Veren Inc (CPG) 2015 Q1 法說會逐字稿

Good morning, ladies and gentlemen. My name is Kimmy and I will be your conference operator today. At this time, I would like to welcome everyone to Crescent Point Energy's First Quarter 2015 conference call. (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 the express 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, 2015 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 of the press release issued earlier today.

I would 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 first quarter conference call for 2015. With me is Greg Tisdale, Chief Financial Officer, Neil Smith, Chief Operating Officer, and Trent Stangl, Vice President of Marketing and Investor Relations. I'll give an overview of our quarterly results, Neil 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 and continues to advance on all of our core areas. We remain on track to achieve our annual production target of 152,500 BOEs per day and continue to maintain our financial flexibly. We are currently maintaining our CAD1.45 billion capital budget and we'll review our capital program in the third quarter.

In the first quarter of 2015, we achieved production of more than 153,800 BOEs per day, which represents an increase of more than 18%, or 23,000 barrels per day, versus our first quarter 2014. Looking at the quarter, I would like to highlight some key points that speak to our strong performance. We have increased our hedge to 58% of our oil production for the balance of 2015 at an average price of CAD88 per barrel. In addition, we've increased our bank line by CAD1 billion, and we received--recently closed a private placement of long term notes for approximately CAD381 million, both of which increase our financial flexibility.

We also continue to move forward on our goal of realizing 30% cost savings relative to 2014. We have seen significant cost reductions in areas such as hydraulic fracking, hauling, chemicals, and service rigs. We will continue to work with our service providers to improve efficiencies, which will affect our long and short term costs.

We continue to advance our long term growth plays in the Torquay and Uinta. In the Torquay we are seeing strong results from our step-out wells and will continue to delineate the play in 2015. We're also very excited about the future potential in the Uinta, which is a stacked, multi-zone play with large oil in place. We are pleased with the initial results from our Douglas Creek and Wasatch horizontals, and we have now tested four of the seven target zones horizontally and have seen encouraging results from all of them.

We are also proud to announce that we successfully completed the unitization of our first water flood unit in the Viking Bakken, which will accelerate our water flood program in the play. Water flood will reduce our corporate declines and optimize the free cash flow. This advancement in combination with our new closeable sliding sleeve technology have the potential to significantly increase recoveries.

Before I hand things to Neil, 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 excellent quarter.

Neil will now discuss operational highlights. Neil?

Yes, great. Thanks, Scott. Crescent Point's first quarter production of more than 153,800 BOE a day was driven by a successful drilling program across our asset base and the ongoing success of our water floods and cemented liner completion techniques. We continue to implement our new closeable sliding sleeve technology, which is now being fully deployed in both the Viewfield Bakken and Shaunavon resource plays. The sleeve has the potential to increase efficiency and productivity of our water flood programs in the long term, while also providing incremental cost savings in the near term.

During the quarter, we drilled 86 net oil wells in the Viewfield Bakken. As Scott mentioned, we are pleased to announce the unitization of the Stoughton unit in the play, especially we received 100% leaseholder approval. Unitization will allow us to accelerate our water flood program in the play in the coming years, and we expect that this unit to be--this unit will be fully under water flood within about three years.

The Stoughton unit is one of the four units planned for the area and we are actively pursuing the three remaining units. We continue to be excited about our Flat Lake Torquay discovery in Southern Saskatchewan. In the quarter we drilled 20 net wells, including step-out wells, to expand the economic boundary of the play. We are encouraged by the results in all wells and as a result plan to drill additional step-out wells during 2015.

In our Shaunavon play, we drilled 38 net wells during the quarter and continue to expand our water flood program in the play. By year end we plan to have a total of 76 water injection wells.

We continued our drilling program in the Dodsland area in the Saskatchewan Viking play, and drilled 23.5 net oil wells during the quarter. We are very pleased with the results to date and plan to drill 137 net wells in the play by year end.

Also during the quarter, we drilled 16.1 net oil wells in the Uinta Basin, which continues to be a very exciting growth area for our Company. Between our operated and non-operated horizontal program, we've now seen exciting results in four of the seven target zones, including our Douglas Creek and Wasatch wells from earlier this year. We plan to drill additional horizontal wells during the year also.

We continue to work with our vendor partners on further lowering our costs and improving our overall efficiencies. We expect additional savings as the year progresses and as the industry continues to adjust to the current operating environment.

