Veren Inc (VRN) 2011 Q2 法說會逐字稿

Good morning, ladies and gentlemen. My name is Matthew and I will be your conference operator today. At this time I would like to welcome everyone to the Crescent Point Energy second quarter 2011 conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session for members of the investment community. (Operator Instructions)

This conference call is being recorded today and will also be webcast on Crescent Point's website. All amounts discussed today are in Canadian Dollars unless otherwise stated.

The complete financial statements and management's discussion and analysis for the period ending June 30, 2011, were announced this morning and are available on Crescent Point's website at www.cresentpointenergy.com and on the SEDAR website.

During the call management may make projections or other forward-looking statements regarding future events or future financial performance. Actual performance, events or results may differ materially. Additional information or factors that could affect Crescent Point's operations or financial results are included in Crescent Point most recent annual information form which may be accessed through Crescent Point's website, the SEDAR website, or by contacting Crescent Point Energy.

I would like to turn the call to Mr. Scott Saxberg, President and Chief Executive Officer. Please go ahead, Mr. Saxberg.

Thank you, operator. I would like to welcome everybody to our second quarter conference call for 2011.

Before I get into the details I would like to introduce Greg Tisdale, our Chief Financial Officer, who will be talking later about our financial results. At the end of the call we will welcome any questions you might have for us, and for that purpose I have Trent Stangl, our Vice-President of Marketing and Investor Relations, Neil Smith, our Vice-President of Engineering and Business Development who are on the call with us today.

Crescent Point has had a strong first half of the year and built good momentum in the third quarter. The Company exceeded its production capital targets for the first half of the year while maintaining a strong balance sheet, improving our hedge position and expanding our light oil resource base inventory with addition of the Beaverhill Lake play.

Production during the first half of 2011 was strong and actually surpassed our expectations. Primarily due to our strong first quarter and our expectation of a severe breakup being built into our second quarter budget. With higher than planned production for the first half of the year, we remain on track to achieve our annual guidance of 72,500 boe/d per day.

We have good momentum as I mentioned earlier at the start of Q3 and current production is over 70,500 boe/d per day, we have 1,000 a day of shut-in volumes coming back on soon, and July drilling activity is expected to bring another 2,000 to 3,000 boe/d per day on stream in August. We're estimating that approximately 1,500 boe/d a day of shut-in production will not come back on stream until 2012. Excluding these volumes, we estimate that our exit production rate this year will rise to 76,500 boe/d per day, from 75,000 boe/d per day.

We took advantage of the high commodity prices in Q2 and added to our hedge position, and although the markets have been chaotic this week, Crescent Point's hedge position balance sheet and Extensive Drilling Inventory, positioned us to increase our capital expenditure budget to CAD1 billion from CAD800 million. Nearly CAD80 million of the increase will be directed toward drilling focused on our emerging Beaverhill Lake light oil resource play in Alberta, and Flat Lake Bakken play in southeast Saskatchewan. Ranger of capital increase we split between facilities and land investments in our core plays including the Beaverhill Lake area.

Due to the flooding in southeast Saskatchewan, we were also going to shift capital spending from the Viewfield area to the Shaunavon area in southwest Saskatchewan. In the Shaunavon we now expect to drill 86 net wells this year compared to the original planned 44 net wells. We drilled 78 net wells out of our planned 200 net well program in the Viewfield Bakken to date. Now we expect to drill 44 net wells between July and December of this year, compared to our originally-budgeted 122 net wells planned for the second half of the year.

I think the key highlight there is that with this new increased capital program, we've taken away the potential risk for further flooding in southeast Saskatchewan and Viewfield delaying production additions. Our current guidance assumes that only 3 rigs have to be running in the Bakken from now until the end of the year to meet our production targets. We currently have 6 rigs running in the area so we are ahead of our schedule.

We will continue to monitor ground conditions in the Bakken, and if conditions improve we will obviously shift capital back to that area. The shift of capital to the Shaunavon will add more medium-gravity crude volumes, but the difference won't change our net backs significantly as we are adding light volumes at Beaverhill Lake and in our southeast Saskatchewan conventional plays.

