Coterra Energy Inc (CTRA) 2003 Q1 法說會逐字稿

Good day, everyone. Thank you for holding. And welcome to the Cabot Oil & Gas Corporation Quarterly Results Conference Call. Today's conference is being recorded. Today's presentation will be available for replay, starting at 12:30 Eastern Time, through April 7th at midnight. And you may access the replay by dialing area code 719-457-0820 or 888-203-1112. You need to enter the pass code, which is 405510. Again, the dial-in numbers are 719-457-0820 or 888-203-1112; and the pass code is 405510. At this time, for opening remarks and introductions, I'd like to turn the call over to the Chairman and Chief Executive Officer, Dan Dinges. Please go ahead, sir.

Thank you, Kevin. Good morning. Thank you for joining us during this first quarter teleconference call. I'm Dan Dinges, Chairman, President and CEO of Cabot Oil and Gas Corp. With me today, I do have several members of our management team. I have Mike Walen, our Senior Vice President; Scott Schroeder, our CFO; Jeff Hutton, our VP of Marketing; and Chuck Smyth, our VP, Controller.

Before we start, our attorneys have asked that I share with you this following statement. The statements regarding future financial performance and results and the other statements, which are not historical facts, made during this teleconference are forward-looking statements that involve risks and uncertainties including but not limited to the market factors, the market price of natural gas and oil, results of future drilling and marketing activity, future production and costs, and other factors detailed in the company's Security and Exchange Commission filing. All non-GAAP financial measures discussed during this conference call have been posted to our website in the press release section of "Investor Relations" at "www.cabotog.com" along with reconciliation to the most directly comparable GAAP financial measures.

And that thing gets longer in each reading. Moving on to the quarterly results. As I mentioned in our press release, higher realized commodity prices increased revenues by approximately 80% over last year's first quarter results. We're pleased to continue to see strong gas prices compared to the low prices we experienced in 2002. Our first quarter realized price for natural gas averaged $4.55 per mcf, or $2 greater than the first quarter of 2002.

Excluding the impact of the Kurten field impairment and adoption of newly required accounting guidelines, we had a net income of $22.1m or 69 cents per share and a discretionary cash flow of $67.6m for the quarter. However, due to the previously announced non-cash items, we reported a net loss of $39.2m or $1.23 per share.

Moving on to production. As we had previously forecast, our daily production remained essentially flat between the fourth quarter of 2002 and the first quarter of 2003, $243.9m equivalent per day versus $242.9m equivalent per day, respectively. Contributing to this consistent level of production was our Ellender Number 1 well; it's a Gulf Coast well. It’s a well we found [indiscernible] and it's current $13m equivalent per day gross. Cabot has 50% working interest in this well. The company also had few other successes drilled early in 2003 with each of those contributing approximately 1 million to 5 million cubic foot gross per day. In terms of our production forecast, at this time, our guidance remains relatively unchanged from the numbers we provided at our last quarterly conference call. These figures are now being posted on to our website in the "Investor Relations" section. Specifically, for the second quarter, we are anticipating production of natural gas to be between 190 million to 200 million cubic foot per day; and for oil, 8,100 to 8,400 barrels per day; total equivalents, range of 238.6 million to 250.4 million per day. Pricing -- regarding pricing, new hedges -- we have not placed any new hedges for 2003. As we'd previously stated, we currently have 66% of our natural gas and 45% of our oil hedged at an average price of $4.38 per mcf and $27.35 per barrel for 2003. We are also placing, on our website, a hedge summary for all to review. We did have recently placed a hedge called "a summer collar" for 2004. In this trade, we have a floor on 10 million btu for all of 2004. Again, that's a floor at $4 with a ceiling of $6 on 17,000 mmbtu for the periods of April through October; of which, 7,000 is without a floor. If you need more details, Scott will be available or Jeff Hutton to discuss that recent hedge.

Going forward, we will continue to assess opportunities as our ongoing strategy for incremental hedging volumes for both our gas and oil. And we'll look at both 2003 and 2004.

