Veren Inc (CPG) 2011 Q1 法說會逐字稿

Good morning, ladies and gentlemen. My name is Jessica, and I will be your conference Operator today.

At this time, I would like to welcome everyone to Crescent Point Energy's first-quarter 2011 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session for members of the investment community.

(Operator Instructions)

This conference call is being recorded today and will also be webcast on Crescent's website. All amounts discussed today are in Canadian dollars, unless otherwise stated. The complete financial statements and Management's discussion and analysis for the period ending March 31, 2011, were announced this morning and are available on Crescent Point's website at www.crescentpointenergy.com and on the SEDAR website.

During the call, Management may make projections or other forward-looking statements regarding future events or future financial performance. Actual performance, events, or results may differ materially. Additional information on factors that could affect Crescent Point's operation or financial results are included in Crescent Point's most recent annual information form which may be accessed through Crescent Point's website, the SEDAR website, or by contacting Crescent Point Energy.

I would now like to turn the call over to Mr. Scott Saxberg, President and Chief Executive Officer. Please go ahead, Mr. Saxberg.

Thank you, Operator. First, I would like to welcome everybody to our first-quarter conference call for 2011.

This is our tenth-year anniversary as a Company, and we're very excited about our success in the first quarter and year to date, and excited about our remainder of the plans for the year. As several shareholders have requested we hold these conference calls, this will be the first of many and our first regular quarterly conference call. The format of these calls will have myself just review the key highlights in the quarter, and then I have Greg Tisdale here with me to discuss the financial highlights. And then we'll open it up for questions, and also with me I have Trent Stangl, our VP of Marketing and Investor Relations; Neil Smith, our Vice President of Engineering and Business Development, and the rest of our executive team to help answer those questions.

So, we have had a great start to 2011. We exceeded our production targets in the first quarter, averaging over 75,500 barrels a day. We also successfully executed the largest drilling and completions budget in the Company's history; spent over CAD250 million on drilling and completions in the quarter; and drilled 146 wells, 111 net to us, with 100% success rate. Drilling was primarily focused in southeast Saskatchewan in the Bakken, which represented roughly two-thirds of our drilling in the quarter.

I am also happy to report that our water flood in the Viewfield Bakken continues to track with positive response in offset producing wells. And we are very excited about this, and it's a real game-changer on the development of the Bakken in that area. In the quarter, we converted an additional six Bakken producing wells to injection wells, bringing the total in the field to 17.

Over the course of the year, we will convert up to 19 more, bringing the year-to-date total to 36. The successful execution of this record program in Q1 delivered a significant 8% increase in Q1 production over the previous quarter. In Q1, we produced more than 75,000 barrels, well ahead of budget, and in preparation for what most of us was knowing it was going to shape up to a pretty wet spring breakup.

We budgeted these conditions and factored in a three-month breakup versus our standard sort of six-week breakup in our budgeting process; and so, as per our budget, we expect Q2 volumes to become below Q1 production. And we continue to track to meet our annual guidance of 72,500 with those numbers in mind, and also to exit at over 75,000 barrels a day. So, I am really excited about this year. We had a great start. We have a lot of good work happening in Q2.

And I would like to pass it over to Greg to go through the financial highlights as well.

Great. Thanks, Scott.

I am pleased to report that with higher than expected production levels and oil prices, financial results in the first quarter were well ahead of expectations. Cash flow of CAD1.10 per share represents a 12% increase over the previous quarter; and our pay ratio came in at 63%, which is a 10% improvement over the previous quarter. Based on our current expectations for Q2 production and prices, it looks like second-quarter cash flow and payout ratio are tracking very close to Q1 levels. For the full year, we expect cash flow of CAD4.30 and a payout ratio of 64%, based on a CAD96.00 WTI price.

I would like to highlight our balance sheet, which continues to be very strong, with forecast debt-to-cash flow of approximately one times and unutilized credit facilities of more than CAD900 million. Our balance sheet strength is protected by our consistent 3.5-year hedging program. 55% of our net production is hedged for the balance of this year, which provides a measure of stability to our cash flow, capital program, and dividends. More than half of our hedges for the balance of 2011 and 2012 are in the form of purchase put options and costless collars. These instruments provide us with downside protection in the event of falling prices, while allowing us to participate in a portion of the upside with rising prices.

