Veren Inc (VRN) 2012 Q3 法說會逐字稿

Good morning, ladies and gentlemen. My name is Tracy and I will be your conference operator today. At this time, I would like to welcome everyone to Crescent Point Energy's third-quarter 2012 conference call.

(Operator Instructions)

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 September 30, 2012 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 over to Mr. Scott Saxberg, President and CEO. Please go ahead Mr. Saxberg.

Thank you, operator. I would like to welcome everybody to the third quarter conference call for 2012. With me is Greg Tisdale, our Chief Financial Officer, Neal Smith, our Vice President of Engineering and Business Development, Trent Stangl, our Vice President of Marketing and Investor Relations. After I cover a few the highlights for the quarter, Neal will discuss operational highlights and then Greg will speak our financial highlights.

We are proud to announce our Q3 results today and thank you for joining us on the call. Crescent Point has had an active third quarter and delivered strong results all around. Again, driven by improved fracture stimulation technology, facilities optimization, and water flood performance. During the quarter, we were very proactive in shipping our Bakken oil through our Stoughton rail terminal. We continue to increase our deliveries there and plan on expanding our capacity during the fourth quarter. We also got our southwestern Saskatchewan rail loading facilities up and running and delivered our first shipments in October.

Subsequent of quarter in November 1, we announced the strategic acquisition of Ute Energy, a private oil and gas producer, with assets in the Unita Basin in northeast Utah. This is an important acquisition for us as it establishes a new core area with long-term upside.

As we approach the end of the year, we feel we are in a great position to meet or exceed our targets for 2012. Some of the highlights from our third quarter include growing our average daily production to a record 99,600 BOE's per day. A 38% increase over third quarter 2011, and 2600 BOE increased over second quarter of 2012.

As we announced last week, we expect the acquisition of Ute Energy to close at the end of this month. The assets we will acquire include current productions of approximately 7800 BOE's a day in the Unita Basin and approximately 270 net sections of land in the center of the resource play. This play is of a scale similar to our Bakken and Shaunavon resource plays and has all the characteristics that we look for. We will see significant potential upside in the Uintah basin as a majority of the lands in the center of the play are undeveloped. In total, we have internally identified more than 1000 net, low-risk, drilling locations, of which, only 253 net have been booked into reserves. We're very excited about this acquisition and will apply the expertise we have developed in Canada to this lite oil resource play.

Last week, we also announced an increase to our guidance for the year. We now expect our average daily production for 2012 to be approximately 97,000 BOE per day which assumes a successful completion of the Ute acquisition. The majority of this growth is the result of our strong drilling performance this year as well as great results from our water, flood, and facility optimizations. We also increased our exit production guidance for the year to 109,000 BOE's per day.

Our capital expenditure budget for 2012 was increased to CAD1.4 billion, and we will stay focused on executing organic growth projects, developing our emerging plays, and expand our water-flood programs. This positions us well going into 2013 and we expect to announce our capital budget for next year in early December. We will continue with our hedging strategy and balance sheet discipline, maintaining a low debt-to-cash flow and looking to continue to diversify our markets with rail. With a strong third quarter and solid results year-to-date, we are well positioned to meet or exceed our targets again this year and are excited about our new initiatives to push technology across all of our resource plays.

Before handing things to Neal, I would like to thank everyone at Crescent Point for their hard work in executing another great quarter. We are very proud of what we have achieved so far in 2012 and look forward to exiting the year on a high note. Neal will now cover our operational highlights. Neal?

Thank you, Scott. On the operations side, we continue to execute on our plans in the third quarter. Overall, we spent CAD259 million on drilling and development activities in the third quarter, drilling 84 net oil wells with 100% success rate. We also spent nearly CAD55 million on land, seismic, and facilities, for total capital expenditures of CAD314 million.

During the quarter, we continued to solidify our core Bakken and Shaunavon plays through development drilling, our water-flood programs, and the application of new technologies. In the Saskatchewan Bakken, we have re-entered existing wells that were originally completed with eight and 16 stage cement liners, and increased them to 25 and 30 stage cement liners. Initial results have been positive and we have identified 90 additional wells that are candidates for the process. We are now completing the majority of our Bakken wells with 25 to 30 stage cement liners and these results show that these wells are outperforming.

