西方石油 (OXY) 2004 Q1 法說會逐字稿

Good day, everyone, and welcome to Vintage Petroleum's first-quarter 2004 earnings results conference. (OPERATOR INSTRUCTIONS).

I would now like to turn the conference over to your moderator today, Bob Phaneuf, Vice President, Corporate Development.

Go ahead, please.

Thank you all for joining us today on Vintage's first-quarter 2004 conference call for our earnings discussion.

With us today in attendance from Vintage is Charlie Stephenson, our CEO and Chairman.

We also have Bill Barnes, our CFO.

We have Bill Abernathy, our COO.

We also have with us Larry Sheppard, our Senior Vice President of New Ventures.

Also joining us is John Menders (ph), our U.S.

Controller, and also a new person to introduce too many of our callers, Barry Gamano (ph), who just recently joined our IR, as well as other Vintage representatives.

The agenda today that we plan to follow -- we will talk very briefly about a couple of highlights.

I will turn it over to Bill Abernathy, our COO, to talk about an operations overview and our revised targets.

He will then also be followed by Larry Sheppard, who will talk about an exploration update, and Charlie Stephenson will give us a wrap-up with his thoughts.

So without further ado, for those of you who are listening via the webcast and have access to the slides, if you will turn to Page Two.

The first-quarter highlights I think for the quarter is we had a nice strong solid quarter.

Net income was strong.

Cash flow was about 13 percent above the recent First Call estimates, and this is based on about 65 million diluted shares outstanding.

And we continued to have improvement in our balance sheet with long-term debt of 620 million at the end of the quarter, net of cash on hand.

With respect to first-quarter average realized prices on Page Three of the slides, they were a pretty neutral influence this quarter.

Oil, after the impact of hedges, was $28.50 for the quarter versus $28.20 in last year's quarter.

Similarly, natural gas was $3.84 in Mcf in the quarter versus $3.88 last year.

I will now turn to Page Four of the slide.

We can look at comparative first-quarter results of revenues, income from operations and cash flows.

From an revenue standpoint, we had $173.4 million for the quarter versus $185.7 million in the first quarter of last year.

Income from continuing operations was $19.1 million versus $22.7 million for the same quarter last year, and cash flow from continuing operations was $77 million versus $85 million last year.

With respect to outstanding debt, Page Five on the slide shows you how debt has improved since year-end '02.

It continued to come down to the point that I mentioned earlier net of cash on hand a total of $620 million.

We have no maturities on our notes prior to 2011 and have unused availability under our bank facility of approximately $161 million as of the end of the quarter.

That concludes my remarks, and I will turn it over to Bill Abernathy for an overview of operations.

I am going to spend the next couple minutes discussing particularly production in the first quarter and then our revised 2004 targets.

For those of you that are on the webcast, if you will move onto slide number six, you can see that in the quarter we produced 4.2 million barrels of oil and 13.9 Bcf for 6.5 million BOEs, and that is about 3 percent ahead of what our internal expectations were for the quarter.

The U.S. was significantly ahead of expectations because of some very good exploitation success on some gas properties, primarily recompletions in Texas and the earlier than expected return to production of the oil properties shut in as a result of the California fires in October of '03.

We obviously very happy with the success, and it is going to allow us to raise our guidance for oil and gas production in the U.S. for the year.

The U.S. results for the quarter more than offset the shortfall in expected production in Argentina, which resulted from a strike of contract oil field workers in late March and early April.

The effect on Argentina production for the first quarter was about 165,000 barrels of oil and about 135 million cubic feet of gas, and there will be a slightly larger impact on the second quarter, then a much smaller impact on the third and fourth quarters going forward resulting from an interruption of drilling and work-over activity during that time.

On the slide, you can see the comparison to first quarter '03 volumes, and you can also see the shaded area that represents the volumes that were produced in the first quarter by '03 by properties that we divested in the U.S. and Canada after the first quarter of last year.

So what on the surface appears as a 7 percent volume decrease from the first quarter of '03 to '04, actually become just 5 percent when you account for those divestitures.

Then further when you add back the volumes that we would have produced in Argentina had it not been for the strike, the net difference actually turns out to be something less than 3 percent.

