Par Pacific Holdings Inc (PARR) 2011 Q2 法說會逐字稿

Hello and welcome to the Delta Petroleum Corporation second quarter 2011 earnings conference call and webcast. All participants will be in a listen only mode. (Operator Instructions). Please also note that today's event is being recorded. At this time I would like to turn your conference call over to Mr. Brock Richardson, VP, Corporate Development, Investor Relations. Mr. Richardson, please go ahead.

Thank you. And thank you to all of you for joining us for Delta's second quarter 2011 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 and forward-looking statements within the meaning of the federal securities laws and are intended to be covered by the Safe Harbor provisions. In that regard you are referred to the cautionary statement displayed on Delta's website which is incorporated by reference with respect to the information provided for this call.

Investors are urged to closely consider the oil and gas disclosures and risk factors set forth in Delta's form 10-K for fiscal year end December 31, 2010 as updated by subsequent periodic and current reports on 10Q and 8K respectively. The speakers from Delta are Dan Taylor, Chairman of the Board, Carl Lakey, President and Chief Executive Officer, and Kevin Nanke, Treasurer and Chief Financial Officer. I will now turn the call over to our chairman, Dan Taylor.

Thank you, Brock. And good morning, everyone. I want to thank all of you for taking the time to join us today on this call in this very difficult market. There are several things I would like to go over on today's call, all of which are positive for Delta, and I'm enthusiastic about sharing them with you. First are the results thus far of our 2C well in the Vega area. Carl will discuss the specifics of that well and its results to date in greater detail but needless to say we are very excited about what we are seeing in this well, the potential it holds, and it means for Delta.

While the process to get to this point took longer than we anticipated we are pleased to have a flowing well that is in the process of confirming substantial quantities of economic reserves in the deeper shale formations of the Piceance Basin. We are still at an early stage of production, and have yet to run a production log, and are still clearing fluids. As such, there is still much to learn about the open zones in this well. Other operators continue to report similar results in the Mancos and (inaudible) formations and it is gratifying to see the play being confirmed around us.

Second, we have retained Netherland Sewell as our third-party reserve engineering firm. As many of you that follow the industry know, Netherland Sewell is a highly respected engineering firm and known to be among the best and most experienced in unconventional resource plays. The reserve report provides independent confirmation of our internally prepared proved reserves, probable reserves and total resource potential of the Vega area.

Third, I will provide a brief update on our strategic alternative process. The data room opened on August 3 and the query has begun to have meaningful discussions with interested parties. As those of you familiar with these situations know, the process is very fluid and therefore no updates will be provided other than those which are required due to materiality.

We will not be taking any questions on the process during the Q&A portion of the call. As you know, last week we completed our overview memorandum which is available on our website. The memorandum is a marketing document which will be used during the strategic alternative process. While it provides detailed information about our Vega asset and its sizeable upside potential, it should not be viewed by investors as a substitute for our SEC filings.

Fourth, our board of directors and management team have been encouraged by the increase in merger and acquisition activity in our industry and particularly the transactions involving the North American natural gas plays. Since the beginning of the year several transactions have been announced that support improved and meaningful valuations for North America natural gas plays. The per Mcfd multiple for these transactions have ranged between $0.30 and $0.90 based on total resource.

We fully believe that our total resource recently evaluated by Netherland Sewell, coupled with current market conditions will be driving the valuations in the strategic alternative process. Our current distressed market valuation levels should not be considered as constraints during the process. Delta is currently trading at an amazing 50% discount to the lowest of these transactions at only $0.16 per Mcfdof our 2P reserves from the Williams Fork alone.

The additional resource of the deeper shales only make our current valuation even more attractive. We believe there is not a better time to be running our strategic alternatives process.

Lastly, as many of you know, we regained compliance with NASDAQ's listing requirements last week. Having traded over $1.00 for 10 consecutive days, after our reverse split of our common stock. Therefore the risk of delisting is no longer a concern.

As we head into the latter half of the year I'm very enthusiastic about our prospects and strategic alternative process. I do hope that you share the same enthusiasm. I will now turn the call over to Carl for his comments. Carl?

