Coterra Energy Inc (CTRA) 2002 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Cabot Oil & Gas Corporation first quarter results conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session. At that time, if you have a question you will press the 1 followed by the 4 on your telephone. As a reminder, this conference is being recorded Friday April 26th 2002. A replay of this conference will be available 9:30 am Mountain Time today through 3:00 pm Mountain Time on May 3rd. To access the replay you will dial 1-800-633-8284 and enter a reservation number 2050-3376 followed by the pound key. I would now like to turn the conference over to Mr. Ray Seegmiller, Chairman and Chief Executive Officer of Cabot Oil & Gas Corporation. Please go ahead sir.

Good morning. Thank you for joining us during this first quarter earnings teleconference call. I am Ray Seegmiller, Chairman and CEO of Cabot. With me today are Dan Dinges our President and COO, Michael Walen our Senior Vice-President, Scott Schroeder CFO, Jeffrey Hutton VP (Marketing) and [Henry] Smyth, VP and Controller. Before we start in our turning of assets that I share with you the following. The status regarding future financial performance and results and other statements, which are not historical facts, contained in this release are forward-looking statements that involve risk and uncertainties including, but not limited to marketing factors. The market price of natural gas and oil results our future drilling and marketing activity, future production and cost, and other factors detailed in the companies Securities & Exchange Commission filings. I am sure you will decide about that. As it was announced in our recent press release whereas I mentioned in the letter to shareholders in our annual report, which I hope you have all seen, because I think it is our best one we have put out. I will be retiring from the company and the Board of Directors next week. I have enjoyed working with all of you over the course of these past seven years and I appreciate your interest in Cabot Oil & Gas and hope your support will continue. Cabot Oil & Gas has emerged as a growing exploration company. One, it has had a fair amount of exploration success and it offers tremendous opportunities in the future. We have developed a long-range strategy for the company and have in place a strong management team that will continue to oversee the transformation of Cabot. I am confident that under the leadership of Dan Dinges, this evolution will be ongoing for the long-term success of Cabot Oil & Gas and also believe for the benefit of our shareholders. I am extremely excited about Cabot's future. I would now like to turn the call over to Dan to discuss Cabot's first quarter results and some expectations for 2002 and beyond.