During the third quarter we continue to build infrastructure in the Bakken and Shaunavon areas to accommodate production growth. This does include the completion of the second of three new batteries that are planned for southwest Saskatchewan in 2012. Operations at our rail facility in Stoughton are going well and are allowing us to diversify our markets for Bakken crude oil and to increase our net backs.

By late third quarter, our oil rail-loading facility in the Dollard Area of southwest Saskatchewan became operational. Current capacity is approximately 4,000 barrels a day of oil. In 2013 we plan to increase deliveries to both the Dollard and Stoughton rail facility. Before handing things to Greg, I would like to thank our field teams, who have continued to deliver excellent results. Thanks to all of you for your hard work. Greg will now discuss financial highlights. Greg?

Thank you, Neil. I am pleased to report that Crescent Point generated cash flow in the quarter of CAD384 million or CAD1.13 per share. This represents a 4% increase on a per-share basis and a 27% increase over the CAD303 million generated in Q3, 2011.

Subsequent to the quarter on November 1, we announced a [bought] deal financing to raise gross proceeds of approximately CAD750 million to fund our acquisition of Ute Energy. In addition, we granted underwriters an over-allotment option to exercise-to-purchase an additional 2.8 million shares. We expect the financing to close on, or before, November 21.

Our balance sheet remains strong with a projected average net debt- to-month cash flow of approximately one time and significant unutilized credit capacity. Our 2012 cash flow forecast is set at CAD1.59 billion based on an WTI price of CAD94.25 a barrel. We continue to drive our [payout] ratio down and manage commodity price risks with our disciplined 3 1/2 year hedge book. On the hedging front, we continue to hedge commodity prices in the third quarter. On our oil production, we are now 54% and 35% hedged for 2013 and 2014 respectively. With additional hedges in place for 2015 and early 2016.

As Neal mentioned, shipping crude on rail also acts as a hedge with the volatile price differentials we have been seeing. We plan on increasing crude deliveries through our Stoughton rail facility and our new Dollard rail facility, allowing us to sell to new markets, to correct against the current price volatility, and to increase our net backs. Given the strength of our balance sheet, and hedge portfolio, we are well positioned to continue to generate further, strong operating and financial results as we exit 2012 and look for a strong start to 2013. I will now hand things back over to Scott.

Thank you, Greg. We have had a great year so far and we are really looking forward to the new year and continuing to grow the Company. At this point, we're ready to answer questions from the members of the investment community. And, I just like to remind people, we are just in the midst of a financing on the Ute Energy transaction. So the answers to questions on the Ute Energy transaction may be limited to basically what is in the press release. Thank you. Operator? >> (Operator Instructions)

(Operator Instructions)

Your first question comes from the line of Brian Kristjansen with Canaccord Genuity.

Hi, guys. Just had a question about your two-mile Bakken wells at Flat Lake with respect to costs, expectations for EURs et cetera?

Yes, great question. In Flat Lake, those wells are costing us just slightly over CAD4 million per well. We have had some pretty good results out there with reserves ranging from, I think, on the low end,150,000 to probably 250,000 barrels per well. So, the economics are pretty significant. And, when you compare it, kind of, to North Dakota -- so we are a mile north of the border -- our drilling costs are less than half of what we are seeing in North Dakota. So, we see a tremendous amount of upside in North Dakota on costs in the future based on that.

Great. Any Three Forks potential on this side of the border you are seeing at Flat Lake?

Yes, definitely, there's been a couple of operators that have drilled two Three Forks wells, basically to the north part of our lands and on the eastern side of our lands. And so, we see probably close to two townships of undeveloped Three Forks on our lands in Flat Lake.

And when do see getting after that, Scott?

We are just in the midst of compiling our 2013 budget. So, obviously, we are going to drill some of those wells next year in that budget, based on the success we have seen.

That's great. Thanks.

Great, thanks.

(Operator Instructions)

Your next question comes from the line of Kyle Preston with National Bank.

Thanks, guys. I'm just wondering if you could give us an indication on where you see your current corporate decline rate, just given the better well results in the impact from water floods you are seeing?

Okay. Great, so this year we budgeted around 34% decline. We are just, again, in the midst of our 2013 budget. On a conservative basis, we are probably going to keep it in that same sort of decline range. But, I think, based on the results we are seeing and our performance, we are probably closer to the 30% range at this stage. But, budgeting wise, we obviously try to continue to be conservative on our forecast as we go through the year.

