西方石油 (OXY) 2002 Q1 法說會逐字稿

Hello and welcome to the Vintage Petroleum First quarter Earnings Conference Call. This call is for the benefit of the Vintage shareholders and other interested parties and any rebroadcast of this call for commercial purposes is prohibited without the permission of Vintage.

As we indicated earlier to you, people such as press,

can listen to the conference but not ask questions. I will now return the program over to Bob Phaneuf.

Thanks very much for joining us today to first quarter results. What I would like to do is to introduce the participants and speak briefly about the agenda and then get started.

With us today Charlie Stephenson, our chairman, Craig George, our CEO, Bill Abernathy, our COO, William Barnes, our CFO, Mickey Meimerstorf our vice president and controller, Donny Hall, our manager tax, David Wilkens, manager of Argentina, Bill Dozier our senior vice president of operations, Gary Watson VP of Vintage Canada, Larry Shepard our VP of New Ventures and Julie Smith in Investor relations.

What we would like to do today in terms of prepared remarks is briefly go through earnings recap, then I will turn it over to Bill Barnes to discuss some items with respect Argentina and he will in turn turn it over to Craig George or CEO, who have additional comments about our recent operational activity and a review of key targets and the like and then we will stop and open it up for Q and A.

So, let us begin with quick recap of the quarter, production for those of you who are listening or looking at this through the web cast we have a slide on production. It is #2 and we will start there.

Production was up substantial 14 percent for the quarter to 8.3 million BOEs vs. 7.3 million BOEs last year. This came from the combination of oil, which was up 10 percent to 5.6 million barrels or about 62 thousand barrels a day vs. 56 and a half thousand barrels a day last year. In addition, we had a strong contribution to gas volumes, which were up 25 percent to a little over 16.5 bcf to 184 to almost 185 mcf per day vs. 148 mcf a day last year.

Turning to the slide 3, what you see is both the substantial increases in oil and gas volumes were offset with declining prices. In the gas of we have a dollar 95 mcf for the quarter which was down 67 percent vs. year ago quarter and in the case of oil the average realized price was 16 dollar and 18 cents down 36 percent from the year ago quarter. So in terms of oil and gas revenues, where we had a positive impact from production, it was more than offset by the decline in prices. Oil and gas sales were down 41 percent to 122.6 million dollars.

Moving to cost and expenses, LOE was down 11 percent of 5 dollar and 86 cents per BOE, compared to 6.56 in the year ago quarter. G and A was also down 5 percent in this case, to a dollar

BOE, vs. a dollar 65 in the year ago quarter. Both of these were positively affected because of the Argentina devaluation and on peso denominate cost and requirement that US dollar agreements be settled in pesos and this led to lower per BOE cost of LOE and G and A.

And Bill Barnes is going to expand on those topics shortly. Interest was up 60 percent to 17 million dollars this is principally in response to higher outstanding borrowings associated with acquisitions that were made subsequent for the first quarter of the last year.

Turning to page four, we recap our bottom line financials. Net income showed a loss of 5.6 million and 9 cents for the quarter and 63.08 million basic shares outstanding. Cash flow was 41.6 million or 66 cents per share vs. 116.6 million or dollar 10 in last years first quarter. 66 cents of share we read somewhat better than the first call consensus.

Stop here with these brief comments and now turn it over to Bill Barnes.

Thanks Bob.

The Argentina points will be covered

on pages 5 and 6 of this slide that you may have. Recent events in Argentina began in December 2001 when Argentina abandoned the fix peg of the pesos to the dollar of 1 to 1. Since then peso was traited down to approximated 3 to 1 exchange basis. Early January. A new law mandated that all existing US dollar denominated agreements to be settled in pesos and the parties were required to negotiate an equitable share, you know the impact of devaluation on these transactions

Under the current temperate regulations, the transfer of cash internationally requires Central Bank approval and beginning with the April sales, all oil exports subject are to 20 percent tax, which expires in five years. Reaction of these changes as we previously have announced we reduced our capital expenditures in Argentina which in turn reduced our 2002 production

outlook by 600,000 BOE. We also increased our oil exports in April to allow all free cash flow to be received in the US and the exports are paid in US dollars to US bank accounts.