In general, our operating expenses are consistent with expectations. The incremental investment in the Gulf Coast is seismic, and that covers our South Louisiana and our Gulf of Mexico effort. The $1m increase in G&A is a direct result of -- what probably not only us, but others are saying is -- higher fringe costs associated with the pension plan and healthcare benefit. Our company's headcount has dropped from 385 to 338employees over the last 18 months. Benefit costs have increased over 25%. Due to this, our G&A is anticipated to range between $6m and $7m per quarter for the remainder of the year. Guidance for other key expenses can also be found on our website.Moving on to operations and drilling update. Cabot 2003 drilling program, I think, is off to a good start. We currently have 10 rigs drilling; 8 of those are operated by Cabot. To date, we have drilled and completed 21 wells with 7 wells waiting on completion. We're also in a process of building locations at three more sites. So far, we have not -- we've had only two dry holes in the Gulf Coast area and one dry hole in the Rockies.

We're drilling -- as a significance, we're drilling three wells in the Gulf Coast region, which could have an impact on our 2003 results, if successful. These wildcats are really stretched across from Breton Sound, where we're drilling a non-operated well to a Central -- South Louisiana all the way down to South Texas. In the Breton Sound area, our Breton Sound Number 41 well, again a non-operated well is drilling at 12,400 feet. It's projected to 15,400 feet and will expose Cabot to 8 to 22 Bcfe of net unrisked reserves. We have a 17.5% working interest after casing point in this well.

Our Bodeau prospect in South Louisiana is underway drilling below 11,400 feet. This is projected to 17,500 feet. It's designed to test the March Tex sands [ph]. We anticipate exposure between 25 and 70 Bcfe of net unrisked reserve potential. Cabot has approximately a 50% working interest in this well.

The third significant wildcat we are drilling at this time is the Amerigorda [ph] prospect currently drilling below 80 -- excuse me -- 8,800 feet to a projected 15,000 foot. This test is designed to look at the free oil sand. This well will expose Cabot to over 10 Bcfe gross reserves; however, depending upon the amount of sands you and total thickness you give the well, it could also expose us to considerable upside. We have a 38% working interest in this well. As I mentioned, the company is currently building locations and preparing to move on some additional wildcats, in particular the Ellis and Nantucket prospects. These are two South Louisiana wells, which should spud in the next week -- actually, next few weeks. Nantucket is a 15,000-foot well, looking for -- between 15 to 35 Bcfe of gross unrisked reserves; and Cabot has a 35% working interest. Ellis is a 13,000-foot Bormex [ph] test with 27 to 55 Bcfe of gross potential and Cabot has a 55% working interest in this well. We are also the operator of both of those. . In the Rockies, as previously discussed, we plan to start operations on or Nekki [ph] and Raider [ph] prospects in May. These basins are the prospect that will expose Cabot to multiple development opportunities, if successful. We estimate the gross reserve potential at Nekki to be approximately 40 to a 120 Bcfe. And Cabot will maintain a 40% working interest over 13,000 acres we have around this prospect. At Raider, we'll be testing the land formation at approximately 12,000 feet. This well, if successful, expose us to 96 to 264 Bcfe of gross unrisked potential. Cabot will maintain a 50% working interest over the 5,000 acres covering this prospect. We also operate those wells.

In the east region, we have had some early success with our program with a number of wells, five recent completions. We've had up in the east. Those wells had an IP rate of 28.7m per day. Cabot has a 100% working interest in all these wells. Because of the capacity limitations up in the east we have turned these five wells in particular in line at a combined rate of 5.8m per day.

The first well we turned in line of these five was March 4, the last one we turned in line most recently was April 18th. Additionally, we have in the East six exploration wells scheduled for this year that would expose Cabot to 8.5 to 36 Bcfe of net unrisked reserve potential. We have a 100% working interest in all these wells also.

Our particular interest would be the 9,700 foot range prospect, which is a Trenton Black River prospect in South New York State. In the Mid-Continent area, we have had a recent success with our Robert Sport Ash [ph] 36 well. We had a 100% interest in this well and we've recently turned that in line on April 22nd pertain [ph] of 2.5m cubic foot a day. Again, a good well for the Mid-Continent area.