All right, thanks.

There are no further questions at this time. I turn the call back over to the presenters.

Okay. I think we have one more question, I think.

We have Gordon Tait from Crescent.

Good morning. Just to get a little more color on the water floods, can you just bring us up to date on how many injectors you have in place? And, what is the impact it is having on the decline rates on the wells -- the offset wells? What sort of impact are you seeing on those?

Yes, we have got 41 injectors in the Bakken fields -- I'm assuming that's -- you are asking on the Bakken, I think 11 --

Yes.

-- 11 in the Shaunavon. When we look at the overall field wells that are not in and around the waterfront on the outside, we are seeing, like, 38% field declines, something like that. And then, when you do a review of all the wells within -- affected by water flood injectors, I think there is about 94 of those wells, you are seeing about a 5% drop in decline at this moment. So, you know, 32% to 33%, or something like that. Just on a high-level basis, it has been about a 5% or 6% change to the decline, based on -- just doing a comparative of the waterfront at this stage. It's obviously early stages in the water flood and a majority of those 41 wells we just put on this year into the flood.

When you look at, historically, our original patterns, in the field, the regional projects, we have seen flat production for one to two to three years in some of the original offset wells and pilots that we started back four years ago. So, as we add more injectors and unitize the heart of the field, we are going to see flatter and flatter production in those areas and on a larger base production. We are seeing the exact same or similar results in Shaunavon, which from our perspective is very exciting. Our original pilot that came on in the Shaunavon area four years ago, or three years ago, that Wave implemented, we now have four years of flat production in that pilot. And the newer pilots that we are seeing are seeing very similar results as the first pilot. So, we're pretty excited on that end.

Thanks guys.

(Operator Instructions)

Your next question comes from the line of Barbara Betanski with Addenda Capital.

Hi, guys. Thanks very much for the call. I just wanted to ask, in terms of -- you are adding a number of significant new plays, new core areas. And I wonder to what extent you have had to also add to staff and infrastructure to manage all the plays? Or, at what point do you think you have grown to the point that you have to sort of change your underlying management style in terms of being a much larger company?

Great question. This year, our budget, I think, was to add about 23 people, which was our, sort of, standard based on what we were going to grow organically without acquisitions. The majority of our acquisitions this year were consolidations in our main core areas. So, the Bakken -- PetroBakken acquisition was in the main core area, Talisman, Wild Stream, you know, across the board. So, we really have not had to add a lot of stuff other than on the field side. That came with the assets. And so, in the office, I think we might be just over 30 people for the year, of new employees. And, so I think we are sitting around 600ish -- 550 to 600 depending on contractors and the hours or the days you put in for them.

So, pretty stable over the year considering our production growth as a Company. Going into next year, we are obviously just looking at our budgeting and how much capital we are going to spend, and the people we need to add, so we are just in the midst of those meetings. We are actually meeting today on that. So, in the US side, we have 16 people there. We plan to take all of the field staff on the Ute transaction. And, in the office, that staff there will probably, I think, on our first initial pass, will probably double to about 30 to 35 people. And a lot of that administrative, on the land side.

So, from our perspective, we have not really had a big dramatic increase in staffing. It was probably about two years ago where we added about 75 people, to get up to -- close to the level we are today. And then, the year before, we virtually added no people. And then, this year, brought in about 30. I think, because of our very focused nature of the assets, we have not really had to add a significant amount of staff. And we pre-staffed those -- for instance, the Swan Hills, we had the staff and engineers and the lineman there three years ago. Even though we did not announce that until about a year and a half ago. So, southern Alberta, same sort of thing. We have had a long, gradual build of employees to capture those new assets.

That's very helpful, thanks a lot.

Sure, thanks.

At this time, there are no further questions in queue. I turn the call back over to the presenters.

Great. Well, thank you very much, and we really look forward to the end of this year and 2013. We are a very well-positioned Company with a low debt-to-cash flow, strong drilling inventory, and have all the tools in our toolkit to hit any kind of economic or any issues going forward. We are very excited about 2013 ahead of us. Thank you.

This concludes today's conference call. You may now disconnect.