Veren Inc (CPG) 2014 Q2 法說會逐字稿

Good morning ladies and gentlemen. My name is Melanie, and I will be your conference operator today. At this time, I would like to welcome everyone to Crescent Point Energy's second-quarter 2014 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 Point's website but may not be recorded or rebroadcast without expressed consent of Crescent Point Energy. 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, 2014, were announced this morning, and are available on Crescent Point's website at www.CrescentPointEnergy.com, and on the SEDAR and EDGAR websites.

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 or factors that could affect Crescent Point's operations 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, the EDGAR website, or by contacting Crescent Point Energy.

Management also calls your attention to the forward-looking information and non-GAAP measures sections of the press release issued earlier today. I would now like to turn the call over to Mr. Scott Saxberg, President and CEO. Please go ahead, Mr. Saxberg.

Thank you, operator. I'd like to welcome everybody to our second-quarter conference call for 2014. With me is Greg Tisdale, Chief Financial Officer; Ryan Gritzfeldt, Vice President, Engineering and Business Development East; Trent Stangl, Vice President of Marketing and Investor Relations. I'll give an overview of our quarterly results. Ryan will discuss our operational highlights, and Greg will speak to our financial highlights.

We're very happy to report that Crescent Point delivered an excellent quarter, setting new records for both production and cash flow. We not only surpassed our targets, but beat analyst expectations by close to 5%. Our Q2 results demonstrate that we're out-performing in all of our key focus areas, which include our unconventional waterfloods, our Uinta basin development, and our expanding Torquay discovery.

With these results year to date, we have upwardly revised our guidance for production and cash flow for the year, while maintaining capital expenditures of CAD1.8 billion. We have increased our average daily production for 2014 by 2,500 barrels per day to 138,000 barrels per day, and our exit production rate by 1,000 boes per day to 149,000 boes per day. We have increased our cash flow guidance to CAD6.04 per share, which represents growth of 14% over last year. With the strength of our balance sheet and the results we've had to date, we are confident that we are well positioned to meet or exceed our new targets.

Looking closer at some of the highlights for the second quarter, we set a new production record of more than 137,000 barrels, which represents production per share growth of nearly 10% over second quarter 2013. We had strong results across our asset base, especially in our Uinta Basin play in Utah. Our successful cemented liner completion techniques and water floods across our asset base continued to help drive production in the Shaunavon and Bakken areas, as well. We generated record cash flow of more than CAD636 million, a 26% increase over our second-quarter 2015 cash flow; and achieved a payout ratio of 45%, the lowest in Company history.

We had a successful drilling program during the quarter, and continued to access bypassed pay in vertical wells in the Uinta Basin. In Uinta we had an excellent result, and are excited about drilling of our first horizontal operated well later this year. We continue to delineate our significant Torquay discovery at Flat Lake in Southeast Saskatchewan, a play that has shown strong results. During the quarter we successfully integrated CanEra staff and lands into our operation. We also closed a small acquisition at the end of July to add to our Flat Lake assets and our Torquay assets. We are excited about this new and expanding play.

For the rest of the year, we'll focus on developing our high-quality asset base, on expanding our waterflood programs, and on refining our technologies and techniques. The dual-track growth plan we've implemented across our asset base is helping us improve production and lower our corporate declines. We expect that the impacts of this plan to continue to compound over time. We always strive to improve our techniques and technologies to help drive results and set us apart from our peers. With our plans for the year, we expect to spend CAD1.8 billion in capital, but have the flexibility to increase our budget in the future, depending on commodity prices and our development plans. We believe we're in a great position so far in 2014, and are well on track to meet our new targets.

Before I hand it over to Ryan to speak about operations, I'd like to thank all of our employees, including our field staff and Executive team and our Board of Directors for their hard work in delivering another record quarter. I'd also like to take this opportunity to announce the promotion of three new Vice Presidents to our Executive team. As of September 1, Brent Forster will be promoted to Vice President of Drilling, Completions, and Facilities. Craig Bryksa will be promoted to Vice President, Engineering West. Chris Bruggencate will be promoted to Vice President, Engineering East. Chris, Craig, and Brent have played a big role in Crescent Point's success over the years, and will be valuable additions to the executive group. Congratulations, guys. Ryan will now discuss our operational highlights. Ryan?

