Veren Inc (CPG) 2016 Q3 法說會逐字稿

Good morning, ladies and gentlemen. My name is Alana, and I will be your conference operator today. At this time, I would like to welcome everyone to Crescent Point Energy's third-quarter 2016 conference call.

(Operator Instructions)

Thank you. 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 September 30, 2016 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 third-quarter conference call for 2016. With me is Ken Lamont, Chief Financial Officer; Neil Smith, Chief Operating Officer; and Trent Stangl, Senior Vice President of Investor Relations and Communications. I'll start off with a quick overview of the quarter and outlook, and Neil will discuss our operational highlights, and Ken will speak to our financial highlights.

We've had an excellent year operationally, and remain on track to meet or exceed our 2016 average production guidance of 167,000 BOEs per day. During the third quarter, we resumed activity in our drilling program, and achieved average production of over 160,000 BOEs per day, which is ahead of our budget. We also continued to lower costs, which are now down additional 12% from year-end 2015.

Throughout 2016, we've been successful in each area of our new play development. We've added approximately 700 new internally identified drilling locations in our Flat Lake and Viking resource plays alone, and we also added 120 internally identified horizontal locations in one of our six zones we are testing in Uinta. This more than replaces our 2016 annual drilling program of approximately 600 wells, and represents over 150,000 barrels a day of productive capacity.

In Uinta, we've generated strong production results from our horizontal program. We've drilled some of the biggest wells in our history, and are very excited about the future for horizontal development in the basin. And we're currently testing six unique zones, and have a land base of approximately 170,000 net acres.

Flat Lake is another exciting growth area for our Company, with significant running room. Approximately 22% of our budget is expected to be directed to this area during 2016, which is equivalent to our Viewfield Bakken play. Flat Lake is a high netback area, and reported third-quarter netbacks that were 24% higher than our corporate average.

Given the success of our new play development, we recently increased our Company's fourth-quarter 2016 capital program by CAD150 million. We also increased our 2017 preliminary guidance from CAD950 million to CAD1.4 billion. Our increased fourth-quarter 2016 capital is expected to drive first-quarter 2017 production of more than 170,000 BOEs a day, or approximately 10,000 barrels a day over third-quarter 2016. Our preliminary 2017 budget is expected to result in exit-to-exit growth of up to 8%.

During 2016, we've been testing new waterflood technology, including our proprietary multi-stage segregated strings. This new system is more efficient, with improved water injectivity, and doubling of offset production rates after six months of injection. This improved efficiency in our waterflood program potentially allows for fewer injector well conversions and, ultimately, less production being taken offline in the process. During the quarter, we also completed a CAD650 million equity financing. This financing both improves our balance sheet and provides us with additional flexibility to further advance our resource plays.

Before I hand things over to Neil, I'd like to thank all of our employees for their hard work in helping deliver another successful quarter as we celebrate our 15th-year anniversary. I will now turn it over to Neil to discuss our operational highlights. Neil?

Great, thanks, Scott. So we resumed our drilling activity during third quarter, and drilled a total of 225 wells, with 100% success rate. We continued to execute operationally, and are advancing our new play development, our waterflood programs and the implementation of new technology.

As Scott mentioned earlier, we've been testing a multi-stage segregated string technology in our waterflood programs to further improve efficiencies. Our initial pilots to date have shown three times the amount of water injectivity, and double the rate of production after six months of initial injection. This is a game-changing improvement from our predecessor technology, which previously stabilized offset production after approximately one year of injection. We plan to further test and implement additional pilots across our Company during 2016 and 2017.

We're also very happy to announce that, subsequent to the third quarter, we received technical approval from the government of Saskatchewan for our third of four original units in the Viewfield Bakken. This marks yet another significant milestone in the development of our waterflood strategy.

Within our new play development, we have had tremendous success. In Flat Lake, we drilled 14 net step-out wells by the end of third quarter, and have identified 220 new drilling locations within the Torquay, Three Forks, Midale and conventional Ratcliffe zones. Our new Ratcliffe oil pool, which is 100 million barrels of original oil in place, has minimal recovery to date, and is expected to recover approximately 40% of the original oil in place over its life.

In 2016, we also increased our strategic land position in Flat Lake. In addition to land sales, we added approximately 300 net internally identified drilling locations through our previously announced consolidation acquisition. So far, we have drilled several Ratcliffe wells on these lands, with production rates ahead of our expectations.