The settlement in pesos of the existing US dollar denominator and agreements were substantially completed during first quarter. These mandated equitable sharing has the impact of devaluation on the settlements resulted in reduction in our oil revenues from domestic sales in Argentina of approximately 8 million dollars are about 2 dollars and 73 cents per Argentine barrel or dollar 46 per total company barrel. The impact on our realized price is during the first quarter

This eight million dollars was offset by the positive effect of the

mandated settlements on our US dollar denominated cost coupled with the devaluation impact on the peso denominator costs offset the revenue shortfall completely resulting in no net effect for the quarter. Now the existing agreements subject to these mandated settlements process beyond the first quarter. So future quarters are not impacted by that provision.

Going forward, we will be impacted by the 20 percent export tax as well as the devaluation. Turn to page 6, it summarizes for you our expectations of the impact after the remainder of 2002 over the last three quarters of the year based on the both export tax and the devaluation effect. The export tax affects not only our export sales but our domestic sales as our domestic prices were adjust to parity with export sales value net of export tax and this resulted in the impact over the last nine months of approximately 30 million dollar reduction.

The impact of devaluation on our peso denominator gas revenues and expenses has a net positive impact of about 15 million dollars. These result in an impact on EBITDAX for the last nine months of the year of a negative -- of about 15 million dollars or 10 million dollar reduction on cash flow, net on the Argentina income tax savings of 5 million dollars. In the core sections we assume that exchange rate will remain at 3; 1 rate that is currently is settling throughout the remainder of the year and we also and some inflation amount and arriving at these estimates.

Referring now to page 7of the slide I will briefly discuss our recent financing activities, we just recently closed on the issue of 350 million dollars of our eight and quarter percent senior notes to 2012 and the same time, I put in place the new 300 million dollar revolving bank facility. The first notes along with 174 million of borrowings under the new bank facility were used to repay the old bank facility of about 413 million and call a portion of our 9 percent senior subordinated notes due 2005 for 103 million with a remainder going to pay recent expenses of the offerings.

These financing extended the maturity of 350 million of our debt from 2005 and 2012 and reduced the level of our revolving bank debt on our capital structure for over 40 percent of total debt to about 17 percent of total debt. Volume based under the new bank facility is 300 million dollars, secured by 80 percent of the US properties and provides us with unused availability in excess of 100 million dollars.

At this point, I will turn the presentation over to you Craig for operational outlook.

Thanks Bill,

This afternoon, I will give you an operational update and talk about our financial plan first on slide #8.

Canada. Here we are pleased with our progress in Canada this year. Drilling program is on track. Our winter drilling program is complete. We had favorable results in Sturgeon Lake and Gerard east of

and resorts. Recently we had a discovery at Hamlin Creek and that is a new prospect generated by the Vintage team. It is a two-zone discovery tested of about 8mcf a day gross. We have a 100 percent interest in the prospect and we get hooked up some time in next two months. At this point of time, we have a drilling hiatus while break up is underway but our summer drilling program should begin late this month.

Production responding to successful drilling. Our first quarter production is on target and our 2002 full year target remains the same at 6.9 million barrels equivalent, Organizational enhancements, I talked about last quarter are bearing fruit for us right now. We have implemented our discipline production focus that is both for day-to-day production and production growth and our new ventures group has demonstrated success both in the Hamlin Creek discovery that I talked about a few moments ago and other prospects that are keyed up for drilling

this year and in 2003. The bottom line in Canada is that we have a great group of people in Calgary and a solid inventory of opportunities and we are expecting a lot of good things this year.

Moving on to slide 9, in the United States we are also on track with our exploration program. The Southwest Abbeville gas exploration well is drilling near its total depth of 18,000 ft, the gross un risk reserve potential in excess of 100 bcf and we have a 25 percent working interest. The net prospect the Rashad prospect is the first in Tiger Bayou area and will spuds that in third quarter of this year. The gross un risk reserves here also are in excess of 100 bcf and here we have 38 percent working interest.

