Par Pacific Holdings Inc (PARR) 2009 Q4 法說會逐字稿

Good morning and welcome to the Delta Petroleum Corporation 2009 year-end investor conference call. All participants are currently in a listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity for you to ask questions. (Operator Instructions). Please note that today's event is being recorded. At this time I would like to turn the conference call over to Mr. Broc Richardson. Mr. Richardson, you may go ahead.

Good morning and thank you for joining us for Delta's fourth-quarter financial and operating results conference call. Before we begin, I would like to remind you that we are conducting this call under Safe Harbor and that this call will include projections within the meaning of the federal securities laws and are intended to be covered by the Safe Harbor as credited thereby. In that regard, you will refer to the cautionary statement displayed on Delta's website, which is incorporated by reference to the information provided on this call. Investors are urged to consider close to the oil and gas disclosures in Delta's Form 10-K for fiscal year-end December 31, 2008 as updated by subsequent periodic and current reports in Forms 10-K, 10-Q and 8-K respectively.

Today's speakers from Delta are Dan Taylor, Chairman of the Board; John Wallace, President and Chief Operating Officer, and Kevin Nanke, Chief Financial Officer and Treasurer.

With that, I will turn the conference over to our Chairman, Mr. Taylor.

Thanks, Broc. Good morning, everyone. I will spend a few minutes with my comments before turning the call over to John.

As you are all aware, in November we issued a press release detailing that we have retained Morgan Stanley and Evercore Partners to advise the board on strategic alternatives to enhance shareholder value. These potential alternatives include such transactions as joint venture partnerships for our Piceance Basin operated asset, a possible sale of the entire company, as well as other asset sales and debt restructuring alternatives.

I am sure everyone listening is anxious for an update on this matter; however, we cannot comment on the process until we have reached an agreement on a potential transaction or the board decides to conclude the process. There will be no further discussion or update of the process until then, so we would appreciate not receiving questions on this area today.

We are continuing to focus our efforts and capital on our operated asset, the Vega area of the Piceance Basin, and although production and reserves declined on a yearly basis, we are confident that we can grow these metrics with lower costs going forward. We have made significant strides in our cost-cutting measures over the course of the year and will continue to do so as part of our strategy of delivering shareholder returns.

I will now turn the call over to John Wallace, Delta's President and Chief Operating Officer, for his comments on operations. John?

Thanks, Dan. As we all know, 2009 was a challenging year for our industry and for Delta in particular. Looking back I'm very pleased with how Delta weathered the storm, and I'm proud to present to our investors a company that is in a far better liquidity and financial situation than we were in at this time last year.

Specifically for much of 2009, we were projecting noncompliance with the covenants of our senior credit facility. And in anticipation of this, we sought and obtained waivers for the fourth quarter of 2009 and the first quarter of 2010. The offshore litigation settlement proceeds were used to reduce borrowings under our senior credit facility. With borrowing base availability and cash on hand, our liquidity position at year-end was $102 million and is approximately $84 million as of today. We have begun 2010 with a much stronger balance sheet and a more focused and disciplined approach.

The overriding objective during the last year was to reduce our capital expenditure and operating costs. The fourth-quarter numbers are now in the third sequential quarter of demonstrating the results of these stringent cost-cutting efforts, and we fully expect this trend to continue. Although the current natural gas prices and forward strip, along with our stronger balance sheet, are more favorable for resuming drilling activity in the Vega area, we will finalize and announce our drilling plans for 2010 once our borrowing base redetermination and strategic alternative process has completed.

Kevin will discuss the borrowing base redetermination further in his comments. During the fourth quarter, we completed four of the drilled uncompleted well inventory mentioned on prior calls. We currently now have an inventory of 16 previously uncompleted wells. As a result of lower gas prices through 2009 and the new SEC reserve pricing rules, our proved reserves decreased from 884 Bcf to 154 Bcf. If the old SEC reserve pricing rules were applied to 2009, we would have only lost 50 Bcf of proven reserves, 30 Bcf after production, for a total of 830 Bcf.

So, in conclusion, we have been through a lot and have come a long way in 2009, but we are once again poised to deliver consistent and efficient production and reserve growth in the future and through that create value for our shareholders. I will now turn the call over to Kevin Nanke, our CFO, for a discussion of our financial results.

Thank you, John. Good morning. As John mentioned, we are currently going through our scheduled borrowing base redetermination. Under our current agreement, our borrowing base is $185 million, but we are required to maintain $20 million of minimum liquidity until we project one year of covenant compliance. We currently project covenant compliance for the duration of the facility, so we will negotiate the liquidity cushion requirement and our CapEx limitation during the redetermination process.

In the fourth quarter, we continued to improve our liquidity position with the receipt of approximately $49 million in net proceeds from the settlement of the remaining offshore litigation with the US government. At December 31, 2009, we had $61.9 million of cash and $39.8 million of availability under our credit facility. As John mentioned, currently we have approximately $84 million of availability.

Our current drilling operations will focus on completion activities on the 28 drilled but not yet completed wells we have in the Vega and Garden Gulch area. As previously mentioned, once we are through the strategic alternative process and the borrowing base redetermination, we will announce our drilling capital expenditure budget for 2010. Production for the quarter was 5 Bcfe and full-year production was 22.2 Bcfe, which exceeded our guidance range of 21 to 22 Bcfe for the year.

Throughout the year, our operational expenses decreased from $2.32 per Mcfe in the first quarter to $2.03 per Mcfe at the end of the year. LOE decreased from $1.56 in the first quarter to $1.26 per Mcfe in the fourth quarter. This decrease is due to improved compression and water handling practices, along with certain ad valorem tax true-ups during the fourth quarter.

