Veren Inc (VRN) 2012 Q4 法說會逐字稿

Good morning, ladies and gentlemen. My name is Melanie and I will be your conference operator today. At this time I would like to welcome everyone to Crescent Point Energy's year-end 2012 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 website, but may not be recorded or rebroadcast without express consent of Crescent Point Energy. 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, 2012 were announced this morning and our 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. Management also calls your attention to the forward-looking information and non-GAAP measures sections of the press release issued earlier today. I would now like to turn the call over to Mr. Scott Saxberg, President and CEO. Please go ahead, Mr. Saxberg.

Thank you, operator. Good morning. I'd like to welcome everybody to our year end conference call for 2012. With me is Greg Tisdale, our Chief Financial Officer; Neil Smith, our Chief Operating Officer; and Trent Stangl, our Vice President of Marketing and Investor Relations. I'll give an overview of our quarter and year-end results, Neil will discuss our operations and 2012 reserves, and then Greg will speak to our financial highlights.

We're pleased to report Crescent Point executed another strong quarter and a great year. We had a very active year developing our key resource plays and we added a new core area with the acquisition of Ute Energy. In 2012 we can definitely define this as a growth year on all measures. We grew production per share by 12%, reserves per share by 11%, cash flow per share by 4% and on a total basis we achieved record results. In 2012 we grew annual production 34% to nearly 99,000 barrels per day, significantly exceeding our expectations during every quarter in 2012. We grew proved plus probable reserves to over 600 million barrels, a 43% increase over 2011 with a low finding and development cost and an impressive 2.4 times recycle ratio. We also grew cash flow to CAD1.6 billion, a 24% increase over 2011, while implementing our rail strategies to reduce price volatility in Western Canada. We're proud of these results and believe they demonstrate the strength of our business strategy, our people and our asset-base.

Looking at the fourth quarter, we achieved a new production record of 108,000 barrels per day, weighted 90% to oil and liquids. This represents an 8% growth over our third quarter 2012 volumes, a 33% increase from Q4 2011 to Q4 2012. In 2012 we improved operational flexibility by adding more than 50,000 barrels per day of rail capacity. This gives us the flexibility to positively impact our corporate differentials. In addition during fourth quarter we continued -- we closed the acquisition of Ute, which established the new core area for us in the Uintah Basin light oil resource play in northeast Utah. We believe the Uintah Basin has a significant long-term upside and plan on spending CAD195 million in 2013 capital program in the Basin.

In 2012 we demonstrated material per share growth in production reserves and cash flow. To maintain this momentum going forward we continue to focus on our business strategy. For us this concludes advancing new technologies across each of our major plays, reducing capital costs across the board, advancing water floods in the Bakken, Shaunavon, and Viking and implementing water floods in Beaverhill Lake and Uintah Basin. And focusing on big oil and place assets with significant reserve upside potential, preferably with predictable production low decline. Given our asset-base and the strength of our balance sheet and hedge portfolio, we believe we are in a great position to meet or exceed our targets again this year in 2013.

Before handing things over to Neil, I would like to thank all of our employees, field staff, Board of Directors for their hard work and dedication to making Crescent Point a success. We are proud of what we've achieved and look forward to another exciting year. Neil will now cover operational highlights, as well as our year-end reserve report. Neil?

Yes, thanks, Scott. On operations side we continue to execute on our plans in fourth quarter. Overall we spent a record CAD406 million on drilling and development activities, drilling 127 net wells, with a 98% success rate. We also spent nearly CAD58 million on land, seismic and facilities, for a total capital expenditures of CAD463 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 continue to see great results from re-entering existing wells originally completed with 8 and 16 stage cemented liners and increasing them to 25 and 30 stage cement liners. We will continue with this process and have begun completing the majority of our Bakken wells with 25 to 30-stage cemented liners. We also continue to develop our emerging plays, including BHL in Alberta, and Three Forks North Dakota Bakken, and we participated in the drilling of three net wells in our new Uintah Basin play in Utah. We successfully integrated more than CAD3 billion in acquisitions that we completed during the year, most of which were consolidations in core areas and the addition of the Uintah Basin. Our teams did an outstanding job of integrating new assets and people and we thank everyone involved.

During 2012 we achieved material reserve additions by any standard. We increased our proved plus probable reserves by nearly 200 million BOE, that's a 43% increase over 2011. On a per-share basis, this represents growth of 11%. We also increased crude reserves and proved development producing reserves by 42% and 44% respectively. And we did this cost effectively, with finding and development cost of 19.80 per BOE for proved plus probable BOE, representing a recycle ratio of 2.4 times. As a Company we have an outstanding consistent track record of low F&D cost. 12 years in a row we've achieved F&D cost of less than CAD28 per proved plus probable BOE, with recycle ratios at an average 2.6 times, an impressive measure of our technical staff and Crescent Point's ability to consistently and efficiently add reserves across all of our resource plays.