Thank you Ray. I appreciate your confidence in the management team and also how you have positioned Cabot for the future. As you read yesterday's press release, the first quarter in 2002 was impacted by steep declines in realized gas prices coupled with significant decline in oil prices. While production increased an impressive 26% year-over-year this was not enough to completely offset the drop we saw in prices although we did realize on a normalized basis a slight profit during the first three months of the year. For the quarter normalized results include net income of $239,000 over $0.01 per share and discretionary cash flow of $34.4 million or $1.09 per share. This compares to 2001 net income of $35.3 million and discretionary cash flow of $75.6 million for the respective period. Obviously, comparisons to the first quarter 2001 are going to be tough for every company. However, these results are a definite improvement considering what we believed the first quarter 2002 results were going to be 60 days ago. One of the highlights that we are most pleased with is the 26% year-over-year production increase resulting directly from Gulf Coast drilling successes, Eastern drilling results, and the Cody acquisition. Between corresponding first quarters, Gulf Coast drilling boosted production nearly 1 Bcfe while Cody acquisition added 3.4 Bcfe of incremental production and the Eastern drilling contributed another 0.4 Bcfe. In terms of hedging, in December we placed [collars] on approximately 60% of our gas from January through April at a non[____] equivalent of $2.50 per Mmbtu floor and a ceiling of $3.28 per Mmbtu. This hedge position added 2.4 million over $0.23 per Mcf to our first quarter numbers. Although in a long run, we believe the continued strength of the natural gas market, we are concerned and were concerned with the short term, and we took additional hedges as a result of what we saw on the volatility of the future market. We believe that the additional hedges in effect through August 2002 at a floor of $2.40 and a ceiling per Mmbtu will help us with our ongoing program. We believe we really evaluate the market on an ongoing basis to determine the effectiveness of implementing more hedges. Our hedge positions have allowed us to maintain risk consistency our capital plan for this quarter. While our overall unit cost levels declined, we did see increases in operating expense, indeed driven primarily by the Cody acquisition. In terms of operations expense the Cody properties included two large waterfronts that we are diligently assessing methods to reduce costs. BDNA] while up year-over-year actually came in below guidance due to the results of our yearend reserve [body] where the Gulf Coast added significantly to reserves thus reducing the overall cost of [BDNA]. Expectations call for [BDNA] to be $1.14-1.18 per Mcfe in 2002 now versus the original guidance of $1.23 per Mcfe. The small impairment we included in our report relates to a small acquisition in [Reinfield] in Louisiana and an exploration effort in the [DJ] basin. Neither these are key to Cabot's strategic feature. Operationally, we are on-track for anticipated drilling program of 111 gross wells including nine exploratory. Regional breakout is as follows for 2002 drilling program - 22 wells in the Gulf Coast, 41 wells in the East, 32 in the Rocky mountain, and 16 in Mid-Continent. Through the first quarter, 21 wells have been drilled - 17 being development and 4 being exploration - with a 95% success rate and a respectable drilling [finding] cost of approximately $1.00 in Mcfe. We currently have 4 wells drilling throughout the company. Some of the key exploration wells we have include in the Gulf Coast, the East Cameron 113 well - our first offshore-operated well in which we have 40% working interest. The well will target the [_____] zone at 13,000 feet. This prospect has a reserve estimate at 30-120 Bcfe. The [spur] date is scheduled around June 15th under a turnkey contract. Also in the Gulf Coast, our [Topfield] prospect was drilled to a total depth of 19,000 feet for [_____] formation. This is another big test on the [CLFA] efforts. Cabot has a 50% working interest in this 50-100 Bcfe prospect and we anticipate the spur to commence in the fourth quarter of 2002. In the West [_____] Wyoming has a reserve potential of 100 to 150 Bcfe. We are going to target the [Miocene] zone at 13,000 feet and Cabot has a 66% working interest in this well. This is the largest impact well in terms of potential value we drilled this year. The well will [pass the] 100 Bcf prospect or a million dollar [_____] cost, gross. We anticipate to [_____] the well in the third quarter. In the East the [_____ville] prospect is another [_____] well that we drilled to approximately 12,000 feet with a working interest of 50%. This 5-15 Bcf prospect will [spurt] mid May. In total, these four wells have a gross on-risk resource exposure of 185-385 Bcfe. It is now turning in this week, [_____] well and the additional wells drilled in [Redfish] Bay in [Aransas] pass will add approximately 15 million cubic foot equivalent per day to our net production by the end of the second quarter. Our first quarter drilling results have provided a great start to this year's program, which will continue our production levels in the second of the year. As you probably noticed, for the first time in our press release we have provided a breakup of oil production by region due to our increasing [real] volumes. Our guidance for all over the next three quarters is as follows: Gulf Coast 6500-6800 barrels per day, the East 95-100 barrels per day, and the West 500-600 barrels per day. Our guidance for production of natural gas includes Gulf Coast at 77-80 million cubic feet per day, the East at 46-48 million cubic feet per day and West at 67-70 million cubic feet per day. In terms of unit cost for the duration of the year operation expense is expected to average $0.55 per Mcfe, assets and other income $0.32 per Mcfe, and financing costs $0.28 per Mcfe. Exploration expense for the total year is now expected to be about $32 million, down from a budgeted excess of $34 million due to the success of our first quarter exploration expenditures. G & A for the year remains at $25 million excluding the charges relating to Chairman's retirement discussed in the press release. Our drilling activities are supported by capital budget of $105 million. Of this amount $62 million is for drilling including $20 million for exploration wells. While we are cautiously optimistic for the reminder of the year regarding increasing commodity prices, we will remain somewhat conservative in our estimate for budgeting purposes. 00:47: 59 At this time, we are standing firm with our capital budget. However we will evaluate those opportunities that cannot be inventoried as we work to maintain value in our program. Over the last several years, Cabot has been transformed into a company with significant future growth potential as evidenced by the increased production generated by our exploration program. Cabot is asset-based and future growth potential is what initially attracted me to Cabot. We have a strong foundation, which is both geologically and geographically diverse. Our Gulf Coast region has realized numerous past successes which continue today as demonstrated by first quarter drilling program. The Rocky Mountains position holds the key to many promising prospects. We have over 350,000 net undeveloped acres we are working on and our Eastern acreage position provides us with significant free cash flow complimented by an exploration component. I think we are well positioned to great value for our shareholders. We will now be happy to answer any questions you may have. Operator, we are ready for questions.

Thank you. Ladies and gentlemen, if you wish to ask a question please press the '1' followed by '4' on your telephone. You will hear a three-tone prompt acknowledging your request. If your question has been answered and you wish to withdraw your polling request, you may do so by pressing '1' followed by '3'. If you are using a speakerphone, please lift your handset before entering your request. One moment please for the first question. The first question is from Michael [Philoreal] with CIBC world markets. Please go ahead.

MICHAEL PHILOREAL]: Good morning gentlemen and congratulations to [Ray] for your retirement and congratulations Dan for the new appointment. I have got one question here, the four explorations wells that you drilled in the first quarter. Where they all successful ... you mentioned 17 development for exploration with 95% success rate. Can you talk a little bit about four explorations wells and where exactly they were?

They are all four successful and they were down in our West Coast region in Redfish Bay area, all targeted in the fields down there. We didn't have one online at this point. That is the [_____] prospects, which produce about over 5 million a day and about 350 barrels of oils per today. The other wells were in various stages of completion ... _____] pipelines, and this will completed by the end of second quarter.

MICHAEL PHILOREAL]: Okay, what is the combined rate of this Redfish Bay area now or once you get these next three wells on?

