Veren Inc (VRN) 2011 Q4 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'd like to welcome everyone to the Crescent Point Energy's year-end and fourth-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).

Thank you. 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 December 31, 2011 were announced this morning and are available on Crescent Point's website at www.crescentpointenergy.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's 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 now like to turn the call of to Mr. Greg Tisdale, Chief Financial Officer. Please go ahead, Mr. Tisdale.

Thank you, operator. I'd like to welcome everyone to our year-end conference call for 2011. With me are Neal Smith, Vice President of Engineering and Business development, Trent Stangl, Vice President of Marketing and Investor Relations, and Ryan Gritzfeldt, our VP Engineering East. Scott Saxberg, our President and CEO is on a marketing trip in New York. I'll give an overview of our quarterly and year-end results, and then Neal will speak to our operations and 2011 reserves.

We are pleased to report that Crescent Point delivered another strong quarter and excellent 2011, marking our 10th year in a row of great success of the Company. This past year's results really demonstrate how well we are executing on our business strategy and in our operations. Our focus on large oil in place assets, improvements in recovery factors continues to drive excellent results. On a per share basis in 2011, we grew production per share by 3%. We grew reserves per share by 3.5%. We grew net asset value per share by 7%. And we grew cash flow per share by 26%. We accomplished this growth while paying an annual dividend of CAD2.76 per share, providing an additional 6.4% return to our shareholders.

On a total basis, we achieved record results, despite the prolonged spring breakup and associated flooding we experienced this year. In 2011, we grew annual production to 73,800 barrels a day, a 20% increase over 2010. We grew our two key reserves to 424.8 million barrels, a 12% increase over 2010. And we grew cash flow to CAD1.3 billion, a 46% increase over 2010. These results reflect the hard work and dedication of our staff and the high quality nature of our asset base.

Turning to fourth quarter -- we achieved a new production record of 81,210 barrels a day, weighted 91% to oil and liquids. This represents a 12% organic increase over third quarter and 7.5% per share increase over fourth-quarter 2010. We generated a record cash flow in the quarter of CAD382 million, or CAD1.32 per share. This represents a 35% increase on a per share basis over Q4 2010. On the operations side -- we spent CAD459 million on development capital activities in the quarter, of which approximately 80% was on development drilling. We drilled 133 net wells including 57 Bakken wells, 38 Shaunavon wells, eight Beaverhill Lake wells, two unconventional Alberta Bakken wells, and three North Dakota wells.

We continued to solidify our core Bakken and Shaunavon plays with development drilling, consolidation acquisitions, and waterflood development. We're also actively exploring developing our land position in Southern Alberta. In 2011, we announced exciting new core areas in Alberta's Beaverhill Lake light oil reserves play and in North Dakota, Bakken Three Forks reserves play. Both these new emerging plays are large oil in place assets in which we were able to use our technical expertise to continue to increase recovery factors and drive further value growth. In 2012, we plan to allocate approximately CAD300 million or 25% of our CAD1.2 billion capital budget to these two new emerging reserves plays.

In all of our core plays, we are pushing forward with new concepts and new technologies that will provide us with competitive technical advantages going forward. We continue to execute on our acquisition strategy. Subsequent to the quarter, we announced two strategic consolidation acquisitions in our core Bakken and Shaunavon reserves plays. Through an agreement with PetroBakken Energy, we'll be acquiring more than 2,900 barrels a day of production and more than 25 net sections of land in our core Viewfield Bakken reserves play. We expect this acquisition will help accelerate our waterflood plans for the play, which we believe can increase recovery factors from 19% on primary to more than 30% with water flood. With this acquisition our ownership in our proposed water flood units increases from 90% to 97%.

We also acquired 5,400 barrels a day of Wild Stream explorations production which further consolidates and solidifies our position as the largest player in the Shaunavon oil reserves play in Southwest Saskatchewan. The acquisition is accretive on all measures on both a short- and long-term basis and provides significant long-term reserve upside. Today, we're also announcing the minor consolidation acquisition of Reliable Energy, a partner of which we had an existing 13% equity interest. Total consideration paid for the shares, we do not already own is approximately CAD100 million. We expect to acquire but 1,000 barrels a day of Manitoba Bakken production and more than 135 net sections in land in Southern Saskatchewan and Southwest Manitoba. The acquisition will consolidate the assets that we currently hold in a joint venture with Reliable in the Manitoba Bakken light oil play. It's a low-cost high netback play that has upside potential both through infield and [steppo] drilling as well as water flooding.