Before handing things to Greg, I would like to thank our field teams and HSE staff who continue to deliver fantastic results. Thanks to all of you for your hard work. Greg will now discuss financial highlights. Greg?

Thanks, Neil. I'm pleased to report that Crescent Point generated cash flow in the quarter of CAD430 million or CAD1.18 per share. This represents a 13% increase over the CAD382 million generated in the fourth quarter of 2011. On an annual basis in 2012, we generated CAD1.6 billion of cash flow, providing a 24% increase over 2011, which is impressive given an 8% reduction in realized pricing in 2012 due to lower commodity prices in the year. During the quarter we closed a bought deal financing to raise gross proceeds of CAD800 million. Proceeds of the financing we used primarily to fund the acquisition of Ute Energy. Our balance sheet remains strong with a projected average net debt to 12 months cash flow of approximately 1 times and significant unutilized credit capacity.

Our 2013 cash flow forecast is CAD1.73 billion based on the WTI price of the $90 a barrel. We continue to drive our payout ratio down and managed commodity price risk with our disciplined 3.5 year hedge book. On the hedging front, we continue to hedge commodity prices in the fourth quarter. On our oil production we are now 55%, 40%, and 21% hedged for 2013, 2014, and 2015 respectively, with additional hedges in place for the first half of 2016. Shipping crude on rail also acts as a hedge to the volatile price differentials, as it allows us to access to a broader range of refraining markets and more stable price differentials to WTI. It is worth noting that between our regular WTI hedging program and term rail contracts, we've locked in more than 15,000 barrels a day for the next 18 months at selling prices greater than $90 a barrel.

Throughout the year we plan on increasing crude deliveries through our Stoughton, Dollard and Alberta rail facilities, along with exploring our options for rail in Utah. Given the strength of our balance sheet and hedge portfolio, we are well-positioned to continue to generate strong operating and financial results this year and beyond. I'm going to now hand things back over to Scott. Thanks.

Thanks, Greg. We have had a great start to the year and are looking forward to the rest of 2013. At this point, we're ready to answer questions from the members of the investment community. Operator?

(Operator Instructions)

Grant Hofer, Barclays.

First question just on the Uintah. Can you give us an update on sort of what your production is right now on that play? As well maybe talk a little bit about your plans on the rail front there and what the potential uplift could be to your netbacks in the region?

We're over 8000 barrels a day heading into Q1. So, above our exit from 2012. We're just continuing on with our drilling program. Our budget has basically one rig for the whole year out in that area and from our perspective things are going really well there. We've already made some strides on changing some of the completion techniques out there already and are pretty excited about the play.

On the rail side, we're sort of looking to late Q2 to the middle of the year for potential rail options and, again, that will hopefully provide us other options out of the region and put downward pressure on the price differential in that area. Couldn't really, at this stage, give you a dollar figure relative to the sort of CAD15 price differential we're seeing out there at this stage, but we know it will be definite benefit to the area and benefit to us long-term.

Shifting gears maybe over to your M&A strategy, how are you guys thinking about things today? And maybe your thoughts on the Shaunavon package that Cenovus has put up for sale?

I think we're, as we've said last year, at the end of last year and the beginning of this year, this year is going to be really a focus on organic growth, developing our plays, pushing our water-floods. We're in really no rush to do any significant transactions this year. We're still on the US side, integrating, bringing on staff. We're just move into a new office there, so we're a bit of a ways away for that in the US.

On the Canadian side, we've consolidated basically all the plays that we're the key player in, other than some of these small ones. As you mentioned, the Cenovus deal that's a pretty small transaction relative to our base and we're -- like anything if it's good value and the timing's right we look at those kind of transactions. But, at this stage we're pretty focused on our current asset base and the deal like that's pretty small.

Last question for me just on the guidance front. In Q4 you contributed about 2600 BOEs a day and obviously with current production north of 8000, I mean, that uplift alone should put you at or above your full year '13 guidance here in the first quarter. At what point do you guys revisit the guidance?

We're, as similar years, we'll look at where we wind up with Q2. So, I think sort of midyear way through Q2, like May, June, when we have a better sense of breakup and where things are at. We're going to revisit capital and our production forecast. Really, there's a ton of snow out in southeast at this stage and so, like every other year we just -- who knows how that breakup is going to go we've got that built into our budget, but we're cognizant of stuff happening out there on the weather side. So, I think when we get through -- usually by the time we are mid-May, early June we have a good indication of breakup and where our volume seemed to be and then on the same time gives us time to think about price and commodity price to make a capital decision on increasing our CapEx or just keeping it the same.

