Veren Inc (CPG) 2015 Q4 法說會逐字稿

Good morning, ladies and gentlemen. My name is Wayne, and I will be a conference operator today. At this time, I would like to welcome everyone to Crescent Point Energy's fourth-quarter and year-end 2015 conference call.

(Operator Instructions)

The conference call is being recorded today, and will also be webcast on Crescent Point's website, but may not be recorded or re-broadcast without the 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 December 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 can be accessed through the Crescent Point 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 section 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 fourth-quarter and year-end conference call for 2015. With me is Ken LaMonte, Chief Financial Officer; Neil Smith, Chief Operating Officer; and Trent Stangl, Senior Vice President of Investor Relations and Communications. I'll give an overview of our results and outlook, Neil will discuss our operational highlights, and Ken will speak to our financial highlights.

We're happy to report that Crescent Point delivered another solid quarter, with record production of more than 176,000 BOEs per day. Our high-quality asset base continues to generate strong net-backs, benefiting from low operating costs and royalties.

In 2015, we worked closely with our suppliers and successfully reduced our capital costs by 30%. We are seeing additional cost improvements in 2016, and are targeting savings of approximately 10% for the year.

Our waterfloods continue to positively impact our decline rates and ultimate recoveries. Since 2011, our waterfloods have allowed us to reduce our corporate decline rates from 35% to 28%. We expect this trend to continue in 2017.

The success of our business strategy in 2015 was highlighted by a 14% increase in fourth-quarter production, and a 16% increase in 2P reserves. This included reserves growth in each of our core areas, and demonstrates the success of our long-term projects such as waterflood, step-out drilling, and new technology.

Operationally we have entered 2016 in a strong position, and are out-performing our original first-quarter estimates. With current production greater than 177,000 BOEs per day, we have increased flexibility to manage our 2016 capital program while maintaining our annual production guidance.

In light of the current commodity price environment and our priority to maintain balance sheet strength, we are revising our 2016 capital expenditures budget, and our monthly dividend. Our revised 2016 capital expenditures guidance is now CAD950 million, putting us at the lower end of our range we announced in early January.

As part of this budget, we are shifting approximately CAD100 million of capital from the first half of 2016 to the second half. We are now budgeting approximately CAD525 million of capital spending in the second half of the year, which puts us in a strong position for 2017, and allows us to take advantage of ongoing cost reductions.

Our first quarter of production levels and our out-performance versus our original estimate allows us to maintain our annual production guidance at 165,000 BOEs per day. This is a key point, and speaks to our early outperformance in 2016 that has set us up for a strong 2017.

Our new dividend of CAD0.03 per month reduces our annual cash requirements by approximately CAD430 million, and puts us in a solid position for increased free cash flow as commodity prices rebound. We expect to live within cash flow at current strip prices, and can generate an additional CAD600 million, or CAD1.18 per share of free cash flow for every CAD10 increase in WTI.

Operationally, we continue to execute our business strategy with a disciplined capital program. In this environment, we remain focused on our long-term initiatives across our entire asset base, and are not just simply drilling our best inventory. This strategy was beneficial during 2015, which saw improvements in our decline rates, reserve additions, drilling inventory, and productivity.

Our growth profile is supported by our large oil and play resource base, which continues to expand. For example, at Flat Lake we added 40 new drilling locations, and identified a new zone for future development due to our successful step-out program. We're also very excited about our most recent horizontal well results in the Uinta Basin, which highlight the potential for future horizontal development in that play.

Our new technology initiatives are also yielding strong results. For example, at Viewfield in 2015 we began testing a new completion fluid technology in certain areas within the play that has increase our initial 90-day oil production rates by 50%. We are currently testing new completion fluids in several of our resource plays. We maintained a significant financial liquidity of more than CAD1.4 billion, and remain well-hedged in the current environment.

I would also like to take this opportunity to welcome Barbara Monroe to our Board of Directors. Ms. Monroe brings a wealth of experience, and will be a tremendous value-add to our team. I'd also like to thank all of our employees, including our field staff, executive team, and our Board of Directors for all their hard work in helping deliver another terrific year. We are well-positioned to deliver long-term growth and maximize our value for our shareholders.

I will now turn it over to Neil to discuss reserves and our operational highlights. Neil?