In Canada, our new frontier area, our focus continues in the Northwest Alberta, Northeast Bridge [ph] Columbia. We are pleased with the progress of our new office in Calgary, which we opened March 1st with some other things we're exposing ourselves to. We anticipate the opportunity to possibly drill two exploratory wells in this area this year, targeting deep basin and Foothill gas place. We had originally budget only a half well in this region in our earlier guidance.

I think Cabot continues to be well positioned for future growth and excited about this year's drilling program. And really looking at the financial prospects for the year in spite of our first quarter non-cash write down we did anticipate earning the profit prior to year-end and it's mainly based on our hedge position and forecast of the reasonable prices for our unhedged production volumes.

Our financial -- with our financial discipline, we should also be able to continue to reduce our debt and further strengthen our balance sheet for possible acquisitions. Again at these levels prices by year-end, we do anticipate debt to be below $300m. However, if we're able to find an acquisition, of course these numbers and forecast will change.

In terms of acquisitions, we spend a great deal of time, it's a tough market. I would like to communicate to you, however, that we are open to acquisitions and we are looking at acquisitions and all of our four core areas, as we do continue to maintain a balanced portfolio with a reserve live target 10 to 13 years.

We do gear acquisition efforts as our second component to our growth strategy. However, our main focus will remain on the 70 plus prospects we have in our inventory in an effort to balance our risked dollar exposure for our program.

Again, overall we're pleased with the number of projects and the quality of projects we have in each region. We are equally pleased with the results of our recent participation in the Central Gulf of Mexico lease sale, where we are half bidder on twelve of our sixteen blocks. Additionally, as I mentioned we are excited about our new office in Calgary. And anticipate that we will not only see short-term exposure but also we're looking at long-term exposure that that office will provide Cabot. I am confident that the -- our program will deliver good numbers at the end of 2003.

With that I will be happy to answer any questions the group might have Kevin.

And if anybody has any questions we'll ask you to signal using your telephone. Press the "" key followed by the digit "1". Again that's "" "1" to ask any questions. First up from Merrill Lynch is the question from John Herrlin.

Yes Dan, could you break down your CAPEX in terms of risk profile, not just exploration development but how much Gulf Coast, Gulf of Mexico and what the risk dollar you mentioned a lot of those?

We've about 57% of our capital program designed for the Gulf Coast. We have 21% of our capital program designed for the Rocky Mountains Mid-Continent and approximately 18m of our program designed for the East Region. Our guidance has been that we anticipate risk exploration to be about 30% to 35% of our program.

Right that I knew. But I was wondering, you know, Gulf of Mexico, Gulf Coast whether that was higher, because you are saying overall?

Yes, Gulf Coast John is going to get the majority of that the -- let me just break out region. In the East, six wells we have in the East. We have less than $1m in our exploration program for the East, even though we have a number wells and again this is on a risked basis. In the West, we have $2.9m on risk dollars associated with our six exploratory wells we have designed for the Rocky Mountains region. And the remainder of that, John, is going to be focused on the 18 exploratory wells that we have scheduled for our Gulf Coast region.

Okay, I'll be devil’s advocate here.

Okay.

With Canada, you know royalty trust are kind of gobbling up all the small companies for getting recycle managers in terms of some of the old junior operators going public with the smaller companies. What makes you think that you can really be competitive up there because the markets not exactly undiscovered?

Well, we think the status of that market up there and some of the trust picking up some of that acreage is actually an opportunity for us. One, we do feel like its putting some very qualified technical people on the street. We feel like that those qualified people are going to have ideas. We don't think that the corporate strategies of the trust are to explore. We think it's to basically click coupons based on the development and ongoing production and cash flow that they are acquiring.

So with that being said, we do feel like that there're going to be opportunities possibly on that acreage and exposure to a great number of technical resources in form of personnel that Cabot is going to be able to turn to its advantage. Frankly John, we think this is an ideal opportunity time to be up there because of some of what we see.

Okay. Thanks.

Our next question comes from Ken Beer of Johnson Rice.

Hi, Ken.