Thank you, Dan. I absolutely share your enthusiasm about our progress at Delta. For the past couple of weeks I have been looking forward to this conference call.

Although Delta delivered another solid quarter I will defer to Kevin to demonstrate this when he discusses the financial metrics achieved. There is so much more to share with you today. I will start my remarks with a short update on the 2C well. Initial production from 2C certainly took longer than expected due to previously disclosed mechanical difficulties and more recently, equipment availability. But early results confirmed the exciting potential of the shales under the Williams Fork formation.

We have already shared with you the production began on July 20th and sales started on July 21. Peak production was obtained on July 20 at 5.4 million cubic feet per day with 8,360 psi flowing tubing pressure on a 7/64 inch choke.

Production has generally ranged between 2.5 million and 3.5 million cubic feet a day at choke restricted rates between then and now. The choke has been opened two small incremental steps and is currently at 9/64 inch with the last 24 hours averaging 6100 PSI flowing tubing pressure and 3 million cubic feet per day.

Lab analysis shows that the oil produced in late July was 38 degrees api gravity with essentially no sulphur content. There has been little to no oil since that time but shifting water chemistry and changing gas composition suggests that some of the deeper frag stages are just beginning to contribute to production. These are the intervals that the log suggests would be where we should expect heavier hydrocarbons to be recovered.

In the 2 producing weeks have recovered less than 5% of our frag load to date. I want to emphasize to everyone that the well is capable of much greater production rates than we are allowing. We are intentionally being conservative with our small choke settings to limit the dry down on the reservoir.

We believe this management technique will improve our ultimate recovery from the well. Understanding the choke control performance, however, is only one part of the reason we are so excited to share these results.

In addition, it is important to remember that this well, is only producing from 1200 feet of completed pay in the Frontier and Niobrara formations. In addition, the Williams Fork and 2,600 feet of gross per perspective pay in the Mancos and Corcoran formations have yet to be completed in this well.

With the recent two seed results as a back drop let me now focus on the Vega shales in a broader context. We have reexamined some older it 2D seismic lines that show the shales between the corporate and the frontier to be the substantially the same thickness and broadly showing the basin structural features with only minor structural anomalies.

These over seismic lines confirm what we are identifying with the drill bit; that we have shale potential across our entire 22,000 net acre position. We continue to drill the 12B well that will hold with production the recently formed 2715 acre federal sheet creek unit. It is almost an intermediate casing point below the Williams Fork and is expected to confirm shale potential first with shales (inaudible), then with logs, and finally with production, probably in the fourth quarter.

The 2B well has declined in a well behaved fashion from our previously announced 3 million cubic feet per day rate to a roughly 650 mcf per day now. It is important to understand that the flowing pressures on 2B declined rapidly upon production and did not behave in the same way that the 2C well is demonstrating.

Our team feels that we may have some unlocked potential remaining in this well and may devote additional energy and capital to help understand the full potential of this well. When Netherland Sewell evaluated the shale resource at Vega their higher upside estimate of 10 bcf gross recoverable per well and 80 acre drainage patterns equates to 2.8 tcfe gross recoverable for horizontal development.

Using their low side estimate of 6 Bcfe per well with 160 acre drainage patterns, equates to .84 tcfe. These estimates are accretive to the Williams Fork recoveries.

Finally, if Delta can find an economic way to develop these shales in a vertical well bore the ultimate resource could be larger still. We think 2C is a great start in that effort.

Now, with the shale discussion concluded for now let me now direct my comments towards the transformed Delta that we have become. Delta has worked hard over the past year to put its house in order. I'm so proud of our current team and our former teammates that worked hard on these accomplishments. I would like to share are a few of them with you now to help you understand the sense of accomplishment with me.

First and foremost, we have paid down roughly $106 million of debt in the past 13 months and initiated a new bank facility with Macquerie. This was largely enabled through two non-core asset divestiture transactions totalling $173 million of gross proceeds.

