西方石油 (OXY) 2004 Q2 法說會逐字稿

Good day and welcome to Vintage Petroleum second quarter conference call.

At this time, all sites have been placed into the conference in a listen-only mode.

There will be an opportunity for questions later in the program.

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I'd now like to turn the conference over to your moderator today, Mr. Bob Phaneuf.

Go ahead please sir.

Thanks Matt.

Thanks for joining us for today's call to review Vintage Petroleum second quarter.

With us today we have Charlie Stephenson, our Chairman and CEO, Bill Abernathy, our COO, Bill Barnes, our CFO, Larry Sheppard, our senior VP of new ventures, Mickey Meimerstorf, our VP in controller, Chris Jacobson, our Vice President of operations, Chris McMann, manager of International.

Mike Kyle, manager of International Finance, and Gary Gamaneaux, in Investor Relations.

Our agenda today is as follows.

We'll briefly review a few highlights from the quarter.

I'll turn it over to Bill Abernathy to talk about production in the second quarter as well as our revised targets for 2004.

He will turn it over to Charlie Stephenson for overview comments and closing of the prepared comments.

And then we'll open it up for Q-and-A.

So with that in mind, let me jump right into it.

For those of you on the web cast, seeing the web cast.

On page two, we describe our second quarter highlights.

Essentially we had a very strong quarter.

Net income was up to $37.4 million or 57 cents a share versus a loss in '03.

Cash flow also was up pretty substantially. 30% to $83.7 million versus $64 million last year.

Based on the successes we've had in U.S. and Yemen, increased gas sales in Bolivia, and the recent acquisition in Argentina, Vintage is increasing production target for the year.

Due to the strength in forward prices in oil and gas and the expanded work programs that we outline in the press release, Vintage is also raising its capital expenditure budget for 2004 by 11% to $250 million.

In addition, given the planned increase in nonacquisition capital expenditures, increases in targeted production, increases in the price levels assumed as well as export tax rate changes in Argentina, Vintage is also raising the target for cash flow for 2004 by 15% to $325 million from $283 million.

And we're raising the targets for EBITDA for 2004 as well by 11% to $427 million.

From the $385 million level.

And Bill Abernathy will be going into all these highlights in detail.

Turn to page three if you're on the web cast.

You'll see the second quarter average realized prices contributed substantially to the quarter.

In the second quarter, we had oil was up 16% to $29.03 on average versus $24.95 last year.

And gas likewise was up a strong 27% to $4.17 compared to $3.28 for last year.

And both -- all of these prices are inclusive of the effect of [INAUDIBLE] On page four of the web cast slides, we also see that those prices along with good strong volume allowed, us to have oil and gas revenues for the second quarter that were up 17% to $186.2 million compared to last year's result.

So with that, I'll stop prepared remarks and turn it over to Bill Abernathy.

Thank you, Bob.

I would like to spend the next few minutes discussing production and LOE from a quarter.

Our planned capital budget increase, our revised targets for 2004 and a few additional items of note.

For those of you that are on the web cast, page five tabulates second quarter production which was 4.3 million barrels of oil, and 15 BCF or $6.8 million.

That's about 160,000 BOE's or about 2.4% above our projections for the quarter.

Due mainly to higher gas volumes in the U.S. and also in Bolivia.

Gas volumes in the U.S. were higher because of significant success in recompletions, particularly in south and south central Texas where we feel like there is additional running room.

And gas volumes in Bolivia were driven by our ability to sell additional volumes into the domestic market, replacing volumes that were moved into the export market to Argentina by other producers, particularly later in the quarter.

Looking forward, we're raising our forecast in the U.S. by a little over 250,000 BOEs as a result of the gas recompletion success that I mentioned earlier.

And from recent drilling and recompletion success on our main pass 116 conflicts offshore Louisiana.

Bolivia's forecast will be increased by about a 150,000 BOEs because of the increase gas sales we have already experienced.

Argentina will be decreased by about 70,000 BOEs because of some production shut-ins that we have experienced in the last week as a result of an occupation of the [INAUDIBLE], crude oil export terminal in the southern San Jorge Basin by a group of unemployed protesters.

And because of production performance about 1.5% below our base projections at the beginning of the year.

