西方石油 (OXY) 2005 Q2 法說會逐字稿

Welcome to Vintage Petroleum's Conference Call to review its first quarter 2005 financial and operating results.

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

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

Please go ahead, sir.

Thanks very much and welcome to the Vintage Petroleum Second Quarter Conference Call to discuss our second quarter results.

Just house cleaning item, we did make two press releases yesterday, and we will be discussing items from both of those releases.

Today in attendance from Vintage we have Charlie Stephenson, our CEO, Bill Abernathy, our COO, Bill Barnes, our Chief Financial Officer, Larry Shepherd(ph), Our Senior Vice President of New Ventures, Mickey Meimerstorf, our VP and Controller, Gary Watson, our VP of International, Chris Jacobson, our VP of at US Operations and David Basden (ph) Our General Manager of the US Exportation as well as others to answer any of your questions.

Our agenda today, we will begin discussing highlights of the quarter briefly.

I will turn it over to Bill Abernathy, who will review our operations in the second quarter.

And Bill will then discuss our capital budget increases and the resulting activity that's to come from that as well as the revised guidance.

He will then turn it over to Larry Shepherd, who will give us an exploration update and Larry will, in turn, turn it over to Charlie Stephenson, who will recap our views on the acquisition market and make some concluding remarks.

So beginning here I need to remind our listeners that all statements made during this call, other than statements of historical fact, are forward-looking statements in the dialogue and web cast slides that we have up containing current estimates and information with respect to targets that involve risk factors and uncertainties.

A number of factors could cause actual results to differ materially from the expectations we are going to discuss.

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

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

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

With that behind us let me begin and run through our operating and financial highlights.

For those of you who have the web cast up on page2, we are delighted to share with you the highlights of a very strong quarter.

Our income from continuing operations were up 66% to 57.7 million.

Per share results of $0.86 versus $0.53 last year were also up substantially, 62%.

Cash flow is also up dramatically to $107 million.

This represented a 58% increase versus the $68 million in the second quarter of 2004.

In addition I should note that the cash flow results are about 8% above the first call mean that was out there on the street.

In addition, our balance sheet and liquidity continue to improve in the quarter due to excess cash flow, relative to our capital expenditures.

Net debt at the end of the quarter was $394 million, in contrast to net debt at the end of the second quarter '04 of $626 million.

The net debt components in the second quarter of '05 included the two of our note issues, public note issues, as well as $156 million of cash on the balance sheet.

This brings our net debt to book capitalization ratio at the end of the quarter down to 34%, in contrast with a 57% in the second quarter of 2004.

If any of you would like additional details on this, we have a bit of a balance sheet and liquidity slide on page 24 in the appendix.

In addition, as a result of continued strong price environment that went on in the first half, and positive operating results to date from exploitation programs, we are revising our cap x and production targets up.

Our capital expenditures are being raised by 14% to $285 million for the year.

Our production target is being raised 2% to$27.3 million BOEs.

Cash flow target are also being raised by 23% and our EBADAX target is also being raised by 21% as well.

The catalyst behind the good quarter were numerous, and Bill will go into those in detail.

Broadly speaking, both production and prices were good, strong contributors.

If you will turn to page3 if you are on the web cast, you will see that our prices for both oil and gas were up substantially.

Oil price for the quarter averaged an increase of 26%, averaging $36.48 for the quarter versus $29.04 for the same quarter last year.

Similarly, the average price of gas rose 27% to $4.92 versus $3.88 last year.

On page four, you will see volumes were also a contributor.

Total BOEs were up 17% for the quarter to 6.9 million BOEs, versus 5.9 million BOEs for the second quarter last year principally as a result of very strong oil volume gains of 26% to 5.1 million barrels.

Gas was down slightly, about 4%, principally as a result of the reduction in market demand for gas in Bolivia.

In combination on page 5, it show you both as a result of strong prices and volumes, oil and gas revenues were up a very strong 48% for the quarter to $238 million.

This in turn carried through to income from continuing operations and cash flow as we previously spoken about.

At this point, I'll stop and turn it over to Bill Abernathy for additional remarks.

Thank you, Bob.

I would like to spend the next few minutes discussing our second quarter production and operating expenses.