Hey guys. Actually let me follow up with John’s point on Canada, question on Canada. When, Dan you'd mentioned instead of kind of one half net well, you're looking at two gross wells is that then you're talking one net well and, or are you looking to operators those two wells? What kind's of the game plan in the second half for Canada?

Well, my speculation, as I said possibly is in stems from basically a sense from Mike Walen our Senior of VP Exploration Production and his contacts with the Canadian office. It seems like there are some ideas in the hopper that we are trying to flesh out. Mike has done a little bit more than job prospect on the back of a napkin for me but, nevertheless we are trying to focus on a couple of areas that we feel like we might be able to expose some dollars. Ken, we have not gone to the point however, on whether or not it would be something that Cabot would expose, only 50% or 35% or 80% on those particular ideas.

Okay. And would you try to operate or actually just be a non-operator at least to start?

No. Right now, we are fairly consistent on our strategy to be able to control our destiny up there. We do want to operate, again Les Watson is the individual we have hired and started with He’s up there. And he's going to manage our office up on Calgary. He has 35 plus years experience up in that area. So, we feel like we have the experience to be able to do that. We are anticipating operating whatever we get our hands at this time. It's not to say, however, if we find a unique opportunity and we have confidence in an operator and us taking on operator position that we would not consider that opportunity.

Okay. Just one - just simply here's one quick question, either for yourself or Scott or Jeff. On the marketing margin side, real solid first quarter numbers. Is that something that you see continuing or was that just kind of in the first quarter of the storage side provided a nice plus?

I'm going to turn this over to Jeff. My crystal ball is that I hope to see some consistency in this range but I'm going to turn it over to Jeff because he is the expert in this area.

Okay.

Ken thanks for the question. Actually, you hit the nail on the head. The first quarter marketing margins or growth of margins included gas, which we previously bought last summer and sold at the same time in a period. But we have those margins that are built into those numbers. In addition to that however, we didn't have quite a bit of gas that we buy on our pipeline system. And that gas is tied to prices in the region and we essentially just receive a percentage of the price we bought for what we sell it for. Those prices go higher and the percent get -- the numbers gets higher above than the percent.

Okay. So the percentage stays fixed so a higher number gives you a big -- I got you.

Exactly. So that adds to the corporate margins offering. So, I wouldn't expect that the $3.6m that we saw in the first quarter to continue because of the storage numbers, but for the gas we buy in the region up there that piece I would expect to continue.

Okay. Thanks guys.

Thanks Ken.

Before we move to our question just a reminder to press "" "1" if you have any questions. And we'll hear from Sunil Swami [ph] at Delphi Management.

Yes, hi, good morning.

Good morning.

I might have missed this but did you give guidance for your total CAPEX for the year.

No, we did not give guidance in this call. We have give previous guidance of approximately $154m.

Okay. And of that what you were talking about is the amount that would be used for the exploration side?

Yes sir.

Okay. And then secondly have you also given guidance for your exit deduction rate for 2003 or what your production will grow through the year?

We have not but we anticipate our exit volumes to be on a Mcfe basis between 100 -- 255 million cubic foot equivalent to 260 million cubic foot equivalent.

At the end of the year?

Yes.

Thank you.

And a final reminder if you have any questions, please press "" "1" please. Mr. Dinges at this point no one else has signaled. So I will turn things back over to for additional or closing comments.

I appreciate it Kevin. Again, thanks for questions. We do look forward to our 2003 effort, and we're pleased so far with our effort. I want to thank you all for your interest and tuning in to our report. I think you can anticipate that we will continue with our emphasis on the drill bit. We'll continue to look at anything we can do on controlling cost and increasing our margins and we are -- well we haven't shown anything on the acquisition, for that, we are continuing our efforts in each region to come up with an opportunity that would fit in to our overall strategy and to help us in the long-term balance our program. With that being said, again I appreciate your support and look forward to the next conference call. Thank you.

Thank you sir. Again I'd like to remind everyone that you may listen to our rebroadcast of this conference starting at 12:30 Eastern time today, through May 7th, at midnight by dialing either 719-457-0820 or you can call the toll-free number, which is 888-203-112, and enter pass code 405510 on your telephone keypad. Again thank you very much for joining us. Have a good day.