Thanks, Scott. 2015 marked the 14th consecutive year of strong organic reserve additions. As Scott mentioned, we experienced fourth-quarter production growth of 14%, 2015 reserves growth of 16%, and we replaced 315% of our annual production.

Our cost-reduction initiatives during 2015 allowed us to realize finding and development costs of CAD9.83 per 2P BOE -- that includes changes in future development capital. This equated to a recycle ratio of 2.6 times. In fact, over the last five years, our weighted average F&D, excluding changes in FDC, equates to a recycle ratio of 2.2 times.

Our independent engineers recognized reserve growth in our Flat Lake, Viking, North Dakota Bakken, and Uinta resource plays. We added 4.5 million barrels of 2P reserves attributable to the waterflood in the Viewfield Bakken and Shaunavon plays. This is the third consecutive year since the independents started booking independent waterflood reserves at Viewfield. They first started assigning that in 2013.

In our Uinta Basin play, we added approximately seven million barrels of 2P reserves during 2015 that have long-term potential for significant growth through horizontal drilling. Overall, we have increased 2P reserves by close to 70% in just the three years since we have acquired the play.

Since inception, in aggregate we have added 578 million barrels of organic reserve additions across our entire asset base. This equates to 50% of our current 2P reserves, plus cumulative production over that period. Stated otherwise, since acquisition or discovery, we have doubled the remaining reserves of our assets at an average F&D cost of just CAD17.83, excluding changes in FDC. At year-end 2015, our 2P reserves equated to a net asset value of CAD26.49 per share.

We have a large drilling inventory of over 7,700 locations, which provides us with at least 14 years of future drilling and additional un-booked upside. Our waterflood development continues to expand in 2016, which is expected to improve our decline rate throughout this year and next. We are planning for over 120 water injection conversions in 2016 and having waterflood programs within each of our core Canadian resource plays.

In closing, I'd like to thank our staff, especially our field staff, for their hard work and determination in delivering another successful year. I would also like to thank our suppliers for working with us, and being tremendous partners during this commodity price down-turn. Ken will now discuss the financial highlights. Ken?

Thanks, Neil. We continued our growth in the fourth quarter, generating fund flow from operations of CAD497 million, or CAD0.98 per share. This represents an increase of 3% from the third quarter, despite a 9% decline in the Company's average selling price per BOE.

Our net backs remain strong relative to our average selling prices. In the fourth quarter, we realized a net back of CAD34.17 per BOE, versus an average selling price of CAD41.98 per BOE. This is partly due to our robust hedging program, which contributed CAD11.69 per BOE of realized gains, as well as a reduction of operating costs and royalties from the third quarter of 2015.

During the fourth quarter, we reported a net loss of CAD382 million due to an after-tax, non-cash impairment charge of CAD589 million. This impairment represents approximately 3% of our total assets as at December 31, 2015, reflecting the high-quality nature of the Company's asset base. This impairment had no impact on the Company's funds flow from operations, or the amount available under our credit facilities.

As Scott mentioned, our priority in this low-commodity-price environment is to protect our balance sheet. Our revised monthly dividend of CAD0.03 per share saves us CAD430 million per year, and allows us to live within our cash flow in 2016 at $35 WTI, and in 2017 at $45 WTI, which is in line with current forward prices. Our initial plans for 2017 are based on capital expenditures of CAD950 million, and production of 165,000 BOE per day.

We also protecting our balance sheet through our hedging activities. Approximately 39% of our 2016 oil production is currently hedged at CAD80 a barrel, and 9% of our 2017 oil production is hedged at CAD76 per barrel. We have the ability to increase this hedge position -- or production -- by moving forward our 2018 hedges.

At year end, our net-debt-to-fund flow stood at 2.2 times, with unutilized credit capacity of more than CAD1.4 billion. Our unsecured credit facility is not subject to periodic re-determinations based on changes in reserves, and we have no material near-term debt maturities. I will now hand things back to Scott.

Thanks, Ken. We've had a solid year, and our having a great start to 2016, despite it being a tough environment. We are out-performing operationally, remain in a strong financial position, and continue to benefit from our high net back, high-quality asset basis.