But I think what is most important here is that we were ahead of our projections for the quarter, and this series of events and activities in the U.S. and Argentina have an effect on our production forecasts going forward, which is in the composite positive with U.S. exploitation success more than offsetting the Argentina strike-related reductions.

So as a result of that, we are raising our '04 production targets slightly to 27 million BOE.

For those of you on the webcast, slide seven shows our revised operational and financial targets For '04.

The Nymex oil price has been increased from $29 to $32 a barrel.

Nymex gas prices have been increased from $5.00 to $5.25 per MMBTU.

With the new production estimate of 27 million BOEs, with LOE for BOE projected to decrease from a little over $9.00 to $8.88 per BOE because of export taxes being paid on fewer Argentine barrels and with the capital budget remaining at the $225 million level, our cash flow is now projected to increase about 17 percent to $283 million, and EBITDAX is projected to increase about 14 percent to $385 million.

With that, I will turn the mike over to Larry Sheppard for a quick exploration and activity update.

Let me direct your attention first to slide eight in the webcast presentation, and I will start off by giving you an update on the activity in the United States.

As far as our Gulf Coast exploration program goes, first I would like to mention that we are continuing with the good momentum that we gained in the latter part of last year with a discovery that we made on our internally generated Highland 65-L prospect.

That was a prospect that was based upon a miocene gas exploration target, coupled with the redevelopment of additional miocene oil and gas sands.

With a completion that was affected during the first quarter of the third well drilled on the prospect, we have now successfully drilled and completed three wells.

Platform facility and pipeline work is underway, and we anticipate that we will commence production from this prospect in July at a gross rate between 20 and 30 million cubic feet equivalent a day or about 10 to 15 million equivalent cubic feet a day net of interest.

Vintage operates this prospect, and we have a 65 percent working interest in it.

Recognizing the success that we had on our exploration target, we identified a separate (inaudible) block that we believe to be similarly prospective immediately West and subsequently acquired that lease, Highland 56-L in the April (inaudible) Texas lease sale.

We have that targeted to drill an exploration well on that prior to year-end to continue to follow up on the prospectivity of this area.

Additionally, in the Gulf of Mexico, we participated with industry partners in the federal OCS 190.

In April we submitted the high bid on two blocks in the West Cameron area offshore Louisiana, and pending the award, those blocks by the MMS, we would anticipate drilling one prospect there prior to year-end.

Moving to the offshore area of the Gulf Coast, we have one prospect that is about to spud.

It is our east Donner prospect located in South Louisiana.

This is a 3-D generated 16,500 miocene test, and that well should commence drilling here in just a couple of weeks.

New Field is the operator, and Vintage has a 40 percent working interest in the prospect.

We do continue to work several additional prospects onshore Gulf Coast, a couple of them that we believe are very near in hand, and hopefully over the next three to six months, we will be able to capture a few more of those.

In other areas of the U.S. onshore, as highlighted on the slide on Page Eight, in California by the end of this month or early next month we as an operator will spud a 12,500 foot oil prospect in the San Joaquin Basin in California.

This is a somewhat new place concept that we are working.

We are a 50 percent working interest owner in the prospect.

If this proves successful, we will have production on probably by the third quarter, and we could even begin drilling some follow-up locations prior to year-end.

And finally, let me mention in the U.S. what we had noted as far as part of our budget.

This year we have allocated approximately 15 percent of our $38 million domestic exploration budget to pursue unconventional gas resource projects.

The first project we have at the very verge of commencement, and we would anticipate being able to move that project forward in such a fashion that we could initiate drilling activity hopefully by midyear.

If you will turn to the next page, I will switch now to the international arena, and obviously as you have noted by our recent press releases, we are quite pleased with the activity in Yemen.

We are moving forward with the continuing development and exploitation and exploration in the S-1 Block in Yemen.

During the first quarter, we were very successfully.

We drilled a well in the Western limits of An Nagyah.

This effectively extended the known productive limits on the West side of An Nagyah, thereby increasing our reserves in that structure.

We have subsequently, as I believe you saw last week, drilled another appraisal well that further gave confidence in the area to the East, and we are currently drilling another well, our An Nagyah 7, which is currently drilling and should reach TD and be completed this month.