Great. That's it for me, thanks. Thanks, Scott.

Cristina Lopez, Macquarie.

Just a few questions. One with respect to North Dakota. Looks like you have CAD47 million in your budget in North Dakota with only two wells planned. Can you speak to other spending infrastructure otherwise in the area?

That encompasses all of our capital spend in North Dakota at this stage. We're still looking at -- obviously, we have other non-op partners and things in that area, so we revisit that every sort of midway through the year here and we wanted to get through completions in the first half of the year. We've changed our completion technique moving more to the view field completion technique down into North Dakota and we want to see that -- those results in the first half of the year and then we'll determine how to change our CapEx program go forward in North Dakota.

And you've now drilled your first operated wells at Randlett, are those costs coming in line with expectations? I believe that they are CAD1.6 million a well. Is still the case?

Yes. Everything there is running operationally very smooth. I would say that we've already -- again, we've made some strides on some tweaks to the technology and changes on how we do things that will improve cost. So, we're hopeful that we can improve that. The guys down there, the technical guys we brought on that are helping us on the Ute side are strong guys and with our staff here it's a good combination trying to improve results down there. So, we're pretty excited about that area.

Following on Grant's question on M&A, what size and maybe asking it a different way, sort of what size of acquisition are you comfortable leaning on your balance sheet. So, not necessarily barrels-wise, but how many millions of dollars are you willing to lean on the balance sheet before you consider equity?

It really -- it obviously depends on the transaction and I think the numbers we run is upwards CAD150 million to CAD200 million type of transaction we easily can handle within our balance sheet and we probably could handle CAD0.5 billion easily as well. So, it's really dependent on commodity prices, what capital we are going to spend for the rest of the year on our asset base going into May, June. Again, we are in no rush to do any transactions. There's always the CAD5 million, CAD10 million little tiny sort of consolidations here and there in our base that come along from time to time. But, at this stage, we've been really focused on the water-floods, our drilling program, what's that next wedge of drilling for the second half of the year depending on where commodity prices go. When you look at what's available in assets out there, it's a pretty short list of things and I think we've demonstrated that patience over several years on several transactions that we don't really -- there's nothing overly strategic at this moment that we feel compelled to do.

And finally, this one question on the re-entries in the Bakken. What are those re-entries costing you? What is the production uplift associated with them? And, how many do you have planned for this year?

We're -- generally the uplift you're seeing anywhere from 80 to 150 barrels on those CAD600,000, CAD700,000 for a re-frac on it. A lot of those, honestly, we keep on the shelf so that we use them as production fills as we need them. So, there are some planned for the year, but that's part of what I like to keep in my back pocket for a rainy day. If breakup lasts a little bit longer than we've got low hanging fruit to go to.

And have --? Sorry, go ahead.

I think we have about 90 in our inventory at this stage.

And those are only considering the 8 and 16 --?

Method liners.

Right, okay. And then have you tried going into any wells that have had more fracs into them into the 25 plus ones?

No. We're -- probably the other big low hanging fruit would be the trying to solve how to re-frac the Packer-based Systems. And, so, we're starting to build thoughts around that and try to develop strategies around re-fracking say an 8 stage Packer System frac. And those are the more difficult ones, but those are some of the things that we have hundreds of those out there.

Excellent. I will let someone else asked questions. Thanks again.

Thanks.

Brian Kristjansen, Dundee Capital Markets.

I was wondering if you could quantify the percent of your production you expect that exit this year to be impacted by water-floods across your plays?

That's a good question. Well, there's easily 25,000 barrels a day of long-term water-floods that we have within our Company already from legacy assets. On the Bakken side it's probably going to push close to 10,000 barrels a day that will be affected. And on the Shaunavon side it's probably 5000 barrels a day. So, 40,000 at least of our 100,000 is affected by water-flood. That's probably a light estimate just on when I think about our conventional assets that are still make up a fairly significant portion of our volumes.

The big push to run this year is that we're working toward unitization. The first unit of four units right now. So, we're working with the Saskatchewan government optimistically hoping over the next quarter to two that will be done. We'll unitize and then we'll implement a field wide on that first unit. And since we kind of cracked that nut, then we can on-lead the next three over the next couple years.

Would you expect to get your material water-flood credit in 2013 then? Or 2013, 2014?

