Veren Inc (VRN) 2014 Q1 法說會逐字稿

Good morning, ladies and gentlemen. My name is Jade and I will be your conference operator today. At this time, I would like to welcome everyone to Crescent Point Energy's First Quarter 2014 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, but may not be recorded or rebroadcasted without the expressed 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 March 31, 2014 were announced this morning and are available on Crescent Point's website at www.crescentpointenergy.com and on the SEDAR and EDGAR websites.

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, the EDGAR website or by contacting Crescent Point Energy.

Management also calls your attention to the forward-looking information and non-GAAP measure 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. I'd like to welcome everybody to our first quarter conference call for 2014. With me is Greg Tisdale, Chief Financial Officer; Neil Smith, Chief Operating Officer and Trent Stangl, Vice President of Marketing and Investor Relations. I'll give an overview of our quarterly results and Neil will discuss our operational highlights and Greg will speak to our financial highlights.

We're very happy to report that Crescent Point delivered an excellent quarter, setting new records for both production and cash flow. And for the first time in our Company history, we were recognized within the industry for having drilled the most meters in Western Canada during the quarter. This achievement speaks to the success of our drilling program and our outstanding teams working together to apply technology across our high-quality asset base. We've always believed that small improvements in technology lead to big outcomes when applied to [large] inventory and we're seeing the benefits of that strategy as we continue to hit new records.

Looking at some of the highlights for the first quarter, we set new production record of more than 130,000 BOEs per day. We have strong drilling results across our asset base and in particular the Torquay play at Flat Lake. Our successful cemented liner completion techniques in waterfloods also helped drive production.

We generated record cash flow of more than CAD580 million, a 27% increase over our first quarter 2013 cash flow. We also listed on the New York Exchange in January, which we expect to help broaden and grow our shareholder base. As well, we announced a significant Torquay discovery at Flat Lake in southeast Saskatchewan and folded that up with a Torquay consolidation acquisition of CanEra.

We're very excited about the CanEra acquisition, which we expect to close next week. In the near term, we expect the long-life [low-decline] production we acquired will help drive our total corporate payout ratio down by 7% in 2015. And over the long term, we expect the Torquay land we acquired, which brings our total exposure to more than 880 net sections, will create significant shareholder value.

We plan to drill 45 net wells in Torquay at Flat Lake this year, including some exploration step-outs to further delineate the play. We'll also continue to implement our dual-track growth plan across our asset base. That plan involves leveraging our technological advancements, such as our cemented liner completion techniques to drill our inventory at a measured pace and at the same time implement waterfloods to improve production and lower corporate declines. We continue to see great results from our growth plan and we'll keep refining and improving our technologies as we go.

Based on our strong performance to date, we're increasing our 2014 guidance for production and cash flow. Average daily production for the year is now expected to be 134,000 BOEs per day, up from 133,000 BOE, and cash flow is expected to reach CAD2.4 billion. With our active start to the year and the strength of our balance sheet, we believe we're well positioned to meet our new targets.

Before I hand it over to Neil, I'd like to thank all of our employees, field staff, executive team and Board of Directors for their hard work in delivering another record quarter. I'm looking forward to the rest of the year.

Neil will now discuss operational highlights.

Okay, thanks, Scott. Well, first quarter 2014 marked another production record for Crescent Point and once again clearly demonstrates the continued success of our dual-track value-added growth strategy.

We averaged over 130,000 BOEs a day during the quarter in comparison to our pre-CanEra acquisition annual guidance for 2014 of 126,500 BOEs. Based on the results to-date, we have bumped our annual average guidance by 1,000 BOEs a day.

We drilled 180 of this year's planned 600 wells in the first quarter, achieving 100% success rate. At Viewfield, we drilled 73 net wells and group production affected by waterflood to over 15,000 BOEs a day. We expect to double the production affected by waterflood over the next two years, as we plan to double our injector count and pursue approval for unitization of all the central core Bakken lands. We have noted decline rate reductions of up to 10% in the core.

In early second quarter, we commissioned the Viewfield gas plant expansion, which now has a capacity of 42 million a day, demonstrating the tremendous growth success of this world-class resource play. We are especially excited about our Flat Lake Torquay discovery that is fast becoming another large-scale resource plays success for the province of Saskatchewan.

We combined our proprietary geological learnings from our North Dakota Three Forks play with our knowledge of Southern Saskatchewan to unlock this formation's resource potential. In less than 12 months, we've grown production to approximately 5,100 BOEs a day and in 2014 we plan to drill a total of 45 net wells and spend over CAD200 million. We also recently completed a central oil battery to accommodate this increased production.