In the Uinta Basin, we continued to be the most active operator, and have tested the most number of zones horizontally. We've successfully drilled a total of 11 one-mile horizontal wells across six unique zones, and have increased our geological knowledge in the basin through our three-dimensional seismic program and core data. Economics have also improved through lower operating costs and narrower oil differentials, due to excess refining capacity.

As t Scott discussed earlier, we are very excited about the new play development of our Uinta horizontal well results, including our Castle Peak wells. 90-day initial production rates on recent wells are more than 600 barrels a day and are paying out in approximately one year or less. We are also testing new completion techniques and optimizing our drilling operations as we advance our horizontal program across each unique zone. Our Castle Peak completions are currently utilizing 31 stages per mile, and approximately 1,715 pounds of proppant per foot of lateral.

We look forward to a successful fourth quarter, and remain on track to achieve our annual targets. Before handing things over to Ken, I also want to recognize and thank all of our employees, and especially our field staff, as we start heading into the cold winter months, for their hard work in delivering another strong quarter. Ken?

Thanks, Neil. During the third quarter, Crescent Point generated fund flow from operations of CAD368.1 million, or CAD0.72 per share, which was ahead of budget. This was supported by strong netbacks of CAD29.27 per BOE relative to average selling prices of CAD43.71. The Company once again benefited from its conservative hedging program and its high-quality, high-netback asset base.

Beyond the success we've achieved in 2016 in our new play development, and execution across our asset base, we've also continued to improve our capital costs and efficiencies. By the end of the third quarter, we successfully reduced capital costs by 12% over the fourth quarter of 2015, with some areas as high as 23%. This is in addition to the 30% capital cost savings that were realized in 2015.

As Scott mentioned earlier, we've completed a bought deal financing in September for growth proceeds of CAD650 million. At quarter-end, inclusive of the bought deal financing, our net debt totaled CAD3.6 billion, or approximately 2.2 times trailing fund flow. We retained significant financial flexibility and liquidity, with no material near-term debt maturities, and approximately CAD1.9 billion of unutilized credit capacity.

During the third quarter, we were also active on the hedging front. We added approximately 2.75 million barrels to our oil hedging program since the second quarter, and now have 44% of our remaining 2016 oil production hedged at approximately CAD75 Canadian per barrel. During 2017, we have 25% of our oil production hedged at approximately CAD70 per barrel, including 32% during the first half of 2017 at CAD69 per barrel. We remain committed to maintaining a strong financial position, and will continue to protect our balance sheet as we grow our Company's total production.

I will now hand things back over to Scott.

Thanks, Ken. We are very pleased with our results during 2016, and remain on track to meet or exceed our annual guidance of 167,000 BOEs per day. Our capital allocation and our new play development during 2016 has resulted in a significant increase in our drilling inventory and the productive growth potential within our asset base. Over the years, we've developed and captured a resource base with 23 billion barrels of oil in place and significant potential for scalability.

Our largest core area is in the Williston Basin, where we currently produce approximately 100,000 BOEs per day. We're the largest landowner in the Williston Basin, with 2.3 million net acres, the largest Canadian producer, and are not far from being the largest producer among our North American peers in the Williston Basin.

We look forward to the remainder of the year, and are excited about our growth plans as we enter 2017. And remain flexible in our capital program, with potential for additional growth as we advance our new play development. At this point, we're ready to accept questions from the members of the investment community.

Thank you.

(Operator Instructions)

Your first question comes from the line of Thomas Matthews with AltaCorp Capital. Please go ahead.

Hi, guys. Just wondering if you could discuss -- maybe Neil -- discuss the difference between drilling the first Castle Peak well and the second Castle Peak well? And if that was just drilling into a different part of the formation, or if there was something you tried technologically to improve? Just discuss the difference there?

Yes, I mean, there's two things going on there. I mean, one, of course, is that we've shot the large 3D seismic program, drilling vertical wells for strat test, taking core. So as you're drilling, you are trying to true-up your remote indicators, if you can, like seismic to your mapping. So that's certainly one aspect.

The other is improving our drilling techniques, the mud, the bits, all of those different things. We've certainly -- we're going through more stages. We're going to larger tonnage. I mean, we're almost up to a ton a stage now on there.

And I look back in the day when we first started the Shaunavon pool, which seems forever ago, and we're the experts and the leaders in that completion, in that area. We spent the first three, four, five wells learning, taking longer than what we wanted, probably going over a little bit. So early stages, you're always learning.