An increase in the capital budget a few comments about our current operation and positive revisions to our annual targets.

For those of you on the web cast, you just saw on slide4 that production for the quarter was 5.1 million barrels of oil and 10.6 BTF of gas or 6.9 million BOE.

This was a little above our projections with the most significant source of the difference being more volumes in the US.

That was driven by a continued success of our exportation efforts in South Central Texas where we are drilling horizontal wells for oil in the Edwardisle.

This 6.9 million BOE was about a million BOEs higher than the second quarter last year and our continuing operations, the increases being the US, Argentina and Yemen and that's driven by a continued exportation success in the US and Argentina as well as development of exploration successes on L 55L in the US and Nigeria and Yemen.

I would like to point out for our continuing operating areas, since we went back to drilling in Argentina in late 2002, this is effectively the 9th quarter in a row which production has exceeded that of the previous quarter.

The exception being when we experience production down time for the fires in California in late '03.I think this is a very clear sign we have got production moving in the right direction.

For operating expenses in the quarter, 10.60 per BOE, what we were projecting in total.

However, costs at the field level were better than we expected and were offset by higher severance in export packages resulting from the higher product prices than we had predicted.

Moving forward on the web cast to slide6, I would next like to address the capital budget.

Capital spending to date, excluding acquisitions has been $135 million and because of the positive results which seen, we were expanding this budget by 14% from $250 million to $285 million, with the largest increase being in domestic exploitation, followed by additional development spending in Yemen.

The two pie charts on this slide represent the breakdown of the previous and revised budget.

I will address each of the revisions as we work our way through each operating area on the next few slides.

The US, which is on slide 7, and our exploitation efforts we focused on the Luling, Marsh Creek and fields which I previously mentioned.

Because of our success there we expanded our drilling and work over program and will now keep rigs busy for the remainder of the week in those fields.

This is also the case at the south Gilmer field in east Texas and beyond that there are many other fields across our entire domestic operating area where we are adding projects that make sense in this environment.

As a result of all of this we are making a significant increase in the domestic budget from $40 million to $70 million.

And with this increase and combined with the second quarter results, we are increasing our domestic volume guides by 3,000 million barrels more.

In a few minutes, Larry Shepard will address exploration but the activity level for the conventional program, which for the most part is focused on Gulf Coast gas, has been decreased primarily due to the timing of various prospects being deferred.

And that's largely because of rig availability.

But the activity level of the unconventional program is being increased as the number of wells that we expect to drill and number of plays we will begin to evaluate is expanding.

All together between the conventional and unconventional program, there's just a small decrease from $64 million to $60 million.

In Argentina, which begins on slide 8, we continue to operate at our highest level ever with 6 drilling rigs operating at the moment, 5 of which are in the San Jorge basin.

We are continuing to install and expand water footage there as well.

This slide shows the number of proved and probable and possible drilling location in our reserve bases there.

The drilling is all based on 3-d seismic and well control.

We have a several year inventory with only about 50% of our acreage covered by 3-dseismic.

There's still quite a bit of running room there.

And the slide that follows there takes this inventory a step further and it's a projection of our net production and BOEs per day through 2011 as a result of this proved and unproved inventory showing the growth rate through that time frame.

We also indicated a number of drill wells above the bar for each year's projection.

I think this is notable particularly because with Argentina production being about 50% of our total, this projection provides support for total company volume growth in the future, even before taking into account the probability of acquisitions or probability of volume growth in the other countries.

At the present, we see no significant changes in our operating plan for Argentina this year.

There is just a minor upward adjustment to the budget to$115 million.

In Yemen, which you see on slide 10, we continue our development drilling of the Inagia (ph) field.

WE started up our pipeline on July 1, and current volumes are a little over 800 barrels a day growth.

We expect that to increase to 10,000 barrels a day during this quarter.

We have analyzed our production history to date and have decided to optimize our development of the Inagia discovery by continuing to drill the rest of this year and by continuing to drill horizontal wells.

As a result, we are increasing the total Yemen budget from $30 million to $39 million for the year.

We have a corresponding increase of 200,000 barrels of oil from 1.4 million to 1.6 million barrels.