In our Southwestern Saskatchewan Shaunavon play, we've gone to all cemented liner completion techniques and we continue to exceed production expectations. We plan to drill 90 of the 142 wells there in 2014 from three well drill pads that we expect will further reduce our overall costs.

In 2014, we plan to double the number of injectors from the current 21 and apply for approval of a second unit adjacent to our recently approved [leach field] unit. To accommodate our increased production and to optimize our oil marketing strategy, we also completed the construction of two oil storage tanks with capacity of 120,000 barrels. We have multiple initiatives underway in the Uinta Basin to further increase production levels and improve ultimate recovery rates, including accessing bypass pay and optimizing our completion techniques.

In 2014, we plan to drill four one-mile operated horizontal wells in the basin and collect data in the third quarter 2014 using a three-dimensional seismic program in the Randlett area. We also plan to initiate our first waterflood pilot there in the basin in 2015. Following the completion of that CanEra acquisition, we expect to integrate the CanEra assets into our portfolio and welcome our aboard all our new Crescent point employees.

Before handing things to Greg, I'd also like to thank all of our employees and again, especially our field staff, this was a pretty tough winter, lots of snow, very cold, and I'd like to thank them again for all their hard work to deliver yet another excellent quarter. Well done everybody. Greg will now discuss the financial highlights. Greg?

Great. Thanks Neil. In the first quarter, we continued our successful growth through the drill bit, as we delivered production per share growth of approximately 6% compared to 2013. This resulted in cash flow of CAD580 million or CAD1.45 per share in the first quarter. This represents a 21% per share increase over the CAD1.20 per share generated in the first quarter of 2013. The strong cash flow per share results are driving our payout ratio lower as we continue to successfully execute our dual-track growth business model.

Based on our strong first quarter production results, we increased our annual production guidance to 135,000 BOE per day. This increased production translates to CAD2.4 billion of cash flow or CAD5.85 per share based on our forecast on our forecast pricing of $100 per barrel WTI, CDN4.65 per Mcf AECO gas and US dollar Canadian dollar exchange rate of $0.90.

With a weaker Canadian dollar and supportive oil prices, we continue to lock in oil at very attractive prices with our current hedge targets in excess of CAD100 a barrel. Currently for 2014, we have hedged 65% of our oil production. Looking beyond this year, we are now 34% hedged for 2015, 19% for 2016 and we've also commenced our 2017 hedging program.

On the oil differentials, we continue to be disciplined and now have more than 15,000 barrels a day locked in for the remainder of 2014.

On the balance sheet side of our business, we remain strong with significant unutilized credit capacity and debt to cash of approximately 1.1 times. With our low risk, high economic drilling inventory, strong balance sheet and disciplined hedging program, we are well positioned to continue generating strong operating and financial results for 2014 and beyond.

I'll now hand things back over to Scott.

Thanks, Greg. We've had a strong year -- strong start to the year and we'll continue to implement our dual-track growth plan, combining advancements in completion technology and waterflooding and we look forward to the rest of 2014.

At this point, we're ready to answer questions from the members of the investment community and I'll turn it back to the operator to handle the questions.

(Operator Instructions) Pavan Hoskote, Goldman Sachs.

Good morning.

Good morning.

I'll start off with a question on the Uinta Basin. Now, in your earnings release, you mentioned that you plan to drill four operated horizontal wells in the play later in the year. Can you please provide a little more color in terms of the locations for these wells relative to your acreage position, as well as the recent Newfield horizontal wells that you participated in? Also what specific zones are you planning to target and what are your initial expectations on IP rates and well costs?

Okay, great questions, Pavan. The majority of those wells are going to be drilled in the Randlett and Rocky Point area, all four of those wells I guess, on our operated lands. They're going to target several different zones from the Uteland Butte to Wasatch to Douglas Creek. And so that will happen closer to late -- starting late sort of third quarter into fourth quarter, depending on the timing of the licensing and so forth.

And we're pretty excited about that play. I think it's a great question in the fact that for us as a company towards the end of this year, beginning of next year, those results will be pretty key to our Company for the Uinta and moving our new technology into that area. And I think that'll be a big driver in value (technical difficulty) in the Utah area. In addition, in the short-term, (technical difficulty) basis we're now on our second round of completions of our coil fracing completions on a vertical basis and we actually moved one of our Viewfield coiled tubing rigs from Saskatchewan down into Utah here in the last month and I think we've done now four out of the six. We're just in the middle of the program right now and we're pretty excited about the results that are going to come from that in the interim, between the horizontal drilling.