Having said that, the well results that we're getting are greatly exceeding our expectations right now. Certainly the Castle Peak is very much exciting us. We've indicated that carrying now over 120 locations that we've identified, and that's just at the early stages of the play. I do anticipate, with further refinement and delineation, that number will go up, and that's only at four wells a section right now. So we're really excited, the Castle Peak appears to be all that.

Yes, I think the biggest change -- when we first went into the play with our first horizontal well on the completion side, was more of a North Dakota-, Viewfield-style frac. And in May, we switched to more of a stack scoop frac completion technique -- so, larger tonnage. And we've seen the dramatic increase in results, and it's been consistent with every well since. And we've only really delineated a small portion of our land base.

And so it's a pretty significant, highly economic play -- one-year payouts -- put it in our top quartile of all of our drilling. We have the highest inventory in North America for rates of return. Just so to put it into context of, Viewfield, Shaunavon, Viking, southeast conventional, are of the top rates of return plays in North America, above the Permian. And that's mainly because of our royalty regime in Saskatchewan -- and obviously IP rates and capital, and all that.

And so for a play like Uinta to compete at that level early stages in this play gives us a lot of excitement. And it's scalable at large scale. So it appears right now to have all of the characteristics for a large-growth basin.

And are you seeing similar kind of improvements or results from some of the other formations in that stack, or is it still too early to tell?

Yes, we're just testing individually one well a zone, and we've had some pretty good early results in a couple other zones. But it's early-early relative to Castle Peak, is the one that we've delineated the most. And across -- when you look on our mapping, it's across three townships of land. So the Castle Peak we've tested across a large, broad area, whereas in our other zones, it's more been precise in one or two areas. It's early days on those zones.

Okay. And then just finally, the CAD5 million well cost that you have in your new presentation, is that -- does that factor in some more testing? Or is that the increased frac tonnage and stages? Or how is that expected to change or remain stagnant going forward?

Obviously, it's early stages, and it's inclusive of all the costs of that larger completion technique, and it's the average of our latest wells. And we would expect, as in all of our other plays, that those costs will improve, with productivity improving as we get more data and push the -- continue to drill.

Okay, great. That's it from me. Thanks.

Great, thanks.

Thank you.

(Operator Instructions)

Your next question comes from Jason Frew with Credit Suisse. Your line is now open. Please proceed.

Hi, thanks. This may be for Neil as well. I just wanted to get a better understanding of what's technically different about the new waterflood technology, and just how far along that is in terms of pilot versus commerciality? Thanks.

Sure. So basically, what we're doing -- the technology, the entrepreneurism, the strong technical development knowledge that we've done in all our completion techniques, and we're known as the world leader in advancing that. We've got those same people are now using that technology and ingenuity towards injecting water.

And the concept is simply -- what we're trying to do is, rather than just bullheading water down so that you just inject water and it goes where it goes along the well bore, we're trying to be a lot more precise on trying to place the water along the well bore with different techniques. So different strings having different injection points along there.

What's exciting is, in our early pilots, this is -- as I mentioned in the preamble, quite a game changer. We're seeing doubling and more of production in six months, whereas normally, we had been seeing up to a year for a waterflood response in the offset producers. We're also seeing that we're putting more water into the ground, and without seeing that quick response from the producer. So that means what we're doing is creating a better, more efficient flood front, improving the sweep efficiency to get the oil pushed to the producer.

So it is a game changer. It is a result of our leading-edge technology being applied to the waterflood. And this is a game changer. We're now putting in several more of these systems through this quarter. And then through this year and next year, we'll start observing, seeing maybe this is the next significant generation of the way to put water into a tight waterflood resource play. And again, remember the Viewfield Bakken that we're operating, is the world's largest resource play waterflood that we're operating.

And just to put it in a maybe more simple view of, this is equivalent to the step from going from SurgiFrac to Packers Plus system back in 2006 and 2007, and then going from the Packers system to the plug-and-perf system. It's that same equivalent leap of technology from waterflooding, and so it's the waterflooding version of that. And then it's done at a very cheap cost. It's like less than CAD100,000, or CAD100,000 per well.

So this is a very cheap system that's proprietary, developed by Crescent Point to go into the waterflood. And it's -- our view of the bang for the buck is that equivalent shift in technology. And it's that dramatic of a change in technology relative to the past, when you look at completion technique and development of completion technique.

Okay, thanks. That's good color.

Great, thanks.

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

Great. Thank you very much for participating in Crescent Point's 2016 third-quarter conference call. If you have any more questions, you can give us a shout in our Investor Relations, or directly. Thank you very much.

Thank you, ladies and gentlemen, for participating in Crescent Point Energy's 2016 third-quarter 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.