Following that -- and I am sorry I should have noted your attention on Page 10 of the webcast, which shows the locations of those wells -- and now if you will flip to Page 11, following the completion of the An Nagyah 7, we will move to our Harmel prospect.

Harmel was a discovery that we made in late 2000 in our first drilling campaign.

We found a brand-new previously untested reservoir in the Shibuya (ph) Basin.

These are above the soil.

We call them our supra salt reservoirs.

We produce these reservoirs at rates from 2 to 500 barrels a day.

However, the test from the initial wells were not enough for us to confirm commercial viability of this prospect.

We are going to drill an additional well -- our Harmel Number 3 -- and that will commence drilling in June.

We are going to cores to continue the evaluation of this new reservoir target.

If we can prove the commercial viability of the supra salt carbonates, there could be a significant reserve exposure.

And then lastly, let me mention before I leave, Yemen.

Just a quick call date on our field development activities at Managhei (ph).

As noted in the press release last week, our early production facilities are up and running.

And I would like to just again mention the fact of the timing.

We first began to talk to the government about commercialization of block S-1 in October.

We achieved official declaration of commerciality in December.

And then only three months later, we initiated first production from these reservoirs.

And I think that is a tribute to our people that are working on the project, particularly those in the country, and I think it is also a tribute to the Ministry in Yemen for working with us to move this project along at such a rapid pace.

Our current production is running around gross 2000 barrels a day.

We will add a third well to the production stream next week, and at that point, our capacity will see 3000 barrels a day, which will allow us to meet our 2500 barrel a day target.

Finally, our engineering design work is underway for the permanent facilities.

We would anticipate procurement to begin somewhere around midyear.

Construction should begin late third quarter, early first quarter.

We are on track for being able to complete the 10,000 barrel a day facility in order to commission those facilities and then begin production through those in the second quarter of '05.

Lastly, Page 12 of the webcast.

In Italy, we have now obtained permits and have completed the location for our first drill well to test our Po Valley pliocene gas exploration concepts.

The rig is currently moving onto location, and we would anticipate to spud this well before the end of this month.

I would just mention that if our prospect concept and our new technological approach to evaluating these opportunities proves successful through the drilling of the first couple of wells, we believe that there are numerous similar follow-up opportunities in the Po Valley.

And that includes the comments I have on the exploration activity for Vintage.

I will turn it over to Charlie to wrap up.

Good afternoon, ladies and gentlemen.

I think we have some exciting things going on here in the Company as I come back.

Our goal still is to grow this Company going forward by doing what we do best, and that is acquiring and exploring with some very focused exploration activity, which I think you have heard described this afternoon.

As far as acquisitions are concerned, that is bin back in the deal flow.

I am very encouraged about what I am seeing.

There are a lot of deals on the market.

A lot of independents, both public and private, are making themselves available.

So the next -- I guess the rest of this year should be a pretty exciting time.

We are looking at a lot of deals.

We are involved in a lot of deals, and we need to execute and make some of those deals come through.

I think the next three or four months will be a very interesting time for Vintage.

As you have heard what Larry talked about, some of our drilling activity is going to happen here very shortly.

So as we test the Italy prospect, that could be something important for the company.

One other thing in Yemen is the the An Nagyah structure that we are drilling has several other fault blocks encompassed in it, and we will drill and test those this year.

Also, we might very well drill an additional exploration prospect there if we continue to have the success that we are having right now.

So I would like to say just going forward we are enthused about what we have here.

We are enthused about the activity level, and I think this should be a good year for Vintage.

Thanks, Charlie.

We can now open it up for Q&A, please.

(OPERATOR INSTRUCTIONS).

Brad Beago.

I guess I was interested in some more details on your San Joaquin prospect.

What exactly is your target there?

How did this come about, and what do you think we could see going forward?

This is Larry Sheppard.

I probably don't want to talk too much about that because like I said it is a new prospect concept.

If it works out, we think that we have the ability to replicate that, and so I probably don't want to speak much about it right now because I might clue other people into what we are thinking.

Okay.

This is oil, however?

Yes, it is.

It would be oil, and it typically (multiple speakers)

It would be heavier oil, or is it --

It would be mid-gravity oil.