The Val Verde basin is our West Texas, New Mexico horizontal drilling program. There we control over 3900 acres, and our drilling will begin there in the fourth quarter and we have a 100 percent working interest in the anchorage that I have described here. Little Temple is at South Louisiana wildcat that we have talked about before. It has been drilled and cased.

We found 53 feet in net pay in three different zones and right now completion is underway and we have a 35 percent working

interest there

Moving on to slide #10, our drilling issues there is a largest upside potential is definitely in and we will start our drilling campaign with three drilling prospects and all of those targets sizes in excess of 50 million barrels or greater. We also have one possible occasion; we may make drill, which will be an appraisal well to our

discovery that we drilled in our 2000 campaign. Drilling in this campaign will begin in the third quarter. We have a 75 percent working interest. So, all in all our exploitation and exploration programs are on tract and help to have more good news to talk about it if the year goes on.

Next on page 11, we have our 2002 targets and we have adjusted these targets upwards based on oil price of 23 dollars and gas price of 3 dollar per

and BTU. Our production outlook remains the same at 32.8 million barrels equivalent.

and were projecting EBITDAX of 260 million, cash flow 188 million and we are keeping our capex steady at 144 million.

Last quarter I handed a deleveraging plan and since then we have announced the target of 200 million dollars and specific steps that were taken those were shown on page # 12. The first step is sale of properties in Ecuador and Trinidad in 2002 since we talk to you last week, we have engaged

to coordinate the sales force and we are anticipating a third quarter close.

We are also selling heavy oil properties in California as previously and to help to close that this quarter. Second will be applying cash flow and excess of 144 million dollar capital budget and based on our targets that should be upwards of 35 million after dividends. Third, we have an aggressive cost reduction program underway and then should have a positive impact of several million dollars this year and fourth, we are reviewing our portfolio for additional sales or equity capital market transactions if necessary to close again to achieve the 200 million dollars. Pro forma results of the plan will be 812 dollars of long-term debt over 300 million dollars liquidity and debt to book capitalization of 49 percent.

As you can see on page 13, all of that consistent with our long-term financial goals of net to book capitalization of 50 percent or better. Long term debt to capitalization of target 40 to 55 percent range and then to keep our balance sheet solid and continued to grow with finance any larger acquisition with an appropriate equity component. Next, we layered in some additional hedges recently particularly some costless collars from June to October with the floor of 3.50 and cap of four dollars and then November to December floor of 3.50 and cap of 5.10. Will continue layering additional oil and gas hedges, as we deemed appropriate.

So in conclusion, we are executing debt reduction as we promised. We are making money in Argentina and limiting capital spending for the time being. We turn the corner in Canada, production is on track. Our exploration is on plan with some homerun potential in Yemen later this year and with our balance sheet strengthened and asset portfolio streamlined

We have a terrific platform for continued growth.

And with that I will turn back to the moderator for questions.

Thank you, if you would like to ask a question, please enter the queue by pressing the one on your touch-tone phone in the interest of allowing all the questioner to have an opportunity to ask questions. Vintages has asked that each participant limit themselves to one question and one follow up you may return to the queue to ask them. If the question you intended to ask has already been answered and you don't have any other question to ask please press the pound sign on your touch-tone phone to remove yourself from the queue. Again press the 1 on your touch-tone phone if you would like to ask a question.

And we go first to Gary

from Bear Strens. Please go ahead.

Hai good afternoon.

Good afternoon.

Question on your guidance, you know, I guess some looking at 33.3 million barrels of the year, a particular first quarter number just annualized come up to 33.3, you seem to be guiding a little bit lower than that. Where do you think you see weakness going forward? Is it Argentina?

Weakness yes and volumes declining at this point?

I guess from saying somewhere along the line, we going to lose volumes compared to the first quarter. Are you factoring in that sales or?

Yeah, Argentina was the area where volumes will be falling off little bit since the drilling program has been completed for the year

declines somewhat

.

Just as follow up, any sense just directionally, second quarter production, can you give us some hits on where that could come in?

You are talking total company, Gary or what?

Yeah, as much color as that you can provide of the total company will be great.

