西方石油 (OXY) 2004 Q3 法說會逐字稿

Good day, everyone, and welcome to Vintage Petroleum's conference call to review its third-quarter financial and operating results.

This call is for the benefit of Vintage shareholders and other interested parties, and any rebroadcast of this call for commercial purposes is prohibited without the permission of Vintage.

I would now like to turn the conference over to Mr. Phaneuf.

Go ahead please, sir.

Thanks very much, Matt, and welcome everyone to Vintage's third-quarter conference call.

With us today we have Bill Abernathy, our CEO;

Bill Barnes our CFO;

Larry Sheppard, our Senior Vice President of New Ventures;

Mickey Meimerstorf (ph), our VP and Controller;

Chris Jacobsen, VP of Operations;

Chris McMahon, and our General Manager of International Operations;

Mike Kyle (ph), our General Manager of International Finance and Administration; and Gary Gamino of Investor Relations.

Before actually beginning our prepared remarks today, I would like to remind listeners that some of the information that we plan to discuss during the course of the call will be considered forward-looking statements.

In fact, all statements made during the call other than statements of historical facts are to be considered forward-looking statements.

And although this third-quarter release does contain our best and most reasonable estimates and information with respect to targets, a number of factors could cause actual results to differ materially from what we're going to discuss.

You should read our full disclosure for risk factors associated with our business and for forward-looking statements in the Company's filings with the SEC.

Occasionally today on the call we will be referencing non-GAAP measures, in particular cash flow and EBITDAX.

I need you to be sure to reconcile those with the corresponding GAAP disclosures in our earnings release statements and accompanying tables.

Having said all of that, our agenda for today in terms of prepared remarks, we have brief highlights, which I will go through, and then I will turn the microphone over to Bill Abernathy, our COO, to give you a review of third-quarter production and to describe our revised '04 operational and financial targets.

We will then conclude with an update on our Canadian situation and how that affects our liquidity, and then open it up for questions and answers.

So briefly, if you're listening to this from the webcast, on page 2 of our webcast we show you our third-quarter highlights, and I will run through them briefly.

We had a good strong quarter with net income of $32 million or 49 cents a share.

Our cash flow was up 39 percent to $95.5 million versus 68.8 million in the corresponding time period of last year.

This is on 66.04 million weighted average diluted shares outstanding for the current quarter.

Continued strong organic growth resulted in third-quarter production being up 6 percent versus third quarter last year including Canada and even by a greater amount, up 10 percent versus last year, excluding Canadian volumes.

This resulted in strong continued growth, increasing our fourth-quarter production targets.

We're raising them slightly to 27.6 million BOEs from 27.5 million BOEs.

Coincidentally, we're raising our price targets for both oil and gas due to actual prevailing prices through the 9 months, as well as the forward curve.

And these revisions, along with higher production targets, allow us to increase both cash flow and EBITDAX targets for '04.

We're increasing our cash flow targets, as a Bill will explain in more detail, by 12 percent to $365 million.

And we're increasing our EBITDAX target similarly by 12 percent, up to $480 million.

If you turn to page 3 on the webcast slides, you'll see how prices contributed to our third-quarter results.

You can see that prices for both oil and gas were stronger than in year-ago periods.

In fact, they were both up 28 percent, with oil up to $31.82 versus the $24.94 last year.

And this includes the effect of hedging.

And similarly, for gas at $4.02 for the quarter versus $3.13 for the year-ago quarter, and these prices also include the impact of hedges.

On page 4 on the webcast slides we show you a summary of reported third-quarter results.

And with a 6 percent production growth combined with 28 percent increase in both oil and gas prices, this resulted in a 34 percent increase in oil and gas revenue and really $200 million in the third quarter, and produced net income of 173 percent higher than we had in the third quarter of '03 at $32.2 million for the current quarter.

So that really concludes the highlights that I have to speak about.

I will now turn and over to Bill Abernathy to talk about a review of production and the revised targets.

I'd like to spend the next several minutes discussing production, as well as LOE for the quarter, and then our revised targets for the year.

For those of you that are on the webcast, I will start with slide number 5.

With that you'll see that production for the quarter was 4.5 million barrels of oil and 16.7 Bcf or 7.3 million BOEs.