Our plan in the current environment is to protect our production levels and to live within cash flow to protect our balance sheet. We remain flexible in how we manage our business, and will look to improve our balance sheet, increase our growth, internally fund acquisitions, or increase our dividend as commodity prices rebound.

At this point, we are ready to answer questions from the members of the investor community. I will pass it back to the operator.

Thank you.

(Operator Instructions)

Your first question comes from the line of Nima Billou from Veritas Investments. Please go ahead.

Good morning. Just a quick question. I appreciate you guys are adjusting to a very depressed economic environment. You're taking all prudent measures. But clearly, I don't think a lot of people expect oil to stay down in the CAD35 range. I love the presentation you did previously, because you gave ranges under different scenarios. Would it be fair to say if oil was in the CAD50s that you could have a CapEx budget of CAD1.5 billion plus?

I'm trying to think of a scenario where more reasonable recovery and reversion in prices. I appreciate you guys putting CAD950 million out now, but just to get a sense of how that capital budget may adjust upwards as commodity prices recover?

Yes, that's a great question, because we have really outperformed in Q1. I probably can't say it enough, but the fact that we're shifting capital, the CAD100 million from Q2 into Q3. Essentially, it's pushing capital that will help 2017, and put us in a stronger production position for 2017. We're effectively taking CAD100 million out of our budget for 2016 in a production basis.

In all of our models, if we tweak the CapEx up CAD50 million to CAD100 million -- which every CAD1 change in WTI is roughly CAD50 million to CAD60 million of cash flow to us. CAD1 or CAD2 -- if you think of a CAD50 price environment from today's price, from CAD45 it's obviously a CAD300-million increase in cash flow, so we can increase our CapEx budget by CAD200, CAD300 million fairly quickly.

In all of our models, CAD50 million to CAD100 million change in our CapEx program mid-year too early or late third quarter, we could bump our exit rate pretty substantially, and get back into the 170,000 barrel level very quickly. Obviously that will affect 2017, again. We really are at that sensitivity point where it doesn't take a lot of capital for us to roll production very rapidly.

I think that's really -- when we say flexibility, I think that's really the key highlight to me, is that where literally a small wedge of capital could really affect our exit production, and then average for 2017 with a slight improvement in commodities. We're feeling that a little bit today over last week with a CAD2 or CAD3 bump in WTI. We're just very cautious around that, that it's a false lift because of shorts, and that it's not a real fundamental change yet.

I appreciate the detail on that. Just to reiterate, what sort of capital cost savings are you seeing from service providers? Is it 15%? Are you still able to work with them to generate more reasonable pricing for this environment? Is that also another piece of being able to keep production flat and keep the budget so low? I just want to get a sense of what percentage savings you're still able to receive from these suppliers?

Yes. So far this quarter, we've seen about a 4% to 5% reduction in cost. Probably a key highlight there too for this quarter, we had 25 rigs running at one point in February. Our historical high for the number of rigs we've ever run as a Company was I think 28. We had a pretty impressive drilling program in the first quarter, and we saw a 4%, 5% reduction. We're anticipating a further 10% reduction in costs in the second half of 2016 with this same commodity price environment.

With the shift of capital into Q3, obviously that will give us a more exposure of our capital program. I think we've got more than 55% of our capital program is still yet to be spent in the second half of the year. We can work with suppliers to try to bring those costs even further down. Part of those cost savings are also tied to technology and the new fluids that we're using, and how we're actually operating. It's not a complete give by suppliers. It's also our efficiencies and things that we're doing in the field.

Great. Thank you very much.

Thank you.

Thank you. We have time for one more question. This question comes from Patrick Bryden from Scotiabank. Please go ahead.

Good morning, thanks very much. Just wondering if you might be able to expand a little bit on the fluids that you're experimenting and having success with at Viewfield? You talk about how the 90-day IPs have shown 50% improvement in certain areas. I'm just wondering how that's amenable to those certain areas, and the extent to which that's transferable to other projects?

Yes, we -- obviously, the fluids that we're using are proprietary to us at this stage. We're not really willing to go into more descriptor than that. It's been very successful. We've been testing it for probably six months, Neil?

Sure.

Obviously early results are pretty impressive. Now we're applying some of that across Shaunavon into the Viking and into some other plays. Uinta, it's still very days on the horizontal there, so we're actually using older technology at this stage on the completions there. We'll see the next round of drilling with probably our newer technology, as well.