I think getting to our 32, almost 33 million barrel mark would have pretty consistent quarter to the first three quarters may be a little less in the fourth quarter, of course an individual country, that is going to move round a bit. But I think relative to your first part of your question with respect to Argentina and Bill's answer, I think you know, you can see that step down little bit each quarter in the rest of the year.

Okay, I do have another question but I will just go back in the queue.

Hear now to David

from

Good afternoon, just a quick question on the Little Temple prospect that you had success that from remembering

of about 50 bcf, you want 35 percent. Did you get any test rates out of your completion yet?

Not yet.

Not yet and with those reserves appropriate approximately.

I don't think we are

on that yet,

Okay. That is it. Thanks a lot.

We are going now to Ken

from Johnson

. Please go ahead.

Sure, I don't know if this is Craig or Bill. But just go if you go Yemen which

indicated, it is going to be exploration spring for this year and assume kind of best case scenario, that there are one or more discoveries from the free place. Which sort of timetable are you looking at from actually seeing production from backs advantage? Is that old type of timetable or is that somewhat or is it a discovery you can get on a fairly good place?

Those of the range probably to talk about if we have the significant discovery with the time probably we work through the commercial, if the facility built it will be an 2004 type saying, but there is a possibility depending on which one of the prospects we have a discovery in and the ability to do some existing spare capacity that may be in the areas that we could get something on, may be of,

but I wanted to say more than likely, if there

we are going to look at 18 to 24 market.

Thanks guys.

Right Ken.

We got next Kelly Krenger from Banc of America. Please go ahead.

Hai, just a quick question on the asset sales that you commented on. I think already you said that the in Ecuador and Trinidad you have engaged and

in the hope to have that close by the third quarter and in California, did you say, you hope to have it closed in the second quarter.

Yeah. That is correct. We hope to have that taking care of sometime in the next 60 days.

Okay, have you got any sort of letter or tender or anything signed. Can you give us any sense of kind of the value you expect out at California?

Yeah. As far as documentation, we are under contract right now and it is in the range of 18 million dollars.

Okay. Thank you.

We are next going to John White from BMO Nesbitt Burns

Was there any capitalized interest during the quarter?

Only those 100,000 dollars. It is not significant normally.

Thank you very much.

We will go next to John Harland from Merrill Lynch. Please go ahead.

Yeah, hi

What is the capital commitment to the Yemen program?

I make sure of the capital that we are looking at will be around 12 million dollars.

Once again to ask a question please press the one on your touch-tone phone. We have not got Frank brakin from Jeffreys. Please go ahead.

Hi, couple of questions related to asset sales.

First with regard to Ecuador, it doesn't appear that your guidance has assumed sale and the reduced volumes. Is that fair statement?

That is correct.

That is correct.

Could the same be said for the California? You got a deal to sell, you have this. Is that loss of production inheritant in your current guidance?

Those volumes have not yet been excluded.

I notice this to be on the question, could you tell us what kind of volume loss you would expect on the daily basis?

No other

question,

We can answer the volume question Bill.

The impact on the EBITDA, cash flow targets will not be significantly impacted to 100 net barrel oil well in California and the other thing, I point out there is that, it is all over the heavy oil that we have

from the US.

We ought to see pretty decent drop in LOE in the US.

Yes. It is small and roughly about 1.4 million a quarter.

Tax included?

That is correct.

Great! Thanks very much.

We have got Sandra

from Goldman Sachs. Please go ahead.

Thank you. Good afternoon. Can you hear me my phone has not been working today?

Yeah Sandra. Can you speak up just a little bit we can here you?

I am sorry. and fine. Can you hear me now?

Yes better.

Okay thanks. Two questions. First of all could you expand a little bit on the aggressive cost reduction program?

Cost reduction program.

We have a least operating expense task force, which is in progress at this part. It is something that is composed of individuals from US, Argentina and Canada and the focus is on some of the largest property that we have in the US and Canada, and probably Argentina little bit lighter in the year to focus primarily on the reduction of pitched operating cost and some of those more significant sales.

We are looking to have something in the range of what we help would be might be 15 percent LOE reduction in each of those fields and in the composite hopefully something as much as profit in center to the whole company.

And I am sorry, I just follow up that the improvement is or is not, is it your 2002 guidance.

guidance.

May I ask another question?