Also, as previously announced, subsequent to the quarter we completed a private placement of long-term debt, similar to the private placement we completed in March of last year. We raised $165 million and CAD50 million through a series of notes under various terms and rates. Proceeds were used to repay a portion of the Company's outstanding bank debt, while further diversifying our credit counter-parties and staggering our debt maturities. Thanks, and I will now hand things back over to Scott.

Thank you, Greg. And just as a final note, I'd like to thank Crescent Point's Management and employees for delivering a record quarter for the Company. I would also like to take this opportunity to recognize our employees in the field, who have done a great job so far this year in delivering these outstanding results in the field.

But now, I would like to turn it over to some questions, if anybody has any.

(Operator Instructions) Gordon Tait, BMO Capital Markets.

Just a couple of questions. Just with respect to your -- the Q2, the sort of unusual wet field conditions, what sort of a percentage change are you looking at here? Would it be more than -- you said the Q2 volumes will come in below Q1. Are you looking at sort of 2% or 3% variance, or is it something a little more significant than that?

Good question, Gordon. When we look back to-- I kind of look back to 2010 in September, and how poor the conditions were then and the rainfall that we had last year, record rainfall in the area. When we went into budgeting in October, we recognized that Q2, even if it was nice weather-- which we have had pretty decent weather in Q2, except for a couple of big major storms that have rolled in, that created some power outages and snow-- that we'd have a longer breakup. So, we actually budgeted a full three months of breakup. So, basically, not having any production volumes come on in Q2.

Traditionally, normally, we would have production volumes coming on kind of in June, with getting drilling in the middle of May and doing fracking and completion. And so, when we approached 2011, our 72,500 target, and our 75,000-barrel exit rate, we put that all into place that we would have a three-month breakup. We wouldn't get started drilling until June 1. And so, the level that we actually budgeted in Q2 is that we'd have upwards of 8,000 barrels a day shut in, just through impassable roads and trucking and the timeline around the effect of that. It's production that's not gone away; it's just production that we actually can't access and get to. So, that's sort of the level that we budgeted and unfortunately, that's kind of the level that we're seeing in Q2 to date.

And then, I just maybe would add one point too, Gordon, is that on the production side, we did anticipate the breakup as anticipated. But we are definitely benefiting from increased commodity prices, both from WTI and tightening differentials. In particular, on our light blends, we're actually seeing premiums on some of our light sweet crude. So, that's definitely offsetting, and as I mentioned before, kind of tracking with Q1 cash flow even factoring in breakup.

So, in essence, we're on target for our 72,500 and on target to hit our exit rates. Obviously, we averaged our exit rate in Q1. So, I think it gives that pretty good perspective.

And then, just following up on something Greg said, with the higher than expected commodity prices, do you think you will leave your drip participation as it is, or will you scale it back? What are you looking at for the rest of the year?

At this time, we'll leave our drip in place. And we're just monitoring where commodity prices go, and with our capital program. So, we'll continually review that sort of quarter-over-quarter.

Okay. If I could, just one last question -- on the -- how many rigs will you have running this year in, say, your Saskatchewan/North Dakota properties; Shaunavon, Bakken, Flat Lake? And what sort of cost pressures are you seeing?

Basically, we're starting with about 9 rigs in the Bakken, and in conventional, and then, three in Shaunavon. We have 1 rig that will start up and running in North Dakota here in June. Then, periodically, with our exploration in Alberta, rig 1 or 2 coming in the second half of the year there. With cost pressures, we kind of budgeted that in, obviously, into our capital budget. We expect -- and what we're seeing is around 5% increase in costs in Saskatchewan.

Gordon, it's Neil Smith. We're definitely not seeing the increases that some of the other operators are reporting in Alberta. Again, recall we are the largest driller in southeast Saskatchewan, so economies of scale and steady work with the long multi-year drilling inventory. We definitely have great relations with the vendors, so that helps us maintain control over our long-term cost structure.

All right. Thanks.

Thanks, Gordon.

(Operator Instructions) And there are no further questions at this time. I will turn the call back over to the presenter -- oh, I apologize. We do now have a question from the line of Don Rawson from AltaCorp Capital.

I was just wondering when you would expect to review the capital program next? Obviously, you haven't expanded it yet, but prices are running ahead of your budget.