The acquisition market has been very active over the past several months with lots of activity in our core areas, as well as in our emerging resource plays in Alberta and North Dakota. We see lots of opportunities and are well positioned but at the same time, we don't need to transact unless we see significant upside on reserves and value for the right price. As a result of the Reliable arrangement, we're upwardly revising our 2012 guidance. Average daily production in 2012 is expected to increase to more than 86,500 barrels a day, and our exit rate for the year is expected to increase to 94,000 barrels a day. Our guidance continues to factor in about 11,000 barrels a day of shut-in production during breakup. To date, weather conditions have been dry which may lead to a better than expected spring breakup.

Our production is flexed up going into breakup, and first quarter operations have been strong. So we're well positioned to deliver on our targets again this year. Our cash flow forecast has been increased to CAD1.5 billion, and our balance sheet remains strong with projected net debt to cash flow of less than one times. We continue to drive our payout ratio down and manage our price risk with our disciplined 3.5 year hedgebook. We are also diversifying our crude oil markets and managing pipeline risk with our new rail facility in Southeast Saskatchewan. We expect to have rail capacity of more than 15,000 barrels a day at our facility by this summer. Given the strength our balance sheet and hedge portfolio, we are well positioned to generate further strong operating and financial results in 2012 and beyond.

Before I hand things over to Neal, I'd like the to thank all of our employees, Board of Directors, and extended Crescent Point team for their hard work in 2011. The team effort -- not just this past year -- but over the last 10 years, has been tremendous. Neal will now cover operations highlights as wells our year-end reserves report. Neal?

Thanks, Greg. One of our biggest accomplishments this year was successfully handling the prolonged spring breakup and associated flooding in Western Canada. Despite the obstacles our team faced in Southern Saskatchewan, we managed to exceed our production targets for the year, beating both our 2011 annual average in exit production forecasts. This demonstrates the depth of our asset base and the technical strength of all our teams.

Throughout 2011, we continued to expand and develop our waterflood programs in the Viewfield Bakken and Lower Shaunavon plays. In the Viewfield Bakken, we had 18 water injection wells operational by year-end 2011 and a total of 24 wells converted. Including the wells we've converted to date in 2012, the Company now has 32 water injection wells into the play, and we plan to have more than 60 by the end of the year. The Lower Shaunavon waterflood project continues to show positive response as well. We plan on having 10 water injection wells into the play by year end 2012. With mounting historical performance on these waterflood programs, we continue to believe that waterflood implementation will have a big impact on increasing our ultimate recovery factors and reducing our decline rates.

On the reserve side -- I'm happy to report that Crescent Point's year-end 2011 reserves mark the 10th year in a row of strong positive technical and reserve additions. Excluding acquisitions, we replaced 248% of 2011 production on a proved plus probable basis. We also increased proved plus probable reserves by 12% to 424.8 million BOE at year-end, weighted more than 92% to light and medium crude oil and liquids. Our proved reserves also increased by 12% to 281 million BOE.

2011 marked the 10th year in a row for growth in net asset value per share, reserves, production and cash flow. Net per share increased to CAD38.42 per share, discounted at 10%, which is a 7% increase over 2010, excluding dividends paid during the year. Including dividends paid in 2011 -- that growth increases to 14%. Our finding and development costs for the year including future development capital were CAD28.67 per proved plus probable BOE and CAD33.35 per proved BOE. Excluding future development costs -- finding of development costs were CAD18.52 per proved plus probable BOE and CAD22.06 per proved BOE, which equate to recycle ratios of 2.9 times and 2.4 times respectively.

We're also pleased with our five year weighted average funding and development cost excluding future development cost which is CAD14.30 per proved plus probable BOE, and CAD18.45 per proved BOE including land, seismic and facilities because it demonstrates how efficiently we've been able to add value to our large resource-in-place asset base. We've already seen reserves growth in our two emerging plays, Beaverhill Lake and North Dakota Bakken/Three Forks, and we will continue to add value to these plays.

Before I hand things back to Greg, I'd also like to thank and recognize our technical and especially field teams for their hard work last year during one of the most difficult weather periods in our history. I believe they are the best in the business. Their ability to quickly and efficiently execute the shift in capital to Southwest Saskatchewan during the year was outstanding. Our teams and our assets really are second to none. Back to you, Greg.