It would be typical of some of the other production that is found in the San Joaquin Basin that is not heavy.

All right.

And then I guess secondly, your net volumes at Yemen what are they today, and what do you expect for the second quarter?

Basically you can achieve the net or about 52 percent of the gross volumes.

Okay.

So I think when we get to 2500 barrels a day, I think our net is, what, 1300.

And we should (multiple speakers)

What realizations are you seeing there relative to a WTI benchmark.

I believe that $3.00 off of WTI reference (inaudible).

So it sells roughly parity to dated Brent?

It works off of a dated Brent price, and I think there is a deduction, a location deduction of a $1.00 a barrel off the dated Brent.

So it is more or less $3.00 off (inaudible).

All right.

Great.

I will let somebody else ask a question.

(OPERATOR INSTRUCTIONS).

Joe Allman, RBC.

(technical difficulty)-- and might we get a chance to move some Bolivian gas towards Argentina?

Could you repeat the question?

We had some overlay coming in there, and we did not hear the whole question.

Sorry about that.

The energy crisis in Argentina, how has that impacted Vintage so far?

I know you folks had to deal with the strike there.

But do you foresee the energy situation in Argentina impacting Vintage?

And in terms of Bolivian gas, I know the market for Bolivia is primarily Brazil.

But might you be able to get some Bolivian gas to Argentina?

This is Chris McMahon.

I am the General Manager of International.

I believe that there is possibly an opportunity for us to move some gas into Argentina right now.

You have probably heard, Joe, that there has been discussion between the Presidents of Bolivia and Argentina.

You have seen the agreement to move up to I believe 150 million cubic feet of gas a day from Argentina under a six-month contract.

The details on how they are going to aggregate that gas back to the producers at Bolivia has not been completely disclosed yet.

We are certainly working on all of those fronts I can tell you that.

We are doing everything we can to get a piece of that.

Can you talk about other ways that the situation in Argentina has impacted you, or what you think the impact will be going forward?

Well, probably with respect to gas, that is not a big issue for Vintage particularly, except in the prices that we are likely to be able to get for what we were able to produce obviously.

We work for the most part in an oil basin, and we do produce maybe in the range of 30 million a day, (inaudible) and some days as high as 35 or 36.

So while there have been some times in the past when we actually did not have a market for all of the gas deliverability that we had, today we are able to sell all of the gas that we have for availability.

So perhaps there is a little bit of upside to what gas volumes might be.

Certainly gas prices are going up in Argentina, and so we are certainly able to benefit from those.

So we were maybe getting 35, 40 cents for the gas, maybe a year ago.

At this point, we are getting in some cases 70, 80, 90 cents in NCF in some of the gas that we are selling.

What is the most that you can produce in Bolivia in terms of gas if you could produce everything?

In the 50 to 60 million a day range is the gross production invested.

The net of that would be in approximately 30, 30 plus million.

(OPERATOR INSTRUCTIONS).

Leo Mariano (ph), Jefferies & Co..

Yes, just a quick question on the share count.

I noticed it dropped considerably in the first quarter here.

I just wanted to see if there is an explanation for that.

We are looking it up here.

I was not sure if you bought back any stock.

I think what we are looking at shows that about 64.98 million shares of the end of the first quarter versus about 64.27 million shares at the end of the fourth quarter last year.

I am not sure we are following your question there.

Maybe I am looking at the diluted number.

I saw a diluted number of about 66 million in the third quarter and a little more than 66 million in the fourth quarter.

Now it is about 65 is what I was looking at.

I think we are going to have to look at the diluted calculation and get back (multiple speakers).

There were no significant share repurchases that would trigger that.

Okay.

Just another quick question here as well.

I guess according to your current tax portion of the total taxes is about 95 percent this quarter, about 5 percent deferred.

Any idea what we can expect going forward in terms of a breakdown between current and deferred taxes?

For the full year, we are looking at about a 75/25 split between current and deferred and at about the same effective rate that you're seeing in the first quarter, which is about 40 percent.

Brad Beago, Credit Lyonnais.

One more time, guys.

I guess one question I had regarding Canadian production, you did not discuss really any drilling that went on I guess during the first quarter.