And for the most part, those are offset by volumes to be added by the recently announced acquisition of the Vella Visa Awestic concession and the northern San Jorge Basin, which we expect to close later this month.

So in the composite, we're increasing our production guidance for the year from 27 to 27.5 million BOEs, or just under 2%.

Total operating expenses for the quarter were $8.87 per BOE, about 2% below our expectations.

Higher severance fill and export taxes were offset by cost at the field level that were lower than we were expecting.

Largely in the U.S. and Canada.

For the year, we're projecting total LOE increase from $8.80 to $9.15 per BOE, driven upward by higher severance and export taxes resulting largely from higher product prices.

Moving on to the nonacquisition capital budget.

And for those of you on the web cast, this is page number six.

We'll increase the level of spending from $225 million to $250 million.

The largest portion of this increase is about $12 million in Yemen where we'll continue drilling throughout this year on our development of the Inigia discovery.

In order to maximize productive capacity at the time that our facilities are ready.

And we'll complete the Hormel one and number two wells and then drill two additional exploration wells in Yemen.

The next largest increase will be in Argentina, where we'll add about $9 million, most of which is associated with drilling and workovers plan for the new acquisition.

And finally, we'll increase exploration spending in the U.S. by about $5 million as we begin drilling on two unconventional gas projects in which we have recently acquired some acreage.

Rolling all of this together, let me draw your attention to our revised targets for 2004.

For those of you on the web cast, this is on page 7.

As I've said before, production is being increased to 27.5 million BOEs.

Our NIMEX reference price for oil has been increased from 32 to 36 dollars a barrel.

And for gas it's been increased from 525 to 590 per MMBTU.

As I said, LOE per BOE has been increased from 880 to 915.

We've also mentioned the increased capital budget to 250 million.

So the resultant cash flow has been increased from $283 million to 325 million.

And EBITDA has been increased from $385 to 427 million.

We're always happy to be moving our financial targets upwards.

Product prices certainly make a difference here.

But I'm especially happy to be raising our volume guides even without the effect of an acquisition.

There are a few other items that I need to address just briefly.

And these are quickly, the marketing process for our Canadian sub.

The recent referendum in Bolivia regarding increased involvement of the state related to the country's gas reserves.

The announcement yesterday of increased export taxes on crude oil in Argentina.

And the occupation of a term map crude oil by the unemployed protesters.

First of all in Canada, Wattress & Company has been retained as our advisor.

And we opened data rooms last week for potential interested buyers.

The process is well underway.

The interest level is high.

And offers are expected at the end of this month.

Second, the Bolivia referendum, on July 18, President Mesa held a referendum on five measures relating to increased involvement of the state related to the country's gas reserves.

Based on the results of the referendum, President Mesa submitted to the Congress on July 30, a proposed hydrocarbon law reform, which among other things could increase taxes on exported gas particularly on the higher volume producers.

It is expected that there will be quite a lot of debate on this proposal as it works its way through the Congress.

Perhaps for some number of months.

For us to speculate on the outcome at the moment is probably inappropriate, but at the present we're benefiting from higher gas sales as gas is being exported to Argentina.

And it appears that this will continue for some time.

Third, the recently announced export tax increase in Argentina.

Yesterday the economy master Lavania increased -- announced increased export tax rates on crude oil.

Is a graduated tax that remains at the previous 25% level up to $32 per barrel.

And it graduates to 45% as crude exceeds $45 per barrel.

Although this is new news, we believe that we've accounted for it, impact on our financials and in the revised targets I've just discussed.

It is obviously something we're not happy about and will re-examine our capital spending allocations as a result of this.

Our initial examination suggest that we would not cut the current level of spending.

Although we reserve the right to change our perspective as we evaluate that a little further.

Fourth, the occupation of the term map terminal in Argentina by the unemployed protesters.

This has been going on now for about 10 days.

This group of protesters has occupied the terminal, displacing the workers who operate the terminal.

And as a result we've had to shut down a portion of our production.

These protesters have not become violent.

They claim to be seeking employment.

We are concerned about a number of safety, security and environmental issues that exist, because of the fact these people are not familiar with the terminal as well as being concerned that we're not able to produce at our full capacity.

