage we might consider drilling at a little lower price than that. But, given the fact that it's HBP'd and not going to go anywhere, we feel like that with the decline in drilling cost and a $6 price deck that the rates of return are well into the mid to high 20% in that play.

We did drill one well in the first quarter that we completed and brought on line on March 12th. It was Devon operated well that we owned 36% in. That well was AFE'd to us late in 2008 by Devon at $3.4 million to drill and complete that well. We actually got that well drilled and completed and spent $2.4 million on it.

So that shows you the impact of the decline in capital investment. So, we believe we're going to see both capital costs come down, and when we get back into that $6 price environment we would expect to begin to start looking at the Barnett again very hard.

Okay, thanks. And just one other question -- I was looking at your presentation here from IPAA and slide ten your strip pricing. Have you run those new PV-10 numbers at the 12/31 strip pricing of [53.6] and -- or sorry, 54 and 30 that you just gave us?

We have not. Obviously, they're going to go up quite a bit from where they were at the IPAA prices because that was at year end numbers, I believe. Yes, 12/31 pricing was $582 million so --

And the 12/31 pricing was $44.60 for oil and $5.71 for gas. At March 31st when the Company did their analysis for reserves for SEC purposes, we used $49.66 for oil and $3.77 for gas. And so obviously, the gas is having a more downward impact on our pricing than the oil. Oil's making up for it.

Right, okay.

Now that oil is over $58 and if we get to $60 in a couple of months -- it looks like to me on the curve this morning, and it looks like gas has moved back up over four. So, we're feeling a little bit better about where prices are going right now.

(Operator Instructions)

And the next question comes from Richard Rossi from Wunderlich Securities. Please proceed.

Good morning, everybody.

Good morning.

Just a couple of cost questions or cost trend questions. You know looking at production costs going forward, any opportunity to meaningfully lower those costs?

Don, I mean Rich, we think that with -- we're certainly seeing a decline in our purchase of electricity, which is a big cost item for us in Electra/Burk in particular, and also to a little lesser extent in Fitts/Allen where we're -- where we've got those water floods and we're moving a lot of fluids. So, we think those costs could come down some more.

We also had some workover expense that got -- that does flow through lease operating expense in the first quarter, so we're hopeful that that's going to trend down a little bit as we move into Q2 and Q3 just as a result of a reduction in overall service costs, as well as a reduction in our electrical costs in Electra/Burk.

Would you like to give us a sense of what those reductions might be?

Rich, I can't right now. We may -- update some of our guidance as we move a little further into the second quarter, and give everybody a little bit better look at both our production guidance as well as our cost guidance for the balance of the year. But right now, we're just trying to watch that ourselves -- see how much we can squeeze it out.

Okay. And then on G&A -- obviously, good reductions the last couple of quarters. Any cash cost coming up in the coming quarters that will change that G&A number -- drive it higher? I'm not worried about non-cash costs.

I don't believe so, Rich. We have taken some steps in the integration of stance that's led to some G&A reductions, and I think at this point we should be able to maintain where we're at.

Okay. That's about it from me here.

Thanks, Rich.

At this moment you have no more questions.

All right. Well, I want to thank everyone for taking time to join us this morning, and we will be looking forward to talking to you at the end of the second quarter. So thanks, everyone.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.