Would you say that in general we will see both oil and gas production in Canada trending off during the course of the year, or whatever you drill during the winter, do you expect to see a pickup second quarter?

How should we look at that?

I think for Canada for the year, the projection is unchanged at about 3.3 million BOE, and we produced about 900,000 BOEs in the first quarter.

So that suggests a marginal trailing off as we go forward during the year.

Would you say the same thing will probably occur in '05?

The same kind of trending off.

I think it probably would be premature to say that at this point.

There is obviously some exploration activity that is going to be going on in Canada for the year, and the risk volumes that we have in for this year actually are not very large.

But we haven't projected really '05 at the moment, so I think it is probably premature.

You may have already said this in some of your slideshows, but the Po Valley test, is that an expensive test?

What kind of depths are you targeting, and is that a gas prospect or an oil prospect?

It is a gas prospect.

It is a pliocene probably.

We think it's a combination structural strata graphic type trap.

The depths that you are looking at are going to be maybe at the very greatest 2000 meters.

So 6,000 feet or so.

The first couple of wells will be a little more extensive because we are going to do a lot of testing.

But if we prove the concept, they won't be overly expensive wells.

And is there service infrastructure available in the region?

I am not that familiar with it.

Yes.

The Po Valley was the kind of backyard for E&I Agip forever.

So there is gas infrastructure all over the place, and it is a mature area.

In fact, actually where we are drilling is just immediately east of a 400 Bcf field.

And you showed I guess a Geochem survey in your slideshow.

Have you shot some new seismic or acquired some new seismic, or how are you putting this together?

No.

What we did, and this is really testing our concept, there was a fair amount of 2-D seismic that Agip had obtained over the area, so we purchased that data.

We reprocessed the data and did some amplitude extract work, and then we matched that up with the Geochem work that we did, and that is a part of our technological methodology approach on this thing.

Any if that works, if we find that we have got the key, then we will shoot new seismic.

Okay.

Well, great.

Good luck.

Thanks.

(OPERATOR INSTRUCTIONS).

Mike Smith (ph), Bank of America.

Can you just provide some additional color on the unconventional gas plays you are looking at?

Mike, what I can tell you is we started off a little over a year ago assessing broadly what we believe to be all of the unconventional opportunities in the U.S..

We surveyed over 66 basins looking at really all three of the major types of coalbed methane, the Basin Center, continuous gas type, gas (inaudible) prospects and then also shale gas.

Where we have focused our attention at the moment, we have got two or three that we are kind of teed up on.

And principally the ones we are looking at right now are a combination of shale gas and Basin Center gas systems.

But again, it is a little bit premature because we are still very early on in these for me to be much more lucid than that.

Hopefully by the second quarter, we will actually be able to have an area on a map, and then I think at that point in time I can talk much more freely about it.

Charlie, you mentioned that you are seeing good deal flow.

Could you characterize whether you are looking in the U.S., Canada, international, and the size of acquisitions you are looking at?

There is quite a few in the U.S..

They are gas, they are oil, kind of a variety, and they are from major companies down to small independents or larger size independents.

Some private and some public.

So it is a whole mishmash I think here in the states.

But it's a good opportunity mix.

We are looking international.

There are several projects that we are looking at right now, both South America primarily.

And how big a transaction would you be comfortable doing and financing it with the current balance sheet?

Well, I think any sizable transaction would have a segment of stock equity involved in it.

You know, we have got the capability to look at probably $400 or $500 million size deal.

And I say that because we have got about $250 million worth of cash flow that if we were to choose to do so, we could apply that over the year towards the pay down of the acquisition.

And the acquisition also will have some early cash flow, too.

But we have a bank debt that is available to us, and like I said, I think we would use equity.

We need to get our debt to cap down to lower levels than it is right now, and we will work on getting that done this year.

We have no further questions in the queue.

I would like to turn the program back to management for additional comments.

If we have no additional comments, we do appreciate your joining us this afternoon, and if there are any additional questions that come up, please give me a call at 918-878-5451, and Gary and I will try to answer your calls.

So thanks once again for joining us.

That is all for today.

This does conclude today's teleconference.

We do appreciate your participation.

You may disconnect at anytime.

Thanks and have a great day.