Subsequent to the quarter we took possession of a new office space in Denver, Colorado. We are excited about our US office, as it gives us the opportunity to pursue our business strategy of acquiring, exploiting and developing our high quality, long life light oil natural gas properties in the US, so we are excited about that.

I'd also like to thank Crescent Point's management and employees for delivering a strong quarter for the Company. As I mentioned in our last conference call, I'd like to really recognize our field employees, many of them have been dealing with the effects of flooding on a personal level while working in difficult conditions to deliver this great result for Crescent Point in Q2. And also they have done a great job in helping everybody else in the community who are affected by the flooding, so thanks to all for a well done job. It was a great quarter.

When you actually step back and look at our quarter, and what we achieved in the first half of 2011, we are pretty excited about Crescent Point's future growth. Our initial drilling results were ahead of expectations which is really highlighted in our production in Q1. And then the nimbleness of how we responded to the flooding in Viewfield and shifted capital while at the same time maintaining a strong balance sheet, improving our hedge position and then capturing another high quality resource play, further demonstrates the quality of our team and the assets within the company.

I would like to pass it over to Greg now to speak to the financial highlights.

Great. Thanks, Scott.

I'm pleased to report that Crescent Point generated a record CAD311 million in cash flow from operations during the second quarter which represents a 68% increase over the second quarter of 2010, and a 5% increase over the first quarter of 2011. In the second quarter WTI oil prices exceeded [CAD100] a barrel, providing operating netbacks for Crescent Point of [CAD60.26] in the quarter. These strong netbacks and 90% oil weighting underpinned our record cash flow for the quarter. Given the recent volatility in the market, we revised our cash flow forecast to CAD1.18 billion based on [CAD95] WTI average price for the year.

On the treasury and balance sheet front in the second quarter, Crescent Point successfully closed private placement of senior guaranteed notes for a total of $165 million, and CAD50 million, with maturities ranging from 5 to 10 years. In addition this quarter, Crescent Point successfully extended its 3-year syndicated credit facilities by a year, now maturing in June, 2014. These treasury activities position us well with over CAD965 million of unutilized credit capacity.

We also continue to follow our discipline hedging strategy by actively hedging commodity prices in the second quarter, capitalizing on the high commodity prices throughout the forward curve. As beginning of August we are now 55% hedged for the balance of 2011, 49% hedged for 2012, 37% for 2013 and 19% for 2014. Given our strong balance sheet and hedge portfolio, we are very well position to manage in the current economic environment to generate further strong operating financial results.

Thanks I will now hand things back to Scott.

Thanks, Greg.

At this point we are ready to answer questions from members of the investment community. Operator?

(Operator Instructions)

Gordon Tait with BMO Capital Markets.

Good morning. Couple of things. I wanted to dig a little bit more in your water flood. It sounds like you are getting ready to move forward to like a full scale more of a commercial water flood. Do you have a sense yet of what the type curve in the EUR would look like for however many wells you think you could successfully flood?

Good question. What we've got in the works in the plans right now is we set up 4 areas and units. They are unit so we are on the path of utilization of sort of the main core center of lands that are focused around where we have the highest working interest and facility ownership and infrastructure, and so when you look at our Bakken map you basically take the guts of our yellow lands and equates to about billion and a half barrels of oil in place roughly.

In the Viewfield portion?

Yes. So we've been moving forward on that for the last year. We've identified the other owners within the unit are hot fee title owners, the crown owners. Our initial projects are focused around crown 100% owned lands. Out of that grouping there is about 6 or 7 of those projects that are groups of 5 crown sections apiece and within each of those 5-section blocks, we convert at this stage of how we planned it 3 to 4 wells to Injectors, so you are looking at 15 to 20 injectors per project block times 6 to 7 blocks. So we have that in our inventory, that will probably take us at least another 2 years to fulfill and convert over and set up. Between that time and now, we are moving forward with unitization of the remainder of all those blocks of land. It turns out it's probably about 6 to 9 townships of land that is the area. And so we are moving full bore into that and so our program of injector conversions this year and then moving into next year is basically that 2-stepped process.

And then remind me, what is the sort of cost would there be to converting producer into the injector?

Right now we are -- our numbers are roughly about CAD400,000 to CAD450,000, and that's because we allocated money to do -- to drill out the ports and to do a clean-out in those injectors before we put them into service, so we added another operation to that just to ensure that they are cleaned up and set up and then we put them on stream.