Sure.

Can you just sort of tell us, who had bit

sundry now on the outlook for oil prices, I guess, I am little surprised over the last two or three months, but can you sort of tell us what reason when you are going through?

Yeah. It is always our crystal ball and on oil prices

on that so it is better than anybody else but at this point of time, it seems like inventories are relatively tight in the US. None of us knows where there more war or peaceful breakout already given today. I pray for peace but I fear war so. As a result, I think we approximately, likely to remain strong to its summer time.

Okay. Thank you.

So we now come back to David Heikkinen from Hybernia. Just a follow up couple of questions if you could.

In Ecuador, the sales you have 16 million dollars in capex targeted for 2002 What is the sale and how much of that would be spend and would you redeploy the additional capex from completes off and it is

spending money. Well, we have started with the well under drilling location already. The rig and movement was in the mud and we were normally spent 15 or 16 million dollars for optimistic year. Yet a little bit will depend up on what the effective day of the sales will be and we have determined yet specifically what it would be, say you will allow more in the September or October month and

but initially the problem would be, probably would not be redeployment capital but that has not been a final decision.

Okay. That is it. Thanks a lot.

Once again if you would like to ask a question, please press the one on your touch-tone phone. We go next to Tom Covington from A.G. Edwards. Please go ahead.

Should we expect the US gas pricing declines to flatten from here or they off fairly substantially in a sequential basis in the first quarter?

I think the answer is yes. While Bill is kind of preparing the answer, I think our guidance have been, that we would expect the first quarter to be a little bit weaker, than what you had coming out of the fourth quarter for a couple of reasons and then I think you can expect build up in the second third quarters.

Likewise in Canada, the turn around of that expected to be volume of building to the rest of the year.

that?

Yeah we are looking at slight build of the volumes over the year. Okay.

One other question, Larry could you give us a little color on the Yemen prospects. It has been awhile, since we talk about?

Yeah, there are three types prospects that we are planning to grow. The first is the classical exploration targeting the

which is the interest of

which is referred to

. We have got 2 or 3 really really strong prospect in the

. That is the zone cost produces in the adjacent properties and we quite started about what we are seeing there. We also have a target that is actually couple of targets that are sub stalled. There was a well that was detected by Shell in the early 90s called the

, we will likely drill a offset where we had a shelf in the land, the sub-salt zone and again our 3D work

has given us excitement about the potentially of that is as it would be a significant news covered in the Basin.

The other thing that we are working on the shallow, super salt zone which Craig referred to, that we had a discovery in the Harmel. This is a heavy oar. It is about 20 degree

and close to the light production that typically comes out of the basin. We are currently in discussions with government in regards to the heavy oil and the potential of it being commercial and trying to work out of the scheme where about we might be able to follow up with some long-term testing and may be even a pile of projects.

In fact I was in Yemen in last week, just discussing that with the government and we are optimistic that, we will be able to work something out there and if we can do so, here in the next two or three months, then we would likely go ahead drill in the place of Harmel that we could put a long-term test and began to try to see what it would to take commercialize those heavy oil and reserves.

Thank you very much.

Okay, one last opportunity to ask questions. Please press the one your touch-tone phone. Here we go back to John Harland from Merrill Lynch.

What is your estimated interest expense

the year?

The run rate is somewhere around 20 millions dollars a quarter.

Thanks

Okay.

Okay, one last chance, please press the one on your touch-tone phone to ask a question. Okay we have no further questions at this time. I will turn it back to Bob Phaneuf for concluding comments.

I am not sure we answered all Frank

question, but I think Frank your question with respect to volumes and equity, if you look at our total year sort of guidance, it would suggest that on an average we expecting to produce about some thing in the low 3000 barrel a day kind of rate on the average for the year. Given what we reported in the first quarter and hope that helps that with your question.

Well. There are no more questions. We thank you very much for taking the time all you who join us today. If there were any questions that we didn't answer or you would like additional explanation on please call Julie or me. We will be around this afternoon 918-878-5451.

Thanks very much

Bye, bye.

Thank you. That does conclude the Vintage Petroleum Teleconference for this afternoon. Thanks for joining in and have a great day!