We have a new transportation agreement with the majority of our operated natural gas in the Piceance Basin. I thought I would walk you through the math of how this new agreement works. Under our old agreement, it cost approximately $0.60 per MMBtu to transport and process our gas. We would strip out approximately 0.2 gallons of liquids for every MMBtu transported, and we are able to keep or sell 67% under the terms of that agreement. Under our new agreement, we transport our gas a little further, and it cost approximately $1.20 per MMBtu. But it flows through a more efficient facility which strips about 2.75 gallons for every MMBtu transported, and we get to keep or sell 100% of these liquids.

The liquids trade at a significant premium to natural gas, and as such, our profitability has improved substantially in the Vega area. Total G&A decreased 23% to $41.4 million for the year ended 2009 as compared to $53.6 million for 2008, primarily due to two staff reductions. We expect further reductions to full-year cash G&A costs in 2010 as changes implemented in 2009 take their full effect.

EBITDAX has increased three consecutive quarters for a total of $19.7 million for 2009, which includes $11.3 million for the fourth quarter. Of the sell-side analysts that regularly keep and update their models and estimates on Delta, we exceeded the consensus expectations on EBITDAX and E&P revenue. We also came in lower on their LOE estimates. Overall we are pleased with our financial performance for the quarter.

With that, we will open it up to questions.

(Operator Instructions). Joe Allman, JPMorgan.

I guess maybe this one is for Kevin. Your liquidity went down. At year-end '09 it was $102 million, and then March 11 I guess around $84 million. So is that just from outstanding cash flow?

Well, it is slightly spending a few extra dollars on CapEx; however, we just reduced our accounts payable outstanding also.

Okay. That is helpful. And then so no matter what happens with -- I'm trying not to ask a question about the process -- but so no matter what happens, at some point you folks are going to announce recommencing drilling at Vega and announce CapEx and everything else? Am I correct about that?

That is correct. We have adequate liquidity to begin that process right now. However, we are just going to wait until we are completed with the strategic alternatives and our redetermination process.

Okay and what is the timetable on the redetermination?

Well, I have got a meeting at noon today, so we will be going through that process. It will be a couple of weeks after that before we finalize that.

(Operator Instructions). Jack Aydin, KeyBanc.

I'm trying not to ask questions about the strategic plan. But you do have some acreage in the Haynesville area in East Texas, and you have some assets over there. Are you any closer to selling some of those?

It is a good question, Jack, and I will try and not comment on the process. But I will say that both our Haynesville and our Eagle Ford assets are in reasonable to high demand. But while this process is ongoing, we are no longer talking with those entities. Once the process has concluded, we will either resume -- well, we will resume conversations concerning those assets.

Okay. Second question. G&A, you know, your cost is for your size of the Company, it looks like way too high. I mean I know you had reduced overhead everything. What else you could do to bring that more in line with some of your peers, let me put it this way?

That is a good question, Jack. I will tell you that it is dependent upon the process, what we look like going forward to be honest with you.

Okay. (multiple speakers)

We are cognizant of that.

Yes. Well, good luck.

Joe Allman, JPMorgan.

At this point when you look at your portfolio, what is the base decline? So if you -- you know, zero drilling, your production would decline by what percent between now and a year from now?

Well, Joe, it kind of depends upon completion. Base decline at Vega since we have not done any significant completions for a while has begun to flatten out. I don't have a number readily available in front of me now, but somewhere in the 10% to 15%, maybe 18% flattening as we go. But I will tell you with the completions, re-completions and further completions that we have available to us on our already drilled wells, we can sure flatten that decline if not keep it pretty close to zero with these re-completions.

Yes, I think you can be comfortable that our first-quarter production will be fairly consistent with the fourth quarter.

Without having done much in the way of completions. We have only completed four.

Okay. That is very helpful. Thank you.

Gregg Brody, JPMorgan.

Just two questions for you. The first one, for your year-end PV-10 and your reserve assumptions, does your restrictive spending because of the credit facility restrictions, reduce the amount of spending that you can forecast in your numbers?

Well, I think you're still assuming a drilling plan that develops our assets over a number of years, primarily really five. I don't think the CapEx limitation really had much to do with that. It was purely a pricing issue of which our breakeven price was slightly above what our average price for the year was.

Yes, let me comment on that just so you are aware of this. But basically our breakeven price where these PUDs really start to run in a significant way is about $3.25 at the wellhead, and, as Kevin mentioned, we reported $3.03. $3.25 at the wellhead after our new marketing arrangement with Enterprise equates to about $3.33 CIG price, which based on January's differential means about $3.63 Nymex, and we are significantly above that now.

So you can see what Kevin was alluding to is the price used for 2009 and the new SEC guidelines is very close to the breakeven point. A few more pennies, if you will, and the reserves begin to run. So, as the year progressed and prices began increasing, toward the latter part of 2009 is when we resumed some completion activity. But we have not even made a dent in the completion efforts that we forecast in the future.

Okay. And your PUD PV-10 is probably negligible. It is mostly proved developed, is that right?

Correct.

Correct.

And then just in terms of your borrowing base redetermination, when you mentioned that you brought down the PV-10, obviously the banks have their own price tag.

Right, that's irrelevant to the bank's redetermination, yes.

So you do not feel that the lower reserve has that much more of an impact on what is available --?

No, we are not projecting a significant change.

No, their price deck from their last redetermination to this redetermination has not really changed materially at all.

And they have not been risking the reserves any differently based on the new SEC --?

No.

Alright. That is helpful. I appreciate the time.

Gentlemen, at this time I would like to turn the conference back over to management for any closing remarks.

Well, we thank you for listening to our call, and we are excited for 2010, and when we have meaningful information to report, we will get back to you. Thank you.

This concludes today's conference call. We thank you for attending today's presentation. You may now disconnect your telephone lines.