In addition we eliminated non-core non-producing assets and liabilities across the remaining Delta portfolio as we have become even more focused on Vega as our core asset. That work is now also essentially complete. Delta has worked hard to reduce our Vega from a year ago levels by roughly 60%.

We reduced our normalized G&A by approximately 35% from year-ago levels. The team at Delta was not content with simply eliminating cost and liability, we also looked at ways to create upside. We increased per well Eed UR by 22% in the Williams fork and created economic development opportunities in the current price environment value.

The team stewarded a very limited capital investment budget with a strategic eye. We increased per well eur by 22% in the Williams Fork and created economic development opportunities in the current price environment. The team also accomplished, with the deployment of a portion of that same limited capital budget, we have discovered, confirmed and are starting to quantify a shale resource below the Williams Fork that could some day exceed that of the Williams Fork.

Lastly we retain one of the finest in independent engineering firms in Netherland Sewell to help the Company quantity the value of this work in anticipation of the strategic alternatives process. It turned out to be significant. Taken collectively, it should be clear that our focus on our clear asset has improved our company in many important metrics. As I reflect on Delta's transformative body of work I'm so proud of our team and what Delta has become. I hope you now have a sense of excitement that I feel every day. This work was essential to build value in the core asset of the company for our shareholders.

Dan earlier pointed out that our current share price is apparently not the in alignment with the value of the asset and the company. I hope this helps you understand why we feel this way. With these accomplishments and clear focus I'm sure you can appreciate that we feel we have created the best value environment possible as we move forward with the strategic alternative process. I'm confident that our advisors as Macquarie and EverCorps are keenly focused on taking these accomplishment and translating them into value for our shareholders. Kevin will now describe in detail our essential financial metrics. Kevin?

Thank you, Carl. Good morning. In June we announced that the remaining gulf coast non core assets were sold for $43.2 million. Of which, a portion was used to pay down our credit facility and the remainder will be allocated for Piceance development. At quarter end, and today, we have $18 million un-drawn available under our borrowing base which is sufficient for our current capital development program and debt service obligations for the remainder of 2011.

EBITDA from continuing operations for the second quarter was $3.6 million which compares to a first quarter EBITDA of $4.8 million adjusted for the non core asset divestiture in late June. Decrease in EBITDA during the quarter was primarily due to a 7% decline in production from continuing operations and realized financial hedge losses absorbed in continuing operations.

For the second quarter we reported total production of 3.18 Bcfe, slightly under our guidance. We anticipated completing our two remaining inventoried wells, however with limited frac crews and a focus on the shales we decided to leave the two completions for a later date.

As Carl mentioned, operating metrics in the Piceance have improved. For the second quarter in a row, Vega lease operating expense came in under $1.00. Second quarter averaged $0.87 per Mcfe. We expect to continue to maintain these levels.

With the addition of the shale production we believe these numbers can improve given the large fixed component in our costs. We reduced our G&A cost to $6.5 million in the second quarter of which $2.4 million wasnon cash equity compensation. This equates to a Delta stand alone cash G&A for the second quarter of approximately $4.1 million. Which is lightly lower than the cash G&A guidance of $4.5 million per quarter given at the beginning of the year.

DHS sold its trucking company during the quarter, generating approximately $3.3 millionproceeds which were used to reduce debt. Over the last quarter and a half, DHS has been working with the group that had interest in a number of our rigs. Recently they informed us that they were having trouble obtaining their financing. As such is both Delta, and DHS other significant shareholder, are in discussions as to a path forward. Regardless of the path, Delta does not believe that significant upside exists above the debt. As such, it should also be known, or noted, that all DHS debt is non recourse to Delta.

Over the next several months, we look forward to working with Macquarie and EverCorps on our strategic alternative process to bring value to our shareholders. With that, we will open it up to questions.

(Operator Instructions). And at this time I'm showing no questions. I would like to turn the conference call over to management for any closing remarks.

Thank you very much for attending our second quarter conference call today. We do appreciate you taking the time to listen and we look forward to speaking with you again later. Thank you.

The conference is now concluded. We thank you for attending today's presentation. You may now disconnect your telephone lines.