Veren Inc (CPG) 2011 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. My name is Tracy, and I will be your conference operator today. At this time, I would like to welcome everyone to Crescent Point Energy's third quarter 2011 conference call. (Operator Instructions).

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 September 30, 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, future financial performance, actual performance events or results, may differ -- additional information or factors that could effect Crescent Point's operation or financial results are including in Crescent Point's most 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. I'd like to welcome everybody to our third quarter conference call for 2011. With me is Greg Tisdale, our Chief Financial Officer, Trent Stangl, our VP of Marketing and Investor Relations, and Neil Smith, our VP of Engineering and Business Development.

We are pleased to report that Crescent Point has delivered another strong quarter. The Company successfully completed a record drilling and completions program, and grew production by 9% over second quarter 2011. With average production of more than 72,000 barrels a day. Our strong production was due in large part to the successful reallocation of planned 2011 capital spending, which shifted a portion of our spending from the Viewfield Bakken to the Shaunavon and Swan Hills, Beaverhill Lake plays in response to the flood conditions in southeast Saskatchewan.

Not only did we see strong production growth in these two areas, but drier weather in southeast Saskatchewan during the quarter allowed us to ramp up our drilling in the Viewfield Bakken play.

We are currently more at 76,500 BOEsper day, and are well on track to achieve and likely surpass our exit production rate for the year. This would equate to an increase of more than 15% in our annual average production compared to 2010.

The key highlight of the quarter was the Company's execution of the recent shift in capital spending and our resulting production growth. In the Shaunavon area alone, we increased production by more than 2600 BOEs per day, and currently we are more than 11,000 BOEs per day in that area.

In the Beaverhill Lake play, we have had great organic production growth from our first well that we drilled in February of this year. We are now currently over 2,000 barrels a day at the end of third quarter. And we are expecting to have eight rigs running soon in the Beaverhill Lake in Q4, and this really shows the strength and quality of these two core areas.

The operational flexibility of our technical and field staff along with the depth of Crescent Point's drilling inventory, allowed us not only to maintain production but to actually increase our exit production rate for the year. Which is impressive considering the conditions we faced in Q2 with the flooding. And now the conditions have improved in southeast Saskatchewan, we have increased drilling there and production in the Viewfield has grown by more than 4,400 BOEs per day by the end of third quarter. We originally planned just three drilling rigs in -- from July to the end of the year. Running in that area, but with the better conditions we are currently running seven rigs.

At the end of August, we bumped our 2011 capital expenditures to just over $1 billion, and had an exit -- 2011 exit production rate of 77,500 BOEs per day. Because we have seen such positive results in Shaunavon, Beaverhill Lake areas, and the increased drilling in the Viewfield Bakken, t is likely we will further increase our 2011 capital budget and our planned exit. This will give us an early start to 2012 and we'll provide a update to that in the next three or four weeks in early December when we release our 2012 budget.

As we announced at the end of August, Crescent Point completed two strategic acquisitions in the US, which added over 750 BOEs per day of production. We have more than 78 net sections of land in North Dakota, and we -- through that acquisition, now we have more than 165 net sections all together in North Dakota and we are expecting to drill up to ten net wells this year, 2011, including four gross operated wells.

The Viewfield Bakken and lower Shaunavon plays continue to show positive water flood -- positive results. The lower Shaunavon, although early days, is showing good water flood response in our initial project. We have three additional projects that are now up and running and look good as well. And then in the Viewfield area with more than 11 water injectors up and running, we have over a year's worth of history, some of those obviously several years of history. We are pretty confident in the water flood and the implementation of that across the whole field, and how that relates to recovery factors. We believe recovery factors will go from 19% of primary to over 30% with the full implementation of the water flood. And so we are continuing to expand that water flood, into 2011.

Before I hand things over to Greg, I would like to note that we recently just celebrated our ten year anniversary. I would like to take this opportunity to thank all of our employees, our board of directors and the Crescent Point team in their outstanding work. The success we have seen out of the Company in the last ten years has been a huge group effort, and I'm proud of everything we have accomplished as a Company. We are well positioned to continue to grown and exceed our targets and we are, as I like to say, we are just getting started as a Company.