Before sending things to Greg, I also want to recognize and thank all of our employees, especially our field staff, for their hard work across Canada and the U.S., in delivering another excellent quarter. Thanks, everyone.

Greg will now discuss the financial highlights. Greg?

Great. Thanks, Neil. Our strong balance sheet and financial flexibility combined with our low risk, highly economic drilling inventory and disciplined hedging programs, position us well to continue generating strong operating and financial results into the future. As Scott mentioned, we were active in the quarter from a financing perspective as we increased our bank line by CAD1 billion to CAD3.6 billion and closed a private placement of senior guaranteed notes.

We raised a total of USD250 million and CAD65 million with maturities ranging from 2025 to 2027 with fixed coupon rates ranging from 3.94% to 4.18%. Procedurally it's reduced our standing bank debt. Collectively, this positions us well from a balance sheet perspective with over CAD1.7 billion of liquidity at the end of the first quarter.

In the first quarter of 2015, we generated cash flow of CAD434 million, or CAD0.96 per share. We maintained our consistent monthly dividend of CAD0.23 per share. Since inception, Crescent Point has paid more than CAD6.2 billion in dividends and remains committed to its dividend and growth strategy to provide value to our shareholders.

Based on results to date, we are maintaining our annual production guidance of 152,500 barrels per day, and a capital expenditure budget of CAD1.45 billion. We continue to be disciplined and to layer in hedges and are now 58% hedged at an average price of greater than CAD88 per barrel for the remainder of 2015. Looking beyond this year, we are now 34% hedged for 2016 at an average price of greater than CAD83 per barrel. We continue to be disciplined as we hedge through to mid-2018.

Thank you, and I'll now hand things back over to Scott.

Thanks, Greg. We've had a great start to the year and look forward to the rest of 2015. Despite the current weakness in commodity prices, we want to reiterate how well positioned we are given our low cost, high return assets, our strong balance sheet, and financial flexibility, as well as our conservative hedging program. We remain flexible in how we manage our business and continue to believe that we are well positioned to create value in the current environment.

At this point, we're ready to answer questions from members of the investment community. And I'll pass it back to the operator.

Thank you. (Operator Instructions) Pavan Hoskote, Goldman Sachs.

Thank you. Good morning, everyone. A question on your Canadian assets first. Can you remind us about the royalty structure for your Canadian production as it stands today, and speak to the differences in royalty between new production, legacy production, and then between horizontal and with the verticals (inaudible) production? And then, as you look ahead, do you expect these to be stable or do you see changes to these?

Okay, great question. In Saskatchewan and historically as a company our average royalty rate for the Company has ranged between 16% and 18% since inception of the Company. So a very stable royalty regime. Saskatchewan royalties on our horizontal wells, we have a 5% upfront royalty due to a royalty holiday. And typically, by the time the production declines on those horizontal wells after the first or second year, our royalty rates then would bump up to about 10% to 12%. So on average our new horizontal wells are kind of in that 10% to 12% long term range. And that's pretty consistent.

In our main fields in Southeast Saskatchewan, about 50% of our lands are crown lands and 50% are e-title lands. And so, that kind of equates out to get you that 16% to 18% royalty very consistent. Saskatchewan has not changed their royalty regime in 30 years, I think. And through the last royalty review that Alberta had, Brad Wall in Saskatchewan is very adamant on maintaining their royalty regime and their competitive advantage.

On the Alberta side, we are--we have--2% of our revenue or 4% of our revenue is exposed to royalties in Alberta. And so, a pretty small component on the Alberta side. I think it's 2% of our cash flow, 5% of our royalties. And so, any kind of change in regime in Alberta is pretty minimal. And then, on the budgeting side on the capital program we have less than 3% of our CAD1.45 billion is in Alberta. And we have the flexibility, obviously, with that small of dollars to shift that money into Saskatchewan. And obviously, we're reviewing that dependent on Alberta announcements of the royalty review. And we can easily delay that capital into next year and move the CAD30 million, CAD40 million into Saskatchewan or Uinta or North Dakota.

Great. That was a very comprehensive response. I appreciate that. And then, moving on to the Uinta Basin, you had some very positive commentary on horizontal results in the Uinta Basin. And you're up a bit. And I understand it is still very early days and you probably don't want to speak too much on results. But I would appreciate any additional color you have in terms of oil mix and specifically oil quality and the wax content in the oil. Thanks.