Thanks, Scott. Crescent Point's record production in second quarter was driven by a very successful drilling program across our asset base, particularly in the Torquay and Uinta Basin resource plays, and the ongoing success of our waterfloods and cemented liner completion techniques. The acquisitions we've completed year to date have also contributed to our strong performance, and have consolidated key high-net-back areas for us. Spring break-up had less of an impact across our asset base that we budgeted, allowing us to capitalize on good weather to execute our drilling program. During the quarter we drilled 87 net wells, achieving 100% success rate, and averaged more than 137,000 boe per day of production.

At Viewfield Bakken, we drilled 27 net oil wells, and continued to expand our waterflood program in the play. We now have more than 15,000 boe per day under waterflood, which makes it the third largest waterflood in Canada. We expect to double that amount over the next two years, as we plan to increase our injector count, and pursue approval for unitization of all of the central core Bakken land. Waterflooding in both the Bakken and Shaunavon resource plays has reduced decline rates in affected areas by up to 10%, which is a significant improvement. We plan to continue to expand and refine our waterflood programs, which are now in all of our major Canadian oil fields, to build on this success.

Also, we continue to be excited about our Flat Lake Torquay discovery in Saskatchewan, especially as our step-out drilling program is showing great potential. During second quarter, we drilled six net oil wells in the play. As Scott mentioned, our team executed a smooth integration of CanEra's land and staff into our operation. After the quarter, we completed an agreement with an oil and gas producer in the area to acquire assets in both Flat Lake and the Viewfield Bakken resource plays. In total, we acquired production of approximately 825 boe per day, more than 54 net sections of land, and 38 net drilling locations. We do look forward to continuing the momentum in this play, and to delineating the discovery further.

In our Shaunavon play in southwest Saskatchewan, we drilled 16 net oil wells, and continue to exceed production expectations. Our waterflood program is contributing to our success in the play, with 29 water injection wells currently operating. We've applied for a second waterflood unit in the area, which is adjacent to our first, and expect to receive approval by year end. We've also recently begun our drilling program in Battrum, and will begin participating in a Cantuar drilling program in August. We plan to drill eight net wells total between these two areas in 2014.

Furthermore, we continue to be excited about our development and exploration in the Uinta Basin in Utah. With no spring break-up in Utah, we drilled 23 net oil wells during the quarter, and have now drilled more than half the total net wells planned for the area in 2014. We have multiple projects under way to optimize our completion techniques and improve production, and we are very optimistic about the development of this world-class resource play. We plan to drill our first operated horizontal well in the basin later this year, and expect to initiate our first waterflood pilot in the basin in 2015.

Before handing things to Greg, I also want to recognize and thank all of our employees, including our field staff across Canada and the US, for their hard work in delivering another excellent quarter. Greg will now discuss the financial highlights.

Thanks, Ryan. In the second quarter we continue to grow -- generate production-per-share growth of approximately 10% compared to 2013. This resulted in record cash flow of CAD637 million, or CAD1.55 per share in the second quarter. This represents an 18% per-share increase over the CAD1.31 per share generated in the second quarter of 2013. These strong cash-flow-per-share results resulted in a payout ratio of 45%, which is the lowest in Company history, and continues to highlight the successful execution of our dual-track growth business model.

Based on our strong second-quarter production results and acquisitions completed year to date, we've increased our annual production guidance to 138,000 barrels a day. This increased production translates to CAD2.5 billion of cash flow, or CAD6.04 per share, based on our forecast pricing of CAD100 per barrel WTI price. On the treasury side in the second quarter, we closed a private placement of long-term debt in the form of senior guaranteed notes, raising $310 million, and CAD40 million, with attractive coupon rates ranging from 3.29% to 3.85%. At the end of the quarter, approximately CAD1.1 billion was drawn on our credit facilities, allowing significant financial flexibility and liquidity. Subsequent to the quarter, we renewed our credit facilities totaling CAD2.6 billion, and maturing in 2017.