All right. Then looks like Beaver Hill is going to become a bigger focus for you even and put more capital into it. Now it looks like most of the farming land is in the Patch reed platform, is that right? And how do those economics compare to the Coral Hills?

Well, what's interesting is the second wave lands are just south of our Coral Hill lands. And they are on trend to that fourth cycle that we've been drilling in the Coral Hill well. So our first original well we drilled with Coral Hill that was Big Boomer, the wells that we drilled as of late are on that trend and sort of the fourth cycle edge kind of runs through the heart of those lands. They are very favorable from that perspective. There is probably half the lands are pushed out more to the platform and then we are just drilling those -- we drilled those 2 wells into that sort of area as well.

And then lastly, you didn't say much about the Alberta Bakken. Do you have any updates there? Anything you can tell us about what activity?

In the Alberta Bakken we've drilled now 5 wells, 4 of which are on production. We are planning to actually add to 2 additional locations to our original budget in this budget increase. And so we've -- if they are not out they should be out of licenses. There's 3 licenses that we are putting in place south on our crown lands and in [Canifarma] lands that surround where Murphy has drilled and where we originally drilled, and then we have a couple of scattered through the middle of the farther north around [Luxbridge] and then north. So we are testing various concepts; most of the players in that area are testing various concepts. It's still early days there to really --

So safe to say it's not a big focus area in say the next 6-months or year?

From now until the end of the year we want to collect production data on these next grouping of wells before we then put a larger capital program in place.

Thanks.

(Operator Instructions)

Roger Serin with TD Securities.

Good morning, guys. Just a couple of quick questions. Staffing in the Denver office, you just opened it. What do you have currently in staffing and where do you think that will go over the next 12-months?

We currently have plans to hire or we -- we were close putting in place about 9 people down there, and then we have in our office to make room of upwards of 30 in that space. So our expectation is kind of to keep it in that 9 to 12 range for the next 6-months to 12-months, and then based on our drilling results and activities we will expand on it.

Great. Of your 18 rigs that are drilling now, how many are operated?

I think about 14 -- 13, sorry.

Close enough. And when I look at your US plans in terms of 2011, how much capital order of magnitude is going to be spent in the US?

In the range of about CAD30 million at this stage with drilling that we are doing in our -- in that northern -- basically it's focused on the northern Bakken extension of our Flat Lake play that straddles the US border.

Right. That's about what I guessed. So then on your CAD80 million increased CapEx on the drilling side, can you give me a bit of a break down as to how much goes to the Beaverhill Lake, how much goes to your Flat Lake and then maybe other?

Yes. Out ever that CAD80 million it's roughly 57, I think, is Beaverhill Lake, and then Flat Lake -- we don't break out the change that way. Yes, another CAD12 million to CAD15 million I think at Flat Lake so it's 70 and then the difference is our conventional southeast Saskatchewan.

Perfect. And lastly on the Beaverhill Lake side, given the success you've had and the land spread you had, do you need to start spreading money on infrastructure there and when does that start to occur?

I think it's still early days there. Obviously with our partner with Second Wave they have some gas infrastructure and batteries on that farm end. And right now we are just sort of delineating and they are mostly all single well batteries at this stage and then once we kind of get through this phase from now until the end of the year then we will as we built up some the pad drilling we are doing, then we will start to put in the infrastructure and we do have some money set aside for that. I think we have CAD10 million or whatever for this year. I think we have 73 wells or 70 wells that we currently approved through partners of which about 30 are net to us. The activity out there based on what Corals' doing, what second wave and --

And just I'm not sure there is much of a range this is the last question. Remind me well costs on these Beaverhill Lake wells.

I think about CAD5.5 million to CAD6 million is probably the high end, depending on the completion.

Perfect. Thanks very much, guys.

(Operator Instructions)

There are no further questions at this time. Mr. Scott Saxberg I will turn the call back over to you.

Thank you everyone for dialing in and we are excited about the rest of year and thank you for participating on today's call. Thanks.

Thank you ladies and gentlemen for participating in Crescent Point's second quarter conference call. If you have more questions you can call Crescent Point's Investor Relations department at 1-877-403-1678. Thank you and have a good day.