It's pretty exciting stuff in this environment. I think the low cost environment allows us to do a lot of this experimentation. We've probably put CAD50 million of our budget across all of our fields towards that technology and testing different things. It's been very positive for us over this last six months to a year.

Great. If I might, if you have time for just some quick follow-up? On the waterflood, seeing the recognition in the reserve book come now year in, year out, obviously that progression is nice to see in marrying that up with a lowering of the treadmill speed is also excellent.

Can you just give me a quick sense for whether those bookings are in line with what you would expect right now, or if they're maybe a bit ahead? I would love some perspective on that.

Yes, we're I think -- as you know, 15 years into this Company, we've been very conservative of how we book our reserves. This year we had a very impressive reserve adds across the board, and we've been conservative in how we've booked those reserves.

I think in regards to the waterflood, we're just continually wanting to be conservative in those types of reserve adds. We still have drilling -- low-risk drilling inventory to book, so we're more focused on booking those at the time.

But over time as time marches on, the waterflood reserve adds will be more and more significant. We're just sub-10% right now of our reserve. I think the CAD4.5 million on CAD65 million is 8% or whatever of reserved bookings, and you'll see that percentage slowly climb over time as we expand these waterfloods.

This year, with the big expansion to the water injectors, you'll probably -- you may not see that reflected next year, but you'll see it probably for the end of 2017 reserve adds. You'll see it more in those numbers.

Pat, it's Neil here. A lot of the trigger for the waterflood assignments has been the unitization. The first unit in the Viewfield Bakken, the Stout, and that's been unitized. Originally, the independents, which is totally expected, they just give you a little bit as you're getting some water in the ground and getting some performance reaction.

They're now getting enough data that they can -- that they're at the point, rather than doing it on a pattern basis, they're now starting to recognize where we're indicating we're going to flood. Rather than not just, hey we see that there's a response, now that they've got that record, where we're going to start doing some injection, they're giving us some credit for future capital spending.

Our next unit, the application's going to be going into the government within the month here. That's the [Innes] unit. Then we have to work with the free-hold owners, and hopefully we'll see that unitize before the year is out.

The Stout unit we had to build the molds. Now that we have those molds, you should start seeing some escalation through this year and into next of the independents getting more comfortable to see the vision that we have.

On top of that, we're actually -- it was in our press release today, expanding all of those units or adding several new units. I can remember the exact percent, it's like a 60% increase in the land base or something. It's a very significant growth to the units.

We're early stages, just marking out that territory. That will continue our waterflood growth in the latter years of 2018, 2019, and 2020, in that field alone. We're pretty excited about that, as well.

Great, much appreciated. If you have time, just a couple very quick tack-ons. I'm sure the wording in the press releases is also proprietary, but the shallow zone that is coincident with the Torquay, any commentary or ability to elaborate on whether that's resource style or more conventional? Any characteristics you could speak to?

Yes, it's more conventional. It's probably now over a township in size. We've had a pretty good run this last go at that in the Flat Lake area, so we're pretty excited about that as well.

Great, thanks.

That Flat Lake trend now stretches all the way from our original Flat Lake lands all the way across through the legacy lands to the east. We basically, over the last three years -- and it's been of a quiet process -- but basically almost replaced our Viewfield asset with Flat Lake discoveries, step-out drilling, three-zone horizon discoveries across that whole southern trend of Saskatchewan along the North Dakota border.

We're pretty excited about that play. We've grown production there from zero to -- what's it like, 20,000 barrels a day or something? We're pretty excited about that play and the early stages that it's at.

I'm sure Brad Wall will be happy. Any last commentary on the Saskatchewan election call yesterday?

No, not really. We're pretty supportive of the government there. They have done a great job for that province, and hopefully they'll continue to do so into the future.

Okay, I appreciate time. Thank you.

Great, thanks.

Thank you. There are no further questions registered at this time.

Great. Thank you very much operator, and thanks again for attending our conference call. I think we've had a great start to 2016, very well set up operationally, I think on all levels, outperforming, and really positions us to protect ourselves in this low-price environment, and sets us up for continued growth into an upward rebound in commodity prices that hopefully we'll see towards the end of this year. Thanks again.

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