Yes. I think we're pretty excited about that play. Obviously, very early stages. We've seen very encouraging results in the zones we've seen to date. You've seen some of those announcements with Nuffield as well that we're partnered with those guys on the play that they're developing as well there.

I would say the crude quality is the same as our vertical production. We've seen in this environment with the drop in crude prices, the drop in supply in the Uinta Basin that differentials have narrowed dramatically. So the difference in the differentials there have moved down more into the same range as North Dakota on a dollar basis. On a percentage basis, they have maintained roughly the same differential. So that's been beneficial to the economics of that area for us and the ability to move crude into the refiners there.

So overall, I think we're very excited about the Uinta play. We've doubled production since we've acquired it, increased reserves by 60% since we've acquired it. And then, on top of that, now have proven up horizontally the play to--in the early stages. And we're excited and reviewing whether we should add more horizontals to the second half of the year to further firm up the--those zones.

Got it.

And in addition, we'll be testing some additional zones here shortly in the next--in Q2, late Q3.

Got it. Thanks a lot. And then, one final customary question on M&A. Can you give your latest thoughts on that given the move in commodity prices, as well as equity valuation?

Yes. I mean, we're--obviously, we're being very patient on the acquisition front, looking for opportunities that will increase us on our financial capability and asset quality. And I think just the volatility this year you've seen with the drop in prices early on in Q1, and then a bit of a bump up here, and a small reprieve, but then with the Canadian dollar moving downward, which also protected our cash flows at the same time with our hedge position. So we're in a very good position and we typically see more transactions happen as commodity prices move back upwards and back at the end of the cycle. But we've seen a few deals happen here more recently that are interesting. So we're being patient and looking for the best opportunities for the Company.

Pavan Hoskote: Great. Thanks a lot.

Thanks.

Thank you. (Operator Instructions) Gordon Tait, BMO Capital Markets.

Good morning. I was just wondering--two questions on the new sliding sleeve completions. How much of an improvement in--sort of in your overall well economics do you see as a result of your using these new sliding sleeve completions versus the old cemented liners? And specifically with your IP rates in the URs. And then, secondly, you said you're going to start using these completions in the Shaunavon. I was wondering if it's also applicable to other fields--other tight oil fields you operate.

Yes, that's a great question, Gordon . We've used these--the sliding sleeve now for almost a year, and we actually have drilled more--or completed more wells in the Shaunavon on the closeable sliding sleeves than any other--of our other areas.

Basically the way the improvement works for us is that you run the system into the well, you go into the first frack, and you open up that sleeve and you frack, and then you close the sleeve. And then what that does is allow the pressure to dissipate into the reservoir and for the fractures to close, so that by the time you're done fracking all 25 zones, let's say, in a typical horizontal well, and then you go back in and you open up all the sleeves, all of the sand remains in the formation and reduces our operations long-term of having to go clean out the wells later. Reduces the amount of sand we need to use, because a lot of times in the old systems the sand flows back--or a portion of the sand flows back when you put it on production, it'll flow back those fractures on cleanup.

And so at this stage, what we've been doing is basically keeping the same amount of sand and fracking those wells. And we're seeing improvement in productivity from that, and in addition a reduction of costs. The costs, I think we're looking at 5% to 10% kind of range, which was incorporated into this year's budget, which was a technical cost savings, not a pure cost savings. And so that's exciting to us.

And then on the long-term basis, on the water flood, we can go back into these wells and close off fractures, in either injection wells or in the producers to divert water which will improve sweep efficiencies and give us a ton of flexibility in the operations out there. And in these systems, like, we don't have to completely shut off that fracture with the closeable sliding sleeve. They don't have to be perfect. They just have to restrict flow into those fractures to help with the diversion. So we're pretty excited about this technology and the long-term impact. And I think we're well over 100 wells completed with this system. So we have a lot of history with it already after one year. And we believe a significant game-changer, not only on cost savings but on future reserves.

Highlighting the fact that both of our Viewfield Bakken and Shaunavon, which I think some people forget about, are shallow plays. And these shallow plays allow us to do this technology, allow us to get the water flood and the higher recoveries. And so when you compare Viewfield Bakken to North Dakota Bakken, we're going to wind up getting twice the recovery rate because of the shallow nature of the reservoir and the flexibility we have operationally on the play.