That was about 3.5 percent above our internal projections for the quarter, and would have actually been even higher than that had we not experienced some down-time in Argentina, which I will discuss a bit later.

The largest area in which we exceeded our projections was in the US, where production was about 180,000 BOE above our expectations.

This was, as I have mentioned in a couple of previous quarters, primarily because of continued success and out-performance in a series of gas recompletions for the most part, and then to a lesser extent horizontal oil wells in South Central Texas.

Bolivia was another area where we exceeded our expectations, in this case by almost 700 million cubic feet, resulting from additional sales into the domestic market, back-filling for gas moved into Argentina by other producers as that market continues to improve.

Oil volumes in Argentina were about 75,000 barrels below our expectation as the occupation of the term out (ph) export terminal which was ongoing during our second-quarter conference call lasted a little longer than we had expected.

But I will note that since that time the various governmental authorities have taken measures to prevent any other protests from developing to the point that there is any lost production.

And our perspective at this point is that these measures will continue to be effective there.

In Yemen our production volumes in the field were marginally above our expectations.

However, we reported lower sales than expected by about 85,000 barrels because of an inventory build that was a function of lifting schedule by our crude purchaser.

Altogether we're quite pleased with our production for the quarter.

And this is going to serve as a springboard to raise our 2004 volume targets.

And I will point out that this is the third quarter in our row that we have increased our annual volume guidance.

LOE for the quarter was $9.38 per BOE, which includes export and severance taxes.

This figure was below our expectation by about 13 cents per BOE with lower unit costs at the field level more than offsetting the effect of higher product prices on packages.

With these two items serving as a backdrop, let me turn your attention to revised 2004 targets.

For those of you on the webcast, that will be slide number 6.

First of all, production.

I think you've all seen our recent announcement of the sale of our Canadian sub which we are expecting to close at the end of November and as a result of that, we have removed 250,000 BOEs from our volumes for the month of December in Canada.

But we have replaced that 250,000 BOEs and added an additional 100,000 BOEs, largely from the US and Bolivian gas and increasing our 2004 production target to 27.6 million BOEs.

We've increased our NYMEX reference price for oil to $42 a barrel and for gas to $6.10 per MMBtu.

We're increasing our LOE per BOE projection to $9.45 per BOE because of the effect of increased product prices on taxes in the fourth quarter of this year.

And leaving our capital budget constant at $250 million, these provisions yield 2004 estimated cash flow of $365 million, EBITDAX of 480 million.

Those are increases of 12 percent in both cases.

So at this point I will turn the mike back to Bob Phaneuf to discuss a couple of items related to the sale of our Canadian sub.

We just wanted to update everyone out there in terms of where this was in process.

And for those of you on the webcast, the first of 2 slides there is found on page 7.

Just as a frame of reference for those that may not know, we signed a purchase and sale agreement with Midnight Oil & Gas for $270 million.

When we first disclosed this, the transaction was really subject to 2 things taking place. 1 was Midnight securing equity and debt financing.

We're happy to say that as a result of a press release that Midnight recently put out they have apparently secured their financing and it's in place.

The second item that it was subject to was a vote by their shareholders on the conversion to an income trust.

Midnight has similarly distributed its plan of arrangement circular to shareholders so that that vote can take place later this month.

So from our standpoint we are on track to a scheduled closing for November 30th.

With respect to the transaction, it, we feel, significantly improves Vintage's flexibility to fund future production growth.

If you look at page 8, we have a little recap of our debt and liquidity position at the end of the third quarter, and what happens pro forma the Canadian sale.

At the end of the third quarter we had unused availability from our bank facility of $171 million.

Similarly, we have no maturity on our outstanding notes acquired at 2011.

With the sale of Canada, we will use the proceeds to basically reduce debt outstanding under our revolving credit facility and for general corporate purposes.

For those of you on the webcast, you can see on the right hand part of that slide pro forma for the sale of Canada, our net debt will be reduced by 42 percent to $365 million from the $631 million where it stood at the end of the third quarter.

Similarly, pro forma for the sale of Canadian operations our net debt to book capitalization will fall below 40 percent from the 55 percent level that it was at 9/30.

So those conclude our prepared remarks.

At this point in time we will finish that and turn it back over to the moderator to open it up for questions.

(OPERATOR INSTRUCTIONS) Michael Coleman (ph), RBC Capital Markets.