Yes, typically with the reservoir engineers the unitization is going to be the first signal that we can start booking some incremental water-flood reserves. For now it's been performance-based. And, as we've said before, in the near-term the big loss is converting a producer into an injector, but in the long-term it will shallow our overall corporate decline in that reserves.

That's great. Thanks. That's all for me.

Thanks.

(Operator Instructions)

Gordon Tait, BMO Capital Markets.

Just maybe to follow-up a little bit more on the water-floods. I had it in the back of my mind that you were going to have 60 injectors in place at the end of the year. It looks like it 76, 46 in the Bakken, 30 in the Shaunavon. How many do you think you would have in place by the end of this year?

I couldn't tell you that number exactly off the top, Gord, we're now at a stage where we're moving to focus on unitization and a bigger scale. We made some technical decisions part way through the year to go to two injectors in some areas of the field to see the response on that. In some areas we have four injectors. We also made the decision to push the water-floods across all of our plays versus just focusing on the Bakken. So, we've seen a big expansion to all of our plays. The Viking, we're seeing really good early results on the water-flood in the Viking. Seeing really, really strong results in the Shaunavon, as we've added more injectors there and we're pushing to the unitization of the Shaunavon field. And we're a lot farther down the path on that. And then the Beaverhill Lake we're doing a pilot there and then as well as Uintah.

Once we seen how well this application has worked with the multistage fracking in the Bakken and the Shaunavon, we made that call to push that across all of our plays, instead of just focusing on one. So, I think the real key things to probably focus on is really the timeline around the unitization and that will be a significant event for us getting those units approved and pushed forward. There hasn't been a unitization in Saskatchewan in [20 years]. So, I think that's a big, big positive move for water-flood and the development of those fields.

Do you have a sense of when you might be through your negotiations with that?

We're hoping to be able to conclude something in Q2 on one of the units and then by the end of the year on the Bakken units.

And now something else caught my attention in your press release. You said that drilling at Two-Mile horizontal 50 stage cemented liner in Canada, just north of the US and the Bakken, would cost half as much as it would in North Dakota. So, can you maybe just give us a little background on that? A little more color on that?

Yes, we -- I was actually just reviewing it today with our completions manager, is that huge significant difference in frac cost relative to US to Canada. It something like CAD1.8 million for us to frac in Flat Lake and almost CAD5 million in North Dakota. And a lot of it is, there's crews that are coming up from Louisiana, from New Mexico. They're not used to the cold weather, the operational efficiencies in North Dakota are poor relative to the fact that we have these crews in Saskatchewan. We've had them for sometimes upwards of ten years. We've had consultants working for us for that many years. The crews are really strong, technical crews in Canada versus in North Dakota, because of just the large demand on crews and people there. It's not as efficient. And, so, we've already made strides of bringing supervisors and guys up from the US into Canada to see how we [do for] operations and just even the time it takes to do the fracs relative to the time we take in Canada, it about half the time.

So, we're excited about the fact that we think we can drive cost down in the US in the long-term, but it's going to take a while, I think, just building of infrastructure and hotels and housing and roads and you name it in North Dakota. That's going to take a while and it's going to be -- you're seeing it in North Dakota, the drop in drill rigs, the activity level starting to level off and you'll just create that more efficient crews and manpower down there. And then we're also bringing a different, completely different technique down into the US, where we use half the water and we've seen better results in Canada. So, we're hoping that will follow through on the North Dakota side.

And lastly, just on Uintah, are you seeing any refinery capacity limitations in the Salt Lake City area. I know that there were some expansions going on there. Have you been effected by that and are you looking at other ways to maybe move that waxy oil to other refineries if you had to?

Gord, it's Trent here. We haven't had any limitations moving our crude so far since we taken over Ute at the beginning of December. We've heard a lot about the sort of tightness in that local market, which is why we're getting the rail up and running. We've had some really good discussions with refiners. We're working on some upstream options to get the rail loading capacity in place. What we think it's really going to do is drive that local market to be a little bit more competitive. And with the spread we see today between WTI and Brent, there's some really good opportunities to get that crude into other markets and take advantage of those spreads.

All right, thanks.

Thanks, Gord.

Thank you. There our no further questions registered at this time. I would like to turn the meeting back over to Mr. Saxberg.

Great, thank you very much and again we had a great year 2012, really defined as a real growth year for Crescent Point. We've had a great start to 2013, very excited about the opportunities we have in front of us on the water-flood side, on the drilling side throughout our plays and the results we're seeing. And, thank you very much for listening into our call.

Thank you, ladies and gentlemen, for participating in Crescent Point's year-end 2012 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.