All right. Thanks. And then just on the water floods, you've got your first unit--you've unitized the first push to that of the Viewfield. How long do you think it will take you to unitize and start to flood the other three or four units you mentioned in your press release in the Bakken?

So Gordon, it's Neil here. Basically we're planning about one a year coming in. The other units, there are some partners. We're still 98% to 100% working interest in them. There are some other partners. And then there's also the freehold owners. So the next unit that we're potentially looking at doing has upwards of 140 freehold owners. The first unit that we did had about 40. The good news on that was everybody was supportive. We had 100% of the people signed up. Several of those will appear into the second unit. So there's always a bit of geology, oil and place mapping to finalize, to get it ready. And then we go out to the unit holders.

And the good news is these next ones will go much faster relatively to the first one because the cookie cutter model working with the government of how to allocate the working interest of each of the tract factors that contribute to the whole has pretty much been done. It's just getting the details applicable to each of the units. So Stout Unit number 1, plus or minus, we'll be fully water flood one to one ratio in there in about three years. And then the other ones, we're hoping to go one year at a time. So I'm hoping three years. And I'm hoping I'm sandbagging that. It'll be quicker, but three years we should be unitized and then another--from now, maybe five years we've got it field-wide.

I think--and on top of--it's those two probably major key points there that Neil highlighted. One is we've already established a precedent in the field with all the fee title owners and the farmers and the locals involved, and with the government. So it makes everything a lot faster and easier.

And then secondly, all of the units that we're talking about trading already have water floods in them. And we're continually adding injectors within those units through--on crown lands. So by the time we get to all those units--unitized, similar to the one we just unitized, a majority of the field has already been water flooded, so it's sort of semantics as to whether the units formed or not. That whole fields will be water flooded in the next three years. So in addition to the current unit fully maximized water flooded, the rest of the other units and the whole field will be largely water flooded so we'll have 30,000 barrels a day kind of now up to 50,000 barrels a day within the next three to five years fully under influence of water flooding. And then the unitization is really the optimization of those water floods going forward.

Okay, thanks. And just one last question, again on the water flood. Every month you get more and more data on the performance of these floods. So what do your models now show in terms of the improvement--potential improvement in the recovery factor in fields that are flooded versus what they would have been without the water flood?

Well, you have to just kind of go to our last two press--yearly reserve press releases, where last year we had a 16% increase in our recovery factors due to the water flood established by the third party evaluators, and then this year a 26% increase in reserves on the areas that they assigned water flood reserves to. So to put it in high level terms, we maybe have 15% recovery factors on primary established within the reservoir, and they're giving us 30% type recovery factors, and our models are suggesting 35% type recovery factors once the entire fields are up and running and flooded, and in a long-term view. So more than a double on reserves, which these are big numbers--hundreds of millions of barrels of added reserves through pretty inexpensive capital--CAD2.00 a barrel is kind of our math on the reserve adds. So the next leg of our growth as a company on the reserve side are very cheap reserve adds, and they're long-term reserve adds that will show up in a lower decline of the Company, and reserve adds that over several years with lower F&D.

Okay. Thanks.

Okay, thanks, Gordon.

Thank you. We have no further questions. At this time I would now like to turn the meeting back over to Mr. Saxberg. Please go ahead.

Great. Thank you very much. Obviously we had a great first quarter, strong growth, we're financially well-positioned. We're well-hedged for 2015 and going into 2016. We're excited about our Torquay play and the expansion of that Torquay play and the doubling of our reserves over the last year. We're excited about the Uinta testing of new zones, and we've got a couple of new zones to test here coming up. And then the expansion of that program headed in the back end of the year, and the increase in production and reserves in that play. And I think the highlight there of us over the last couple of years, execution and our execution ability to move from Canada into the U.S. and grow our production from virtually nothing to 20,000 barrels a day, as a Company, I think is a key highlight for us.

And then in for all this with changes in government, changes in oil prices and so forth in this industry, we remain very flexible in our budget, and prudence in our spending, and then at the same time being patient on acquisitions going forward in 2015. So again, thank you very much for attending our 2015 first quarter conference call.

Thank you, ladies and gentlemen for participating in Crescent Point Energy's first quarter 2015 conference call. If you have more questions, you can call Crescent Point's Investor Relations Department at 1-855-767-6923. Thank you, and have a good day.