Thanks, Neal. We've got a great start to the year with several consolidation acquisitions and a smooth operational first quarter and are looking forward to the rest of 2012. At this point, we're ready to answer questions from the members of the investment community. Operator?

(Operator Instructions)

Gordon Tait, BMO Capital Markets.

Just interested in the note you had -- the mention you made of shipping production out of the Bakken via rail. I was just wondering -- what sort of loading capacity are you aiming for out of the Bakken? And can you tell me where does that production ultimately end up?

The capacity right now is about 8,000 barrels a day, and that's roughly what we're doing today. By this summer, we should be up to about 15,000 or 16,000 barrels a day. Once it's on-rail -- the beauty of once it's on-rail is it can go anywhere in North America. It allows us to access markets outside of the PADD II market. We can get to the Gulf Coast. We can get to the East Coast. We can get to the West Coast, and both Canadian and US markets. So it really allows us to diversify our pricing and manage pipeline risk.

And do you have a sense of -- having that flexibility -- what you would expect to -- incremental gain you will get per barrel by being able to ship via rail versus being stuck in the pipeline system?

Yes, I think if you're looking at a more normal WTI to Brent-type spread, we're probably breakeven type economics on rail. When you're looking at the wider spreads that we have right now, and the wide spreads between Cushing and Western Canada, there's a pretty significant uptick on the rail.

Do have you the capacity to maybe extend that to the Shaunavon -- just thinking how medium grade or heavier grades are trading relative to WTI? Is that something you could do as well.

Yes, for sure. We're looking at that as well. Shaunavon play is a little bit further behind in the Bakken. We are looking at a number of different opportunities there as well.

(Operator Instructions)

Jonathan Fleming, Cormark Securities.

You mentioned in your report that you haven't booked any reserves yet to the waterflood. Would we look forward to seeing that happen in 2012?

Currently, what is being recognized by the independent engineers, improved performance from the wells adjacent to the water injectors -- we're working through the unitization process, pretty much the trigger to recognize waterflood reserves will be, once the unit is formed. And on that point forward, we'll expect to start seeing waterflood reserves. We're working towards having unitization done towards the end of this year to early next year.

You guys have mentioned that the program is shaping up pretty well here in Q1. Can you give us an idea of where current production levels are?

Just in terms of where we're sitting here right now -- we're not guiding right now. Our Q4 was 81,000 barrels a day. We're definitely on our way to meeting our targets for the year.

William [Gauglin], Salman Partners.

I was just wondering if you had any guidance on OpEx and G&A costs for the year? Thank you.

Yes. Our operating costs -- we're guiding towards around CAD12 per barrel for the year; and G&A costs are around CAD1.50 a barrel range.

Barbara Betanski, Addenda Capital.

The question is on the pricing that you're realizing. There's been a lot of talk about the US Bakken and the infrastructure bottlenecks there, and the significant discount on pricing that they're receiving. I guess I just wonder if you could comment on the Saskatchewan prices -- whether you're facing similar bottlenecks, or where your oil is going, and what your outlook is for pricing for your oil going forward?

I think, historically, the North Dakota Bakken has been very transportation constrained, which is what has caused the wider differentials for them. We've had pretty good access on Enbridge Mainline. So we've had pretty good differentials throughout the last three years. We're not really at a point where we have transportation constraints per se out of the Basin. The short-term differentials right now are driven more -- I think -- on the demand side, and with some of the refineries down for planned and unplanned maintenance, with the reversal of Seaway and the purging of those lines; and then a tightening of transportation on Enbridge Mainline. Primarily, Downstream is superior.

I think for the second half of the year, we're going to see a return to somewhat more normal differentials, albeit probably more volatile, because any pipeline issue or demand issue is going straight to the pipeline differentials. But we do see that improving; and again, that's a big reason why we've got the rail in place so that we can diversify and manage that risk a little better.

We have no further questions in queue at this time.

(Operator Instructions)

Patrick O'Rourke, Stifel Nicolaus.

I was just wondering how much FDC you have booked in the reserve report for 2011?

Yes. It's around CAD670 million of increase in future development cost.

We have no further questions at this time. I'll turn the call back over to our presenters.

Thanks, everyone for participating today.

Thank you, ladies and gentlemen, for participating in Crescent Point's year-end and fourth-quarter 2011 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.