Greg, I would like to hand it over to him to speak to the financial highlights.

Thanks, Scott.

Pleased to report that Crescent Point generated CAD 303 million in cash flow from operations during the quarter. Which represents a 32% increase over the third quarter of 2010. During the quarter WTI oilprices averaged just under CAD 90 a barrel, which given Crescent Point's 90% oil weighting drove corporate operating [net back] to exceed CAD 51 a barrel. These high net backs along with strong production drove our cash flow in the quarter.

Our 2011 guidance has also been updated to reflect year to date and Q3 results, and current commodity prices. Our revised cash flow forecast has been increased to CAD 1.21 billion, from CAD 1.18 billion, based on annual 2011 WTI price of CAD 94 a barrel.

On the treasury and balance sheet front, on the third quarter Crescent Point completed a CAD 375 million bought deal financing with an over allotment option for our underwriters. Including the option we issued approximately 9 million Crescent Point shares at CAD 43.50 for gross proceeds of approximately CAD 392 million.

We also continue to follow our disciplined hedging strategy by actively hedging commodity prices in the third quarter, capitalizing on high commodity prices throughout the forward curve. We are now 55% hedged for the balance of this year, 56% hedged for 2012, and 43% hedged for 2013, 23% hedged for 2014, and we have initiated our first quarter 2015 hedge position, with 9% of production hedged and will continue to monitor commodity prices and hedge accordingly.

Our balance sheet is in excellent shape, with projected average net 12 month cash flow of less than one times and approximately CAD 1.1 billion available in our bank lines at the end of September. Given the strength of our balance sheet and hedge portfolio, we are very well positioned to generate further strong operating and financial results as we look forward into 200012.

I will now hand things back over to Scott.

Thanks, Greg. At this point, we are ready to answer questions from members of the investment community. Operator.

(Operator Instructions). Your first question comes from Gordon Tait, BMO Capital Markets. Your line is now open.

Good morning. A couple of questions, different plays, I guess. In North Dakota, I think you said you participated in drilling seven wells in Q3, two of them you operated, and you are expecting to complete them in 2012. Now, is that an abnormally long time frame between when you drill and when you complete? Is it saying something about the tightness of services down there?

No, we just got started drilling on the operations side. And so the scheduling of the fracs -- on a couple of them with have pushed out, into Q1, because we have a two year frac contract that we want to utilize those fracs crews on our [operating] wells with that. So that same firm we are using in Q4 here on a couple of wells and then a couple we have moved into January. And they take a -- they are big large fracs that take multiple days to frac and complete.

All right.

Really it's not -- for us right now, services haven't been an issue, we have got two rigs and a frac crew. So we're -- with the budget that we are spending we are basically locked into that.

So you will be able to get everything done. And then in the -- what sort of IP rates are you looking for? What kind of [type curves] are you modeling?

Well, we right now -- and I can go into more detail with you, Gordon, when we lay out our montages, but basically our expected type curve, it is about 400,000 ultimate reserves, about 400,000. With IPs at 600 barrels to 500 barrels a day. And 250 barrels kind of first year average. So basically a low case depending on where -- which county you are in. So in Divide County, for instance, the ranges are anywhere from 275,000 barrels to 450,000 barrels of oil, with IPs of 400 to 700. And sort of 30 day averages of 350 to 600.

Okay.

I can show you more --

Yes, sure. That's good. That gives me good -- that's a pretty good indication.

Yes.

And then what -- with the -- it looks like the water flood is going fine at Viewfield. Just remind me, what percentage of that Viewfield Bakken do you think is amenable to the being water flooded? I understand it's not the whole play, but what percentage --

Well, our view is simple, that we would water flood the entire pool, because of the grade of the crude, and it's amenable through the whole field. So it's 40 API gravity crude. It's the mobility ratio that's the key to the water flood there. And so with the whole field obviously the same grade, (inaudible) the whole field will be water flooded. Now, it is going to take multiple years, obviously, because we are still -- we have 3,000 wells to still drill there. And then implement the water flood. So we're basically down that path to water flood the entire field of what we own. In the short term, our plan is to unitize the main core of the field, and water flood it.