But we're doing everything that we can in conversation with the federal and provincial governments, the other producers, and the protesters to affect a quick and orderly departure of the protesters from the terminal.

And we're expecting that this will be resolved very quickly.

At this point, I would like to turn the mike over to Charlie Stephenson for a few closing comments.

Thank you, Bill.

Good afternoon, ladies and gentlemen.

In looking at our results for this quarter, I'm pleased.

I think we had a good quarter.

And I'm particularly pleased to see that our production is responding to the works that we're doing, not only here in the states, but also Argentina and Yemen as well as Canada.

Also production is up in almost all of the areas.

And we intend to keep it going in that direction.

Exploration activities we're having good results along the gulf coast where we've had good results before.

And that's the focus of our exploration operation as well as the unconventional gas plays that we talked about previously.

We're making good progress on those.

And the last half of this year, we will start drilling operations on at least two of those projects, which could lead to further production increases next year.

In the acquisition areas, we continue to see a lot of properties on the market.

Both in North and South America.

And we are being able to negotiate on a one-on-one basis on some of these properties.

So I remain pleased that the opportunities that we're seeing, and hopefully we will be able to add a couple of more acquisitions before this year is over with.

Our debt to cap continues to be, at the moment a little bit higher than what we want.

That is the reason why the Canadian properties are potentially on the market.

We will look at the proceeds that were offered for those and decide if we're going to accept them.

It can obviously have a very significant impact on our debt to cap and our total debt all over.

Our management team knows what we need to do to return this company to a top performer that we enjoyed during the '90s.

And are fully committed to execute our game plan that will get us there.

I think with having said that, turn this back to Bob Phaneuf.

Thanks Charlie.

And that concludes our prepared remarks for today and now we'll open it up for Q & A please.

Thank you, Mr. Phaneuf.

This is the conference coordinator once again.

We'll be taking questions at this time.

If anyone would like to ask a question, please signal us by pressing the star, and then the one on your push button phone.

We kindly ask, once again, that you limit yourself to one question and one follow-up question before reentering the queue.

We will tempt to cycle through all first generation questions before going on to the second generation.

Once again to ask a question, please press star, and one on your push button phone.

And we'll pause a moment to poll our audience.

We'll take our first question from the site of Joe Allman, RBC Capitol.

Go ahead please.

Hi everybody.

Your full year in Bolivian production suggests that production is coming down in the third and fourth quarters.

Why would that be ?

Joe, the situation there is that it is very difficult to predict how many incremental sales that there might be because the exports are going to Argentina at the moment.

So what we have done is we have only taken into account in our full-year estimate for Bolivia, the volumes that we have produced over and above kind of our original projections to date.

And we have not adjusted really anything beyond July to reflect the possibility of higher gas sales in Bolivia because of that.

It's just difficult to predict at the moment.

So we have elected not to add anything else in for that.

Can you give us some information on the ongoing discussions about extending the gas sales from BOLIVIA to Argentina?

Well, the -- this is Chris McMahon.

Joe, the news right now is that Argentina is currently talking about supplying or taking another two million cubic meters of gas.

They're currently taking about four million cubic meters of gas, which is a 140 million cubic feet.

The problem -- part of the problem right now on the short-term is is there is a pipeline limitation going through the existing system there that needs modification.

So the line's not ready right now to take that additional volume.

All righty.

Thank you.

And once again to ask a question, please press star, one on your touch tone phone.

We'll take a question from Van Levy, CIVC World Markets.

Go ahead, please.

HI.

A couple questions.

Canada, it looks like the PB 10 at year end was around 200, 210 million or so.

I think it was about 37, 38 million barrels equivalent.

Let's say you sold it for close to PB 10.

What could you do in terms of -- I guess you have your notes outstanding, right?

What could you do in terms of deleveraging with the proceeds?

We also, as of the end of June, have about a 150 million in bank debt outstanding, Van.

Okay.

Of 700 million.

So the first place to park the proceeds would be to reduce the [INAUDIBLE].

Okay.

And then second question is in Argentina, can you give us a sense of what prompted the incremental tax, export tax, Bob, and give us a feeling in your view, is there more to come?