I was wondering if you could give an update on your CBM activities in Kansas?

We have drilled 2 wells.

We're currently evaluating cores.

And I can't really say anything else about that at the moment other than that I would expect to have something to say during the fourth quarter after we finish evaluating the information that we get from the cores.

Okay, great.

Thanks a lot.

Ray Deacon, Harris Nesbitt.

Larry or Chris, I was wondering if you could talk about where the out-performance came from in the US and also an update on activities in Yemen.

In the US our activities, we have had work over and drilling program -- this is Chris, I should say.

In our South Central areas we've been very active in 3 fields.

We have continued to have good results all through the year.

And we're continuing that program as we speak.

On Yemen, I think you probably saw our last press release just a couple of weeks ago on our first horizontal well in An Nagyah.

We're extremely pleased with that.

We think that may well be a better solution hopefully going forward as we further develop the field.

We're currently drilling the second horizontal well, and would anticipate here within the next couple of weeks we will finish the lateral section of that well and hopefully even have a better test than we did off the #11 well.

Right after that, we're going to drill a separate fault block just south of An Nagyah, again looking for the land formation.

But it would be an exploration prospect, so we're keeping our fingers crossed that maybe we will even have another discovery that we could add in by the end of the year.

Great.

Do you think you can book some reserves there this year? (multiple speakers) incremental reserves from the most recent well?

We will certainly update our reserves.

Not all of our reserves in An Nagyah last year were proved because we hadn't fully delineated the field.

So we will certainly be able to add some reserves in An Nagyah this year.

And then like I say, we're keeping our fingers crossed that if we go across this fault into this separate fault block and that works out, we hope to get the well down before year end and be able to add a little bit of additional there.

The other thing that we're doing is probably here in the next few weeks we're going to fracture stimulate both the Harmel #2 and #1, which is the supra-salt play that was discovered in late 2000.

And we plan to get both those wells stimulated and on long-term test, and hope to have that going on before the end of the year.

And get several months of production history behind us.

Again keeping our fingers crossed, if all of that would work out, about the time we go on production with the permanent facilities at An Nagyah next year, we may have some other good news about what we could do from a commercial development point of view in the Harmel.

Thanks, Larry.

(OPERATOR INSTRUCTIONS) Michael Coleman, RBC Capital Markets.

I just had a question about if you could update us on what the status is of Bolivia selling gas into Argentina.

And also if you could talk about your upside to reserves and production in Argentina going forward.

This is Chris McMahon, General Manager of International Operations.

Michael, we are currently back-filling gas into the Bolivian market, the domestic market, as a couple of the other operators sell gas, export their gas.

And that's probably the outlook on the next few months, is we will continue on that path because 1 of the problems in increasing exports to Argentina right now which is restricting everybody is the bottleneck on the border there between Bolivia and Argentina.

So the immediate outlook is we're probably going to be just about where we are right now, and sometime next year we could see sales increase.

And then in addition to that, I think we have stated that the 2 governments are working together to de-bottleneck that restriction between Bolivia and Argentina.

And they're talking about additional volumes moving maybe sometime next year, isn't that right?

Yes.

So they're looking for resolution next year, is that right?

That's the current news.

Let me add 1 item to that.

Although we have sold those volumes back-filling into the domestic market, because of the things that Mike and Chris mentioned, that market is a little bit uncertain and it fluctuates.

So we have not included any additional volumes for that domestic market in the projections that you see for the rest of '04.

We actually have included what we have produced to date through October.

But for November and December we don't have any volumes in that forecast for this domestic market where we're back-filling (indiscernible) that go to Argentina.

I think you also asked a question about the outlook going forward in Argentina.

Let me say that the week after next we will be making our release that addresses '05 budget and targets and guidance.

So if you give us just a couple of weeks to where we can do that in a little more complete format, I think it is probably the best thing to do that at that point.

Fair enough.

Thanks.

(OPERATOR INSTRUCTIONS) Mr. Phaneuf, we have no further questions in the queue.

I will turn the program back to you for any additional comments you may have.

I have no additional comments.

Thanks very much to everyone for joining us today.

And both Gary and I will be around.

Give us a call if you have any other questions.

Our telephone number is 918-878-5451.

Thanks very much.