Okay.

But I mean the whole field.

Will be amenable. All right.

Yes.

And then just lastly, you mentioned in Alberta and southern Alberta, you participated in drilling ten conventional wells, I guess in the southern Alberta play. You also plan to drill two wells to follow up. But it must have been an omission or something because you forgot to mention the production rates you're getting. Do you want to share those with us?

Production range of which the unconventional?

Yes. Whatever. Yes. Either ones. Kind of the rates you are getting out of there?

Well, we have -- we are just in the phase of drilling the final two in the unconventional. In the southern in Del Bonita.

Yes.

We just put on stream two Barron's oil wells in the last month and a half. We aren't speaking to the Barron's because there's land sales and different things going on in that area, and that's -- we are still trying to test to see whether that concept works. On the Alberta Bakken side, our public data I think kind of gives you the sense of where our productivity is and the productivity of the guys surrounding us. It is still early days as to what is going to work or not. Within what we call the Alberta Bakken there's probably four different zones that we're chasing. And our initial round drilling went after two different of those four zones and our next round of drilling is kind of the next two. And so it's a multidimensional project in the fact that we have 1 million acres of land that is basically four different horizons just within the Alberta Bakken alone. So you can understand the complexity of -- and then the sheer size and magnitude of -- we have only drilled, I don't know, five or six wells, right? And we don't have a lot of data to really pin down how big the play is, right? So it is pretty early days.

Okay. Thanks.

As a reminder --

So I don't. (Inaudible - multiple speakers)

And your next question comes from Roger Serin with TD Securities. Your line is open.

Good morning, guys.

Hey, Roger.

Just a couple of real general questions. On the CAPEX side given still having decent access, you are talking about obviously expanding a little bit, just we're -- it's like a couple hundred million dollars would be with the upper end, is that sort of a right sense?

Yes, we're probably upwards of CAD 1.2 billion.

Okay.

Would be kind of our high end side of it. And partly the reason why we are hesitant is just with the weather, right, as we have had the big blizzards and the cold weather in November, and December, and we want to get through to that and then we are finalizing our 2012 budget at the same time, so within the next two or three weeks we will have a better sense of that capital expenditure to the end of the year. But it's basically going to be in that realm between another CAD 100 to CAD 150 million add on in capital.

Perfect. I notice in your Shaunavon play, which has had very good results, you are about 80% biased to the lower Shaunavon, and was that a function of opportunity or well results?

Well, it's just -- that play -- it's just the sheer magnitude and size of the play. The lower Shaunavon is a 5 billion-barrel oil field, and we have barely drilled into it. And so part of -- there was poor weather down in the southwest as well, so when of capital, we focused in the heart of the field, in and around our facilities and the higher ground there. It was drier. And so the shift in capital was more in the development phase of it. And then the upper Shaunavon, it's still a significant size field, it's 700 to 1 billion barrels of oil in place and we allocated to that part of the field based on what opportunities were there. I mean we have over 1,700 locations to drill out there still. So it's pretty early days in the Shaunavon relative to where the Bakken is even. But the main reason where we shifted is basically where we could get to because of weather and our infrastructure.

Okay. And on the -- I think I heard this right, you have now got a total of eight rigs collectively running in the Swan Hills and are you operating any of those?

No. We're not. I think five or so are Coral Hill's and then two or three are [second lines].

Great good quarter.

(Inaudible -- multiple speakers) working closely with them though on those operations.

Yes, I would expect that. Okay. Thanks that's all I had. Thanks very much.

Great, thanks, Roger.

At this time, there are no further questions in the queue. I will turn the call back over to the presenters.

Great, well, thank you very much, and if you have any further questions feel free to give myself or Trent Stangl a call and we can hopefully answer those for you. Thank you very much.

Thank you, ladies and gentlemen for participating in Crescent Point's third 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 so a good day.