With the weaker Canadian dollar and support of oil prices in the second quarter, we delivered strong net-backs of CAD54.75 per barrel, driven by high realized oil and gas sales of CAD91.83 per barrel. We were also active in the quarter on the hedging front, as we continued to lock in oil at very attractive prices, with our current hedge target in excess of CAD104 per barrel for 2015. Currently for 2014, we have now hedged 62% of our oil production. Looking beyond this year, we are now 38% hedged for 2015, 21% hedged for 2016, and have also commenced our 2017 hedging program. On the oil differentials we continue to be disciplined, and have approximately 15,000 barrels a day locked in for 2014.

On the balance sheet side of our business we remained strong, with significant un-utilized credit capacity, and debt to cash flow of approximately 1.1 times. With our low-risk, high-economic drilling inventory, strong balance sheet, and disciplined hedging program, we are well positioned to continue generating strong operating and financial results through the balance of 2014, and heading into 2015. I'll now hand things back over to Scott.

Thanks, Greg. Again, we've had a great year so far. When you look at our strong production beats over the last 24 months, to three years of significantly every quarter beating our numbers by thousands of barrels a day, I think it really highlights the quality of our asset base. Really excited about our Torquay play and the expansion of that play as we drill more wells through the year.

Very excited about Utah and Uinta, and how our operation team has really integrated and pushed that play forward, and grown production there very rapidly. The new horizontal wells we're going to be drilling towards the end of the year, we're very excited about that. That's something to really look forward to for the rest of this year. With that, I'd like to hand it over back to the operator to answer questions from our investment community. Operator?

Thank you.

(Operator Instructions)

Pavan Hoskote, Goldman Sachs.

We'll start with a question on capital allocation. Recognizing that you guys have still not put out 2015 guidance, can you give us some early read in terms of how you're thinking about 2015 spending and growth? In that context, maybe address the potential for a dividend increase given the improving cash flow?

Good questions. I think what you'll see for 2015 is a lot -- very similar capital allocation as this year, focused obviously on the Bakken and Shaunavon and Uinta plays, our three key plays. With our strong cash flow growth and our five-year plan, it really points to that strength in that cash flow and our payout, and sets us up to consider a dividend bump, I think here towards the end of the year or the beginning of next year.

We obviously want to see where commodity prices head over the next while. With the backwardation in the curve, that's probably our only real concern from that perspective.

As you can see just in the last several years how rapidly we're improving cash flow and production per share. It's really from the performance of those assets. I think we're basically on the same course this year as next year for capital allocation in those plays.

I think what you're going to start to see probably more so into next year is the waterfloods off the decline being a bit more -- kicking in a bit more, as well, with the amount of injectors we're adding. I think we will have that excess coming at us, too.

Great. On the Uinta Basin, it looks like a pretty decent step up in production in the last three months. Can you talk a little bit about how you expect Uinta production to trend going forward, especially because your drilling program here appears to be more evenly spread across the year?

More broadly this quarter, Newfield announced some -- made strong super-extended lateral horizontal Uinta well results. Wanted to see what the read across this to your acreage, especially as you start your own horizontal drilling program here?

We participated in a significant number of those wells with Newfield as a non-op partner. Obviously, that's excited us as to the results they've had. Really, in our five-year plan, we have fairly slow and steady growth in our Uinta play, not a huge bump up.

That's being ultra-conservative, obviously, based on the results that we've seen to date. Our completions and our drilling results in the north part of Randalett and the south part of Randalett have been very above what we have expected. With just the optimization, and the field optimization has gone really well there, and out performed.

I think where we're at is a bit of a turning point. The reason why we just have that ultra-conservative growth plan in Uinta at this stage is we're drilling the horizontal wells here come up over the next quarter or two, and it may change the drilling program from a vertical program to a horizontal program into 2014.