We're planning to review that in our Q2 Board meeting in August. We want to kind of get through Q2, and then see where we're at for activity levels in Q2, and then make a call on the remainder of the year for the budget. Obviously, with higher commodity prices and based on our five-year model, we would anticipate to bump our capital if these kind of price levels hang in there. So, we're kind of doing some preliminary planning around that. And also in our budget, we have our drilling rigs basically shutting down in October/November, so we have pretty good flexibility to just continue to drill through the rest of the year and bump the CapEx program and exit rates, similar to previous years.

Okay. And just getting back to the amount of the 8,000 BOEs a day, roughly, that's shut in right now. That amount is shut in, despite the preparations that you guys made in the first quarter in anticipation of the breakup?

Yes. There's -- we actually, with the work that we did prior to breakup, held in a lot of that production for a period of time. And then, with the rains and the weather, we had some power outages that happened and occurred. So, we're -- the five-day forecast going forward looks pretty sunny, so we're hopeful to get a lot of that production back on-stream here over the next two to three weeks. And it's just a matter of accessing those roads. Road bans came back on again after a storm that happened last week, and we're expecting the road bans to come back off again here shortly, with the weather.

Okay. Thanks for that.

Thanks.

Dan Healing, Calgary Herald.

I was just wondering if you could bring me up to date a bit on what's going on, southern Alberta -- Alberta Bakken? I take it that's the one well that was drilled. What are you finding there?

Yes, in southern Alberta we have plans to get back drilling here in June/July, once breakup is done. We've drilled, so far, 5 wells to date, 3 of which are on production, 1 that we're waiting on completion, another one we're waiting to drill the horizontal section in. And so, we -- it's an exploration play that's very competitive, and we've just -- we're not really talking about the drilling results and discussing those at this time. But we are active moving forward with the remainder of our program, and just watching our results and competitors' results to determine the further activity for the next half of the year out there. So, it's a very early play. The way I describe it for guys is, we're in the first period of the hockey game, and we've only had a couple of shifts and we've had a few shots on net. So, pretty early to tell whether -- who is going to win the game or who is winning the game.

Okay. But, obviously, the -- it's encouraging enough that you are going to continue to spend some money there this year.

Yes. We're -- obviously, we have 1 million acres out there, so a lot of drilling yet to be done. In that area this year, between ourselves and competitors, there is over 30 wells licensed and are going to be drilled. And then, south of the border, another 26. So, there is a significant amount of drilling activity and results that will happen that will lead us to drill more wells, depending on success.

And that's in the Alberta Bakken area?

In Alberta Bakken, yes.

Okay. Great, thanks.

(Operator Instructions) Michael Press, Cobalt Capital.

Just on the water flood, when will you feel comfortable incorporating it into your guidance? And what kind of production uplift do you foresee in future years, based on the response to date?

Well, our production guidance will just get feathered in over time as we budget each year. Obviously, as wells outperform and maintain their production levels, we've had 3 or 4 wells in our first pilot that are basically flat for the last 2.5 years. And so, that forecasting of production gets rolled into our budget. And so, as the years go by, you will see our average corporate decline rate should drop, and that will just get incorporated and rolled into as we budget.

We have done some modeling on that, and the amount of injectors that we're putting in. And it does have a pretty significant impact on our productivity and decline rates, in that -- in our five-year model, we kind of vision it as our CAD100 case, where we have 10% per-year growth, it becomes more like our CAD80 case. So, we can withstand lower commodity price environment and grow production at the same levels, with that water flood kicking in. So, it's kind of that level of impact, which is pretty significant. So, we're basically moving ahead full bore on it, and looking unitizing that pool and adding injectors, as we can.

And what will that do to the -- can you get rid of the drip, with success in the water flood?

Yes, basically, in our CAD100 case, where prices are currently, we shut our drip off next year at the end of this year. And so, looking forward, as we see that productivity improve on -- our drop in decline rate, then you will see that effect at lower price levels. So, it's more for us, it's managing our balance sheet and not getting ahead of ourselves too quickly.

Thanks.

Thanks, Mike.

There are no further questions at this time. I will turn the call back over to the presenters.

Great. Thank you very much. And again, as I said, we had a great Q1. We're very excited about the remainder of this year, and looking forward into the next few years, as we grow our Company. And thank you very much for participating in the call.

Thank you, ladies and gentlemen, for participating in Crescent Point's first-quarter 2011 conference call. If you have more questions, you can call Crescent Point's Investor Relations department at 1-877-403-1678. Thank you, and have a good day.