And also give us a sense, if you wanted to sell your Argentinian assets, what kind of market exists down there?

The increase in export tax seems to be related to an attempt to keep crude oil prices to refiners at a level that they do not have to increase prices for diesel and petrol in the country.

With respect to the market for Argentina properties --

Well, Van, I think the comment on that is obviously -- I don't think we have any intention to market Argentine properties.

We've got a huge position that we're very very satisfied with.

I will say this, though.

The properties that we're in the process of buying [INAUDIBLE].

I over the period of the last ten years participated twice in the opportunities to evaluate those properties.

The bids that were received on this time around, were as strong as they've ever been.

We're very pleased that we were able to come out on top.

But there does seem to be a very strong active viable market right now in Argentina for anybody that so desires to sell assets.

And who are your major competitors?

Who are the major players down there?

Well, it is a guesstimate.

Obviously Petraross is big in the market down there.

Historically, the Chileans.

C-Patrol have been in the market down there.

We know that there's some smaller companies in the marketplace right now.

And we've heard rumors that actually some people that have been our competitors in other places around the world are actually looking, that don't have a position in Argentina, are actually now looking at entering.

Okay.

Thank you very much.

And once again, to ask a question, please press star, one on your push button phone.

We'll go next to the site of Michael Schmitz, Banc of America.

Go ahead, please.

Your lines open.

Sorry if I missed it.

What was the production shut-in due to the terminal?

How much was that in Argentina?

The amount that has been shut in has actually varied from day to day depending upon how much storage capacity was still availability at the terminal, and the amount of storage capacity that existed in the various fields that we operate.

It's been as little as four or five thousand barrels on a day, to maybe as high as 17,000 barrels, which it presently is.

And what are you assuming in the new guidance?

How much is shut in for how long?

What we've assumed in the guidance is a total of about 90 -- 96,000 BOEs which is made of up 75 to 80 thousand barrels and the rest of that is gas.

Are there any steps being taken now to try to end the protest?

Yes.

There are ongoing conversations with the federal and provincial governments, the other producers and the protesters.

I prefer not to talk about the details of those at the moment.

Okay.

One follow-up.

Charlie, could you talk about where else in South America you're looking to expand via the acquisition market?

Well, I think we're pretty open in South America.

As you know, we had operations in Ecuador once upon a time.

I don't really see us necessarily going back in there.

But I think as you've seen us earlier this year make acquisition in Argentina, I think that's still on the books.

They've changed the tax structure in Columbia which makes it kind of interesting to look at right now.

Those are the only other countries I think that we would probably be looking at.

Thank you.

We'll go back to a follow-up question from Joe Allman, RBC.

Go ahead, please.

As in the Cherokee basin, in the Far City basin, could you talk about how much acreage you have there in what counties?

And how much of it, would you say, would be perspective for the cold there, and do you plan on buying some more?

The comments that I can make on that is that we currently have approximately -- a little over 60,000 acres of which we will have a 75% interest in that acreage position.

The prospects are in two different areas.

I don't want to mention counties that they're in.

But we are currently drilling some core holes.

And we'll take the cores, we'll do our gas absorption work on them.

And determine whether the play is viable in this part of the Cherokee Forest City which is not currently productive.

And if it is, we'll have more acreage the next time we talk.

And maybe by then we'll be able to drill a pilot program.

And at that point we can probably be a little more specific about our plans.

What was your working interest again, I'm sorry.

75%.

Okay.

I know where you can get some acreage if you want some.

I do, too.

Thank you, though.

Pass it on.

You may have some I don't know about.

How about in Yemen, do you plan on getting to full capacity?

And if so -- I know that's your target, do you think it's likely?

If so, when do you think it would be at full capacity?

At the present we're expecting the facilities to be completed and ready for full production in the very early part of second quarter of '05.

And it's our expectation that we ought to be at that capacity about that time.

Perhaps just before.

And then G & A, I noticed G & A has gone up in the third and fourth quarters.

What's the big driver there?

It's basically projecting some additional accruals for a bonus program that was put in place in the second quarter.

That's really the only change in the expectation.

Okay.

And then if you can just -- I know you haven't given guidance for '05.

Just stepping back, big picture, obviously production in Yemen is increasing.

