Battalion Oil Corp (BATL) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Halcon Resources fourth-quarter earnings conference call. At this time, all participants are in a listen-only mode. (Operator Instructions). As a reminder, this conference call may be recorded.

I would now like to introduce your host for today's conference, Mark Mize, Executive Vice President and CFO. Please go ahead.

Thank you. Good morning. This conference call contains forward-looking statements, for a detailed description of our disclaimer see our earnings release issued yesterday and posted on our website. Before I make a few comments on the fourth-quarter and year-end results I want to remind everyone that we have published full-year 2016 guidance and an investor presentation is posted to the website.

Production for the fourth quarter averaged 41,087 barrels of oil equivalent a day which was slightly -- up slightly from the third-quarter production level. For the full year we produced 41,542 barrels of oil equivalent a day which is within our guidance range. On the cost side, I won't go through each individual item specifically, but LOE, G&A gathering transportation and other were all at the low end of the guidance range that we had published. In Texas other than income was actually below the low end of our guidance range. So overall total operating cost adjusted for a few selected items -- you can find them in the press release -- were $17.80 per BOE, which is considerably down from the fourth quarter of last year.

With respect to D&C CapEx we incurred approximately $58 million during the fourth quarter and $320 million for the full year, which is within line with guidance and expectations. Looking forward to 2016 we expect D&C cost to be less than half of 2015 as we scale back drilling activity to one rig in the Bakken. Having said this our 2016 D&C CapEx will be front-end loaded, given we are ramping up from three rigs running in the first part of this year.

As far as hedges we did realize a gain on settled derivative context of $129 million during the fourth quarter of $440 million for the full year, and we expect hedged cash receipts to be significant in 2016 based on the robust hedge book that we still have in place for this year. As of the close of market yesterday our hedge portfolio had a marked to market value of just under $400 million, and for 2016 we have just under 26 million barrels of oil hedged at an average price of just under $81 a barrel, and we continue to monitor the strip in 2017.

We ended the fourth quarter with right at $800 million of liquidity, which was -- consisted of cash and undrawn capacity on our revolver that has a borrowing base currently of $827 million. We are working with our bank group right now going through our spring redetermination. Based on discussions with the bank, our expectation would be a borrowing base of $650 million to $700 million.

During 2015 we made progress on improving our balance sheet. We had several transactions, we had debt for equity exchanges and discounted debt for debt exchanges and some open market transactions as well. That reduced our debt by more than $1 billion in interest expense by $50 million. And although these are meaningful for our Company we still have work to do to reduce leverage and we will stay focused on that effort in 2016.

And with that, I'll turn the call over to Floyd.

Thanks Mark. Today's call is brief, as our focus is unchanged since our January 21 big call. As indicated on that call in January we expect to operate one rig, only one rig Companywide, until we see material improvement in commodity pricing. We will spend less than $140 million on drilling and completion CapEx this year. This will result in only a modest decline in year-over-year production less than 10%.

This capital program will allow us to be cash flow positive this year, resulting in strong liquidity throughout the year. This approach is appropriate in this environment, and we will wait for the macro signals that we need to change this approach.

In the Williston Basin, we continue to do quite well. Our drilling and operations continue to improve with wells drilled last year throughout the year exceeding -- and will exceed on Berthold our publicly disclosed 801 MBOE type curve.

We expect the average EUR of our 2016 drilling plan on Fort Berthold, whether it's Middle Bakken or Three Forks to be in excess of 900 MBOE per well.

On the cost side we continue to experience improvements, some through pricing and quite a few through just more efficient drilling completion practices. We are down to a D&C cost of about $6.2 million per well in the Fort Berthold area, and I think we will continue to push that down perhaps to a little bit less than $6 million. We have plenty of economic locations to drill at the current strip but it makes no sense to drill a lot of these great locations at the current strip.

We have over 200 locations in Fort Berthold and over 400 locations in Williams County. This is many years of inventory; we intend to manage that inventory.

At El Halcon and East Texas we've postponed drilling activity there, we continue to see strong results and economic drilling even at current prices. However it's just not the right time to drill there; our D&C costs are down to about $6.8 million now, this accounts for longer laterals and increased profit load there. And we are continuing to drive those costs down even further along the wells that we have not cracked yet and then when we pick drilling up again we'll see what happens then.

Most of our acreage in El Halcon is HBP, so our capital spend on leasing in 2016 will be nominal, less than $5 million. We have an excess of 600 locations at El Halcon to drill in when oil prices improve.

So a brief summary, we are operating in an environment that requires flexibility and focus on cost control, costs have come down dramatically and will continue to do so. Although we have materially reduced our staffing, sadly, we have the core operating staff in place to ramp up activity in both of our core operating areas soon as prices give us the guideline to do that.

I want to touch on our balance sheet initiative before we conclude this call, and our ongoing expiration of opportunities to improve our capital structure. We differ from most of our peers that have announced restructuring initiatives recently in several important respects.

First we began restructuring our balance sheet nearly 2 years ago. Second, we have ample liquidity that provides us with 2+ years of runway to continue operating even at the current strip. We have time and we have optionality. Last, our Board and management team are highly invested in the Company and our interest are perfectly aligned with all of our stakeholders. Deliberate evaluation of potential balance sheet improvements are ongoing. We have no debt maturities for several years so as I said this is a very deliberate approach.

Thanks, considering a brief update that we had today, linked with the fact that we just had a lengthy update call, we won't be taking questions today. Refer to the press release or give us a call if you want to touch on something we haven't talked about. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.