We're just putting together that detailed plan of the -- and we are looking at it on phases of, like Phase 1, 2, 3 of our horizontal development program. The first initial stage is to get the base drilling and completion information, go back, see how we've done on that. Then test some of our concepts in the second phase.

At the same time, this play is very exciting in that right now Newfield's drilling in the Uteland Butte and Wasatch zones. We're actually going to test six zones in total.

There's four other zones that we think are very prospective -- one that we feel is more -- has better productivity potential. From our viewpoint, it's kind of a phased approach on the horizontals and testing those different zones that can really, we hope, will open up this play even more so.

When you just take a step back and look at Newfield's results, they're pretty exciting. If we can drive costs down on those wells, the rates of return build at the top of our list, and compete up with the Bakken and Shaunavon rates of return. Pretty exciting things, I think, coming from that end.

I think you're seeing just operationally the results out there. Our knowledge as a Company and our technical staff and field staff and how well they've done, it's been really positive.

Thank you, guys.

Travis Wood, TD Securities.

Thanks, Scott. You answered most of my questions there with respect to Utah. Just a couple follow-ups. In terms of the completions and the trends that have taken place over the last year and a half, in terms of how you are completing the vertical wells. Can you talk about that, and directionally where you see costs going, and what will make -- what types of improvements, whether it's on the drilling side or the completion side, that start to make those Uinta wells compete with the Bakken and the Shaunavon, whether that's completion improvements or drilling improvements?

Then corporately, can you give any color around where current production sits today as we head into September, and how many rigs you currently have running across each of the assets?

For Uinta, I think -- and I was just out in the field there last week. I met with our staff and we reviewed our completion programs and our plans and everything. Probably the general thing that stood out to me is we've got a lot of strong technical guys, and guys that have a lot of years experience completing wells, fracking them in Canada and in the US, and that cross-breeding of the knowledge base.

I think the general view of not just saying hey, this one technique works or that one technique works, amalgamating the different techniques, testing concepts, and trying new things. We're a very open Company, allowing our guys to make those kind of technical changes.

It really is highlighted in the results that we've had, and the completions and the efficiencies. Our costs, I think, are getting better and better as we've held on to that asset and developed it over this last year.

On the vertical basis, I think we've got a very strong understanding of which zones produce, how to complete them with productivity, and we are continually testing other ways to do things. On the horizontal side, we're just preparing that first phase to get those -- I think we're going to test three zones in the first phase, and see how the results there stack up.

Part of that phase is just on improving the cost structure and the cost relative to what Newfield is spending. I think it doesn't take a lot of a tweak in the cost there. We know on a vertical sense that we are a cheaper driller then the guys in the area.

I think because we've operated now -- I think we've got two rigs running out there now, consistently here for the last year, and are very strong on that. We think we can apply that across on to the horizontal side.

In the rest of our areas, I think we've got basically 24 rigs running currently -- 13 in Saskatchewan -- 13 in southeast Saskatchewan, 8 in southwest Saskatchewan, 1 in North Dakota, and 2 in Uinta. Pretty good spread across our base. I think in the Bakken we have 7 rigs out of that 13 in the main Bakken and 5 in Flat Lake -- out of that 1 non-Bakken rig. Did that answer?

That's good, thanks. Do you have a sense of where production sits today, if you can provide that?

I have a good idea what our production is there.

(laughter) Fair enough, thanks very much.

Oh, you want the number? (laughter) Yes, we're pushing close to 14,000 barrels a day out in that area.

Okay. Thank you very much.

(Operator Instructions)

Gordon Tate, BMO Capital Markets.

Just a couple of more questions. You mentioned that the new 25-stage liner completion techniques might lead to some positive technical revisions. I was just wondering what sort of magnitude would those be on a given well, say that -- previously had a 150,000-barrel EUR. What kind of a percentage increase do you think you might see on the new ones?

I'll pass that on to Ryan, here, to maybe answer that.