Once these next three wells are on I am going to say ... a mixed bag as that's a tough question [Mike] then you get it implied.

MICHAEL PHILOREAL]: Okay.

Maybe $12-$15 million a day would be a good number to look at for these four wells in about a [_____] on top of my head [Mike].

MICHAEL PHILOREAL]: Okay that's fine. Okay gentlemen congratulations on the good quarter and good luck [Ray].

Thank you.

The next question will be from Ellen Hannan with Bear Stearns, please go ahead.

Good morning. Just a question on ... Dan I wondered if you could give you a little bit more color on the exploration prospect that you are going to drill later this year in the West region, I did not quite catch up the name, but that's looks to be kind of your biggest on a non-risk basis and what kind of land position you have there and the other thoughts you have.

That's the wide draw prospect. It is in the eastern portion of the Green River in Wyoming. It is a prospect that we had spent some size reprocessing dollars on. We have been to image a deep structure there ... deepening 13,000 feet. It is a 100-150 BCSE-type prospect and what's really attractive about it is the gross total cost, which is a $1 million. And we do also have 66% of that and we do also have acreage position that surrounds this prospect.

If this well is successful than what would you envision in terms of follow-up activity ... just you will require one well or would you have a complete program?

I will let our Senior vice president Mike Walen answer the follow up to this.

We pretty much have the entire prospect under lease. It covers well over a square mile with 640 acres. We anticipate in looking at the Frontier all the way through the basement as the potential zone. Obviously, if we find frontier or the code of modi type productions as well as the deep stuff, our plan would be to enter into a developed program to exploit both the deep Madison potential, [_____] potential, and then look at that shallow Frontier.

Right, thank you very much.

As a reminder ladies and gentlemen, to register for a question please press the 1 followed by the 4. Ken Beer with Johnson Rice, please go ahead with your question.

Hi guys, just a follow up to make sure I am clear. The target size for the wide draw ... 100+ BCFE ... does that then just look at the deep Madison or Mike will you suggest that, that number is kind of the deeper plus the frontier at the Dakota, which is 100 plus ... is that both or just the deep?

That would be for the entire prospect. We are going to overboard here and get some really crazy numbers that would include frontier all the way through to the Madison. Obviously, if everything worked and everything got stacked up it could be a lot larger.

Okay, I understand. I just wanted to be clear. And you all have a rig lined, obviously, in the third quarter ... anything special about the rig, rig cost, rig equipment?

Well, one thing we are finding now is that rigs are available and the prices have half come down considerably. They have kind of flattened out right now. We are moving ahead to studs in the third quarter with no anticipated issues at hand right now.

Okay, that's always good news. Thank you.

The next question is from John Herrlin with Merrill Lynch. Please go ahead.

Good morning. What is the estimate of a dry hole cost for the off shore well?

About $4.5 million.

And on a go-forward basis Dan how much will you be targeting the offshore in terms of relative capex exposure?

I am sorry John I didn't hear the first part of your question?

Going forward how much will you be targeting the offshore in terms of relative capex commitments? Is this going to be like 5% of budget, you know, that sort of thing.

We are evaluating our entry into the deep portion of the shelf right now John. We have a fairly full plate with our onshore program at this time and we are looking at really what our on trade point is going to be and the goal. We have spent some sizemic dollars this last year to look at some portions of the shallow gulf and upon our entry and our decision on how we want to approach that we want to allocate then capital at that time.

Okay, my last question, your speakerphone was cutting out, at least it was not my phone. Could you review your hedges again? I caught a 224 sealing for what you have done it or 24th floor but not the sealing for which you have done incrementally.

I don't know if you used speakerphone or just anything else ... all the head position in May through August, we have a 244 and a $3 sealing for a Mmbtu and that's on a [_____] equivalent.

Okay, thanks.

Once again ladies and gentlemen if there are any additional questions at this time, please press the 1 followed by the 4. Ladies and gentlemen, I am showing no further questions at this time please continue with your presentation or closing remarks.

I appreciate your interest in Cabot Oil & Gas. We plan on continuing to work hard, to realize our vision of continued explorations success while assessing strategic acquisition opportunities. We believe that both exploration drilling and acquisitions are equally important in achieving our long-term growth and success of the company for the ultimate benefit of all our shareholders. In conclusion, I would like to along with management team offer my gratitude to [Ray] for both the team that he has assembled and the position in which he leaves Cabot. Not many companies our size can boost of a solid prospect inventory, a continued exploration successes from an underdeveloped lease, with inventory approaching 57,5000 net acres in many of the significant gas basins in the United States, and also a solid balance sheet. Ray], I want to thank you personally. You made this transition easy. Thank you very much for your interest.

Ladies and gentlemen, a replay of this conference will be available at 11.30 a.m. Eastern time today through 5.00 p.m. Eastern Time on May 3rd. To access the replay, you will dial 800-633-8284 and our reservation number 2050-3376 pound. Ladies and gentlemen that does conclude your conference call for today, you may disconnect and thank you for participating.