As a result of the operating success we have had to date this year and with the planned budget increase, we are adjusting our operating and financial targets as shown on slide 11 because of the prices we experienced so far and expect for the remainder of the year, we are raising our Nymex reference prices for oil and gas to $55 and $7 respectively, as well as raising the realizations we expect as the percentage of those referenced prices.

You may recall the light heavy oil price differentials deteriorated in late 2004.

But we have seen significant improvement in recent months, even at the higher price level.

So we are adjusting our realization and expectations accordingly.

We are raising our production target by 500,000 barrels of oil to 27.3 million BOEs with, as I said, 300,000 barrels coming from the US and 200,000 from Yemen.

And as I discussed, the non-acquisition capital budget being increased to $285 million.

Operating expenses at the field level are re remaining unchanged, however production and export taxes are increasing as a result of the higher assumed price environment.

With these revisions, EBIDAX and cash flow targets are being increased to $586 million and $435 million respectively showing increases of 21% to 23% over the previous targets.

As a side note, I would like to say I'm quite encouraged things seem to be very much going our way.

As our operating results are continuing to exceed our projections, and that because of this, for at least 6 quarters in a row now, we have been able to increase our annual production guidance.

I will turn the Mike over to Larry Shepherd.

Thank you.

I want to take a couple of minutes and primarily focus on our domestic, unconventional exploration program.

When we approved our 2005 budget, the goal for our unconventional resource program was that we would test 4 separate and distinct plays during 2005 and that we also would identify 3 potential new plays we could consider for entry.

Today I'm pleased to report that due to the tireless work and dedication of our geologic, land and engineering and operational people, that work on our unconventional resource teams, we are well on the way to accomplishing and hopefully exceeding quite a bit of our original anticipation for the year.

With the sanctioning of one new play this year, we are currently positioned where I believe we are going to be able to begin drilling in 5 plays during 2005.

If you look on page 12 of the west cast, you will see a summary of where we currently stand in our program.

To facilitate the higher level of activity during 2005, we have increased the unconventional resource program budget from $26 million to $31 million, or approximately 19%.

The increase in this budget is primarily split between drilling and acquisitions of leaseholds.

We have increased the number of wells that we hope to get drilled this year from 10 to 13, that reflecting the one additional play we entered into.

Of course, that is all pending rig availability.

And also due to the diligent effort of our land department, we are ahead of schedule in our leasing activity, as we are ahead of the pace we originally anticipated.

Therefore, we increased the budget for leasehold acquisition.

Speaking of leasehold acquisition, we now currently control well over a quarter million acres, and that has been largely accumulated within the last 12 to 16 months.

A large portion of this acreage, 145,000 acres had been our Palo Duro basin prospect.

We also have 128,000 net acres that is spread among the other four plays we currently are pursuing.

Finally on the operational side, as you well know, we drill our first 2 wells in the Palo Dura basin project.

The first well drilled, the Eckels well was cracked early in July and we are awaiting the results.

The second well, the Burleson Ranch well, were currently moving forward with design and incorporating all of the core information from that well along with the post frack analysis data from the Echols well.

We would anticipate we would frack the Burleson well later in the third quarter.

If you will look on page13 of the web cast, there we have provided some pertinent information on each of the sanctioned plays we are pursuing.

We have not identified the 4 other plays, but to give you a quick update, 3 of the 4 other ones are primarily focused on shale gas with one play being principally a target for a basin center-type gas span, what we call plate a presently is nearing drilling.

We are currently in negotiations for a rig and would anticipate commencement of drilling operations on that prospect during September and then we are continuing to acquire acreage in all four of these areas and with the anticipation that we will commencement of drilling operations in the other three areas likely during the fourth quarter of this year.

With that I will pass it to Charlie for concluding remarks.

Thank you, Larry.

I am pleased with this quarter's performance in particularly our production increase from our development activities in the US, Argentina and Yemen.

These activities will continue throughout the rest of this year.

Acquisitions continue to be a focus for the company, a strong focus.

We still see a good volume of deals on the market with indications that more are to come in the second half of the year.

Our focus is on properties with right amount of up-side, relied value for our company and not just to grow the company at any cost.

Our acquisition staff today is very busy.

We continue to look around in the areas in which we operate and hope to announce soon additional acquisitions in the weeks ahead.