Yes, you're talking in the Shaunavon area there that we mentioned, Gordon?

Yes.

Very early days on that. We have a large base of our Shaunavon core area there is currently booked. We've started to go to the cemented liner completion.

Still lots of different things to try. We experienced some fairly significant positive technical revisions in our Bakken field with our cemented liner frac.

We can't say if they're going to be as significant yet in the Shaunavon. But still lots of things to try, and the early results definitely look encouraging.

You don't have a sense of what the magnitude would be relative to what it was before this?

Typically, it goes in phases on how you book some of those up-ticks of that. It would be like in the 10% to 20% range. We've had wells -- when you look historically with the Bakken, some of those core areas were 125,000-type wells, then they went to 150,000 and then to 200,000 and 250,000. Some of those push-up to 300,000.

It all depends on where within the field, and how well the offset wells have produced, in general. The out-performance there is probably -- we say 10 to 20, but it's probably higher than that in reality basis. It depends on the context on how developed that area was originally and with the in-fills and stuff.

We can walk you through on the montage kind of differences from -- it was pretty -- on our type-curves from the Bakken going to -- from 16-stage packer system to a 25-stage cemented liner was -- it was pretty significantly. We had 75,000-barrel type-curves that went to 100,000-barrel type-curves on the first go-around in the liner data.

All right, thanks. Just with the waterfloods. Mentioned that you had about 15,000 barrels a day currently being affected by waterfloods in the Bakken. I didn't see -- do you have a number how many barrels currently being impacted by waterfloods in the Shaunavon?

Secondly, do you see any difference in the way the waterfloods work between the Bakken versus the Shaunavon?

Yes. The Shaunavon is about 4,000 barrels a day. That number is growing rapidly. It's interesting that from my perspective, anyway, I think the Shaunavon actually is out-performing the Bakken.

I think it's more because of the technology change came over to the Shaunavon early on. The waterflooding is earlier on in its development. I don't know on a recovery basis if it's better, but on a reaction basis and consistency basis, it's a lot more consistent, the productivity.

If you look -- if you zoom in to our first pilot there, which you can look on in AccuMap, that production has been flat to growing for four years now. When you consider it's medium-gravity crude and a tight reservoir, the fracturing and the multi-fractures that we create with the drilling there turns it into a conventional reservoir.

We loosely throw 20% recovery with waterflood, but we have conventional, medium-gravity crude fields in that area, like [Batram Cantar] that are vertically drilled. Now we're drilling horizontally that are going to get upwards of 40% to 50% recovery.

As soon as you are on that curve of it looking like a waterflood that's conventional and running, you would expect the recovery factors would be in that same type of range. That, to me, in the overall general terms of the Bakken Shaunavon that's very exciting to us, is that these are going to become conventional-type recoveries. We're already approaching that on the Shaunavon in areas that we've been flooding for quite some time. That's pretty exciting.

Just to put it into context, we haven't been able to find any other pools in the US that anybody is waterflooding. We're -- this is the largest unconventional waterfloods in the world, in North America, between the Bakken and the Shaunavon.

They're now -- they're significant. The Bakken is the third-largest waterflood when you include conventional in Western Canada. We're getting to a scale where we have so much data and mass data to back up how these things are working, that give us that positive view.

Then you intend to take this technology to all your other unconventional?

Yes, we have. We've got pilots or injectors in every one of our unconventional fields in our Company. I think that in itself is a -- Flat Lake will be waterflooding by next year, starting injection there, which will give us an insight into North Dakota, because it's the same depth and reservoir.

All right, thanks.

Thank you. There are no further questions registered at this time. I'd like to turn the meeting back over to Mr. Saxberg.

Great. Thank you very much for attending our Q2 conference call. We're again very excited for the rest of the year and our continued growth and success. Thank you very much.

Thank you ladies and gentlemen for participating in Crescent Point Energy's Second Quarter 2014 Conference Call. If you have any more questions, you can call Crescent Point's Investor Relations Department at 1(855)767-6923. Thank you and have a good day.