Callon Petroleum Co (CPE) 2002 Q1 法說會逐字稿

This is Callon Petroleum Company's first quarter 2002 results conference call. During the presentation all participants will be in a listen only mode. Afterwards you will be invited to participate in the question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. As a reminder, this conference is being recorded Tuesday, May 14th, 2002. I would like to turn the conference over to Fred Callon, president and CEO. Please go ahead.

Good morning and welcome to our first quarter conference call. I appreciate you taking the time to call in. First I'd like to ask Terry Trovato who heads our investor relations to make a few brief comments. Thank you.

Thank you, Fred. We'd like to remind everyone that some of the comments made during this teleconference will be considered forward-looking statements within the meaning of section 21 E of the securities exchange act of 1934. These comments which include discussions of the company's financial position, reserve estimates and business strategy reflect management's views as of this date. No assurances can be given that these events will occur or that the projections will be attained. There are a variety of factors that may cause the actual results to differ materially from the company's expectations. Many of these factors are identified under risk management or risk factors in Callon's annual report on Form 10-K and other reports filed with the SEC words. All forward-looking statements attributable to the company are expressly qualified by these factors. Fred.

Thank you. Our conference call today is going to be fairly brief. We gave a complete review of our operations and plans for the year during our year-end conference call, which was early last month. By way of update on the operations, our development drilling at Medusa has concluded ahead of schedule and under original budget estimates. We're encouraged with the results of our latest drilling, which resulted in more net feet of pay than we expected. The construction of the redaction hole for the [sparr] Production facility is continuing close to schedule. With first production expected in January. The shelf, our east Cameron block 294 cyber discovery operated by Unocal, went on line in February. And the well is still producing 25 million cubic feet a day. And in our shallow [myseen] Area, many of you are familiar, we had a project to add additional compression down there. We brought -- that is concluded and we brought our Mobile 953 No. 3 well on line. Production from the Mobile 952, 953, 955 area is now 23 million a day, up from seven million prior to adding the additional compression. That's really the update from an operation's view. I'd now like to ask John Weatherly, our senior vice president, chief financial officer to review the first quarter financial results. He'll also give you an update on our financing plans and talk about some guidance numbers for the year. And then following John's comments we'll try to answer any questions you might have. So John.

Thank you, Fred. For the first quarter 2002 we reported a net loss of two and a half million dollars or 21 cents per share. That's both basic and diluted. The consensus estimate called for a loss of 29 cents per share. Cash flow for the first quarter was 805 thousand dollars or four cents per share. Consensus estimate was for negative cash flow of two cents a share. There were no surprises in first quarter results. Production was slightly above our guidance range. Both G&A expenses and interest came in at the low end of our estimates. Operating costs were 12 percent below the range we had estimated for the first quarter of this year. Versus the first quarter of last year the overwhelming variance with revenues, oil and gas revenues in the first quarter were 8.1 million dollars. That was down 60 percent from the 20.2 million in the first quarter of last year. This variance was 83 percent price related and only 17 percent production related. The first quarter gas represented 90 percent of our production. This was basically the same as first quarter of last year. First quarter realized gas prices averaged $2.34 per thousand cubic feet. Almost 60 percent below the average gas price in the same period of last year. Oil prices were down 30 percent versus the first quarter of last year. Callon's realized oil price averaged $18.65 per barrel in the most recent quarter versus $26.62 per barrel in the first quarter of last year. As you may recall, in the fourth quarter we took a 9.2 million dollar noncash charge related to our hedges with Enron. That charge will effectively be reversed over the course of 2002. First quarter results include associated noncash earnings of 2.6 million dollars. This item was not included in some of the analysts estimates and I believe this is the primary reason for the earnings surprise that we had for the first quarter of this year. Looking forward, we're currently forecasting six to seven percent sequential increases in quarterly production for the balance of 2002. This is without any contribution in the fourth quarter from Medusa. In early March three wells in the Mobile 952 area were shut in to be rerouted to the new production facilities. This took about two million cubic feet a day off our average daily production rate in the first quarter. The wells were not turned back on until mid April. This will take a million cubic feet a day off our second quarter average daily production rate. But with the new facility on line, we have reached a current production rate of 50 million cubic feet a day. However, with respect to the second quarter, there will be another production disruption. Mobile 864 facility will be shut down in June for compressor restaging and this facility currently produces eight million cubic feet a day net our interest. But despite these two disruptions in the second quarter, we are forecasting second quarter production to be up six percent from first quarter levels. With both the new facility on line and the Mobile 864 compressors restaged, we're forecasting third and fourth quarter production to average about nine percent above second quarter levels. With respect to price, there have been no changes in our hedging position since our early April conference call. 8.4 million cubic feet a day is committed for physical delivery at $3.26 per thousand cubic feet for April through October. The volumetric production payment that applies to 6.4 million cubic feet a day ends in June. But this gas is committed at a price of $2.80 per thousand cubic feet. All remaining production, all remaining gas production for the second and third quarters is protected by put options at an average price of $2.66 per thousand cubic feet. There's no ceiling price on that production. We expect second quarter combined operating costs and G&A expenses to be flat with first quarter levels coming in somewhere around a dollar and ten cents per MCF equivalent. Turning to financing, we are continuing to make progress in the steps we disclosed in early April. The sale of the [north falcon] Pipeline was closed and seven million dollars of proceeds has been received. To date we have agreements to extend the maturity of 16 million dollars of our senior subordinated notes due to mature in September of this year. We're continuing discussions with respect to 13 and a half million of additional notes and currently our objective is to extend an additional ten million of those notes, reducing this September's maximum maturities to $10 million. We're proceeding with the expansion of availability under the senior secured credit facility to 75 million dollars, a 25 million dollar increase from our current availability. Cash flow from operations, bank line available, proceeds from the sale of the pipeline and of the Enron hedges will total in excess of 80 million dollars in the course of 2002. This will be more than sufficient to fund our anticipated capital expenditures of 48 million dollars and the maximum remaining note maturities of 20 million dollars. With that we'll open it up to questions with respect to the operations or any other item.