You've got these water flies in Argentina.

I would expect you get some production response later this year, next year.

What's your general outlook for '05, kind of based on what you're seeing right now without giving too many specifics.

Joe, I'd have to say at the moment is -- our expectations would be that in the composite volumes would be up over what we've got -- what we're expectedly producing on this year.

I don't have a percentage to throw out at you at the moment.

We will start the details of working that process here in the coming weeks.

Our plan would be to talk about it at this time three months from now.

But the expectation would be that volumes would be up because of the projects that we've got going on, and the success that we're seeing at the moment.

At this point, I did not know what our level of capital spending would be next year, though.

But I would expect it to be a fairly significant level.

All righty.

Thank you.

And our phones are [INAUDIBLE] a final time, if you'd like to ask a question, please star, one at this time.

We'll go back to a follow-up from Van Levy, CIBC.

Go ahead, please.

Yes.

Could you talk a little bit about the San Jorge acquisition and from the drilling program, and also, Bob, are your -- is the production from that property in your new numbers?

Yes.

In the volume outlook in terms of the raised target that Bill talked about, we won't have the property for very long this year.

But some volume from those properties are in the numbers.

Larry -- yeah, starting in September.

Larry can probably give you a little bit more information.

But before he does, I would just remind you, we may be a little bit cryptic on this, because the acquisition hasn't closed yet.

Right.

Van, the property that we're purchasing is on the northside of the San Jorge basin, it's a property that several of us here have had opportunities, as I've mentioned, to evaluate in the past and liked it quite well.

It offers a number of the similar kind of activities that we've been so successful with on the southern side of the basin.

The principle activities that you'll see almost immediately, after we acquire the property will be some recompletion workovers, There'll be some drilling activity.

I don't think drilling will be as substantial as it has been historically in the south.

There is still a fair amount of drilling.

And some additional water flood activity that will take place.

We'll also continue to look, we think there could be some extensional exploration opportunities.

And I think also the thing that really intrigues me about this, it does give us a foothold on the north flank of the basin.

That is an area that over time, we believe, properties will be sold and having a good position there.

It puts us in a prime position to be a consolidator when those activities take place.

Okay.

And can you also give us a sense of the booking mechanism for Yemen, when you think you can be in a book?

I guess significant amount of reserves there.

Well, at the end of this year, I think we will be in a position where the Nauguhef is probably fully developed.

But one thing that -- one of the producing characteristics there is that we expect a gas cap expansion.

And at the moment, we don't have any reserves that take into account the possibility of improved recovery because of gas cap expansion.

So what I would say is that this year perhaps we would book a few additional reserves that reflect a full development of the structure, but it would probably be sometimes after this year that we would get incremental reserves added that reflect improved recoveries because of the gas cap expansion.

Okay.

Finally, could you give us a postmortem on [INAUDIBLE] Valley and your plans there?

Yeah, Van.

We drilled our first well, we encountered the sands and yet they were noncommercial.

We are back integrating that information into our play analysis.

And I think we are probably a couple of months away from knowing what we want to do next.

I think there is still opportunities.

I think the concept probably is still valid.

It just didn't work where we drilled.

So we've got an ongoing process of post postassessing the prospect, like we do all of them that we drill.

Integrating this information and deciding where we go from here.

We'll probably be ready to talk about that before the end of the year.

And Bob, third and fourth quarter expiration -- expense.

Do you have any sense of what that --

Well, I think the only thing that we really model going forward is basically what we have in there for seismic.

I guess first quarter was 4.4 million.

Second quarter 9.6.

Right.

I think we've got a total of about $3 million the second half kind of built in for seismic expenses.

Is that right, Mickey?

So those are just G & G costs.

I think if you're trying to get a handle on potential expenses for the quarter, including dry hold costs and things like that, you kind of have to be guided by our exploration activity level.

And maybe take a good guess.

We don't really forecast that.

Okay.

Thank you.

We have no further questions in the queue.

I'll turn the program back to presenters for concluding comments.

Ladies and gentlemen, thank you very much for joining us today on the call.

We'll be around if there's any additional questions.

You can call Gary or me at 918-878-5451.

We thank you very much for your time today.

And appreciate you calling in.

Thanks.

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