Our goal this year remains to acquire approximately $250 million of new oil and gas reserves.

As Larry described, our unconventional program is well under way.

And our conventional exploration and exploitation activities, we have several plays we hope to drill this year that could add significant reserves and production.

I think that our game plan for growing shareholder value is solid.

We know what we have to do, and that is execute.

At this time I would like to turn the program back over to Bob.

Thanks, Charlie.

We have no more prepared remarks.

We will stop here and open it up for questions, please.

[Operator Instructions]

We will go first to the site of Joe(ph) Alman with RBC Capital markets.

Go ahead please.

Hi, everybody.

Question for Larry Shepherd regarding the Palo Dura Basin.

Can you give us any comments on the core samples and what you saw there and what gives you optimism about this play going forward?

What I can tell you is the information that we provided in the web cast site, basically provides I think what we can comment on at the moment, the maturity of the source rock as well as hydrocarbon content of the source rock was pretty much what we expected.

And so we proceeded to use that information along with other core information designed with frack on the Echols well.

And at this point, I think we are watching it, we are evaluating it and once we have something that we think we can definitively say in respect to this, we will certainly be back communicating that.

However, I would not anticipate that we would have a whole lot more to say probably up to closer to year end after we also get the Burleson well tracked and have some time to get a little bit of history behind us.

Got you.

Switching over to another area, just Argentina, could you talk about the gas demand there.

What does gas sales from Bolivia look like to Argentina?

What do they look like to Brazil?

And can you just make some general comments on kind of the environment in Argentina, just politically speaking.

Do you see any kind of positive changes going forward?

I think what we are seeing in Argentina, at least in the gulf of San Jorge, is an improvement of prices.

The demand has been out of that area relatively constant but we have seen prices go from the $0.80 to $0.90 premium B.T.U. to $1 even or sometimes $1.20, on the spot market.

So, we are seeing a strengthening of prices there.

In Bolivia, as you're probably aware, they have re-upped on the gas agreement to send gas out of Bolivia and actually are looking to increase that going forward the next year.

As we talked about before, we do end up supplying the domestic market when some of the other producers are taking advantage of that market.

We are looking forward to increasing our sales on the second half of the year.

The deliveries to Brazil are still relatively flat we are seeing right now.

So kind of looking at Argentina for the moment as being the up side for gas sales out of Bolivia.

Thank you.

We go next to the side of Ray Deacon with Harris Nesbitt.

Go ahead please.

Larry, just one follow up on the Palo Dura.

My recollection was the Burleson well is seven miles south of the Echols well, is that about right?

That is about right.

Are you looking to tie up a right now?

Or will you wait until after you get the results out of the Burleson?

Right now we are still very early in the evaluation stage.

We need to get the Burleson well cracked.

I think we have to got to get these two wells evaluated and at that point in time, we will be ready to make a decision for where we head.

Okay, great.

Thanks, Larry.

[Operator Instructions]

We'll go next to the site of Frank Bracken with Jeffries.

Go ahead, please.

Good afternoon.

Two questions.

First, you sound like you're awfully close to getting something announceable on the acquisition side.

Would this be something that would follow suit with recent acquisitions and would be highly complementary to an existing producing asset?

I think the acquisitions that we hope to be able to announce shortly will complement our current operations.

There may be one new area involved.

But generally speaking, we are continuing to acquire properties around the biggest Gambia Creek and looking at the other areas we operate in.

That's funny.

That was my next question.

As of yet, sounds like you have not initiated any optimization activities at the Gambia creek?

Is that a fair assumption?

I don't think we have some optimization activities both in the plant and with respect to some of the wells.

Some of it having to do with compression and some of it having to do with the way the NGL facilities operate.

Some to do with looping some flood lines, that type of things.

No significant well work yet.

But probably some of that to do.

Thank you very much.

[Operator Instructions]

We have no further questions.

I would like to turn the conference back over to our moderator, Mr. Phaneuf.

If there are no other questions, we do appreciate you joining us this afternoon.

And if you do want to ask a question and have not been able to get into the queue, you can give us a call at 918-878-5451.

We will be around this afternoon.

Thank you very much for joining us.

Bye-bye.

Thank you for joining today's conference call.

You may now disconnect.