Thank you. Ladies and gentlemen, if you wish to register for today's question and answer session, you will need to press the one followed by the 4 on your telephone. You'll hear a three tone prompt to acknowledge your request. If the question has been answered you wish to withdraw your polling request you may do so by pressing the 1 followed by a 3. If you are on a speaker phone, please pick up your hand set before entering your request. One more moment please for the first question. Our first question comes from [Shubash Shandra] Of Morgan Keegan. Please proceed with your question, sir. [SHUBASH SHANDRA]: John, this question is probably for you. In the first quarter, what was the cap ex. How much interest G&A was capitalized and finally what did you say about bank, the current availability and if that increment is on different terms than the standard?

Okay, we'll go through them one at a time. Cap ex total first quarter, 26.7 million dollars. Capitalized overhead 2.6. Capitalized interest 1.3 of that note. With respect to our current focus on the senior secured credit facility is your cost of 75 million dollar facility with a current borrowing base of 50 million dollars.

The current emphasis is to add a second element to that line being the difference between the current borrowing base and the maximum amount available of 25 million in incremental funding there.

On a straight interest basis but yes at a rate higher than the prime. [SHUBASH SHANDRA]: Did you say it's been done or that's part of the financing that you're working on?

It is not closed, no? [SHUBASH SHANDRA]: What's the 2 Q cap ex?

13.8 million. That drops to 8.5 in the third quarter and 3.5 in the fourth quarter? [SHUBASH SHANDRA]: One last one. You say Medusa is near schedule. How offset schedule is it?

Maybe I shouldn't have used that term. We're looking first production in January. There were a couple of original dates, but right now we think we still -- there's a chance for production late December. We're thinking our best guess is January and that's certainly -- it may be several weeks, four or five weeks, maybe behind our original schedule. But once again this is still an estimate at this point. But we feel like it is generally on schedule and we've always said first production in December. We're anticipating maybe January but it's generally on schedule? [SHUBASH SHANDRA]: Thanks, guys.

Our next question comes from Ron [Meals] Of Johnson Rice. Please proceed with your question? [RON MEALS]: Good morning, guys. Just a couple question is regards to [Habanero]. Is that still on target for a more of a November start-up, according to the guys at Shell?

It's still on schedule. There's really no update other than it may be -- the date could be September I think is probably what we're working with right now. But other than that, yeah, it's still on schedule? [RON MEALS]: And how many wells would you bring on out at [Habanero], when that space becomes available?

Produce just one well initially. And we'll watch that -at a later date we may drill another well out there but initially we just plan to have one well. [RON MEALS] As it relates to the second quarter production, it sounds like just due to the 952, 3, that area and also Mobile 864, that combined, is that something that is going to take off maybe close to five million, four or five million a day from your original expectations in the second quarter?

That would sound about right. The three wells that were previously producing at 952, 953, the shut down of those wells in April took a million off. And 864 produces eight million a day to us. So if that's for a third of a quarter that will take you two and a half, 2.6 off. So combined yeah you're probably pushing four million a day off the rate, due to shut ins. And then of course third quarter is not up. The second quarter wasn't up to your potential because when we dropped 952 and 953 off line, we also brought that new well on line. And you only see a partial contribution of it in the second quarter. That's why we're saying you're looking at consistent sequential increases in both the third and fourth quarter from a second quarter level, with the average of the third and fourth quarter being up at least nine percent over the second quarter levels. [RON MEALS]: Right but with the fourth quarter I'm assuming would be somewhat similar to the third quarter?

It won't be a massive ramp-up, but we're still due to one recompletion looking at adding an increase in the fourth quarter versus the third. [RON MEALS] Just one last clarification, what did you say the Mobile 952, 953 complex is producing right now?

23 million a day. [RON MEALS] Is that net to you or?

No, but I guess we have average revenue interest of about 80, 82, 83 percent. And we own a hundred percent working interest. [RON MEALS]: Okay. Thanks a lot, guys.

As a reminder to register for questions, please press the 1/4. I'm showing no further questions at this time. Please continue with the presentation or your closing remarks.

Again, thank you for taking the time to call in. As always, if you have any questions, please don't hesitate to give us any a call here. Thank you.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line at this time.