So, in general, we're very excited about the play economically. And I think if you see -- if you've followed the Newfield releases and their production, the IPs are very high, the reserves are pretty strong, their costs are probably a little higher than we would like and they would like, but again, it's early stages of a play that to put it into perspective, in the Uinta, I think, there's maybe 30 horizontals drilled so far to-date in the entire basin. And when you consider in the Bakken and Saskatchewan alone, I think we've drilled 2,000. So, you put under relative terms of learning curve, knowledge and results and so far the initial early indication results are very good. We think the costs will come down and we think with our technology that rates and productivity will improve. So, pretty exciting play and I don't, Neil, if you want to -- is there anything you can add to that.

Yeah. No -- we're excited about it. It's very early days, as we've said. If you take a look at some of the early wells that we did in the Shaunavon area, the costs were quite high and over time -- I mean we were probably 2.83 million in the Shaunavon and we're 2 million or [less] now. So we're excited about the play.

Great, thank you. And then moving back to the waterfloods, you've obviously provided a very detailed update on your waterflood operations and clearly the impact of waterflood is increasing across your portfolio. Can you provide a little guidance on how we should think about the impact of waterfloods on corporate capital intensity, CapEx cash flow trends, and operating cost as well, as we look ahead into 2015 and beyond?

Yes. I think in our five-year plan we really haven't built any lower decline into that five-year plan, but basically, I think the math is every 5% drop in our decline rate, I think it's over CAD200 million per year of cash that we don't have to spend to replace that production. And so, obviously as every year goes by and we lower our declines as we grow, we get a multitude of effects in that. We get more free cash flow to spend and we can either use that to pay down debt, grow faster, hand out a dividend, set us up for more acquisitions. And so you're seeing that now. And if you look on our presentation on our website, you look at the payout ratio from our history of our Company, has dropped from like 80%, 85% down to sub 50% now, and dependant on where you see commodity prices at the end this year we're going to be low 40s for total payout. So, that's really that impact of that dual-track strategy of as we grow we're going to lower our production declines at the same time and build a stronger company.

And I think it's -- to put it into perspective, I think we put it in our press release, but the waterflood as it is today at 15,000 barrels, is like this third largest waterflood in Western Canada already and in the next couple of years, it will compete with the second and third largest -- the first and second largest waterfloods in Western Canada and I think that should really highlight, A, the maturity now we are in the waterflood stage of horizontal multi-stage fracing and the amount of distance and time we have ahead of our competitors of understanding that technology and how it's applied and also how that actually impacts our corporate declines. So, I think there's a multitude of things that just come out of that one, when you put it into context for size and scale and performance.

Thank you.

Travis Wood, TD Securities.

Yes, good morning guys. The question is going to stay in Utah. My question is you've highlighted in the past that there had been some infrastructure constraints in terms of growing the Uinta production. So with these four wells planned through the back end of the year and if you see some positive results, you alluded to the point that you may spend a bit more money there than what's in the budget today, where could you see production grow, based on kind of what you've layered in for rail capacity so far, what there is for pipeline capacity and how much capital could you spend there through this year or even in Q1 of 2015?

Well, I think it's actually -- depending on the results of the horizontal wells, actually we'd be shifting that capital away from vertical drilling to horizontal drilling and presumably the horizontal drilling we're going to get magnitudes greater productivity per capital spend. So you could argue that we're going to wind up spending about the same capital, but grow production greater, and we have a 10,000 barrel a day rail facility that's expandable. We're now a year-plus into railing and building those markets and we're actually seeing, I think, a lot more competition on the markets and more offers on the table. So, we have actually more marketing offers on the table than we have production and capacity.

So, I think we're actually turning the corner on that side of it. So, I think it will be a very interesting year-end and beginning to next year with those horizontal results and then how we actually push that capital around versus just drilling vertically. And I think some of the rates for the Newfield, I think that one well was 2,000 barrels a day in one of their horizontals that they drilled in the deeper play.

And our vertical wells are 100 to 200 barrels a day and you're getting 10 times the IP rates, you're now shifting your capital into different ways. So, that's the math that we just don't know exactly yet on the economics and I think we're pretty excited about proving that up.

Okay. So, is it fair to say that current capacity, including rail, is about close to 20,000 barrels a day?

Yes. But then there is excess capacity that's opening up in Salt Lake into next year, because of the expansions of the refineries there. So, you have a dual sort of expansion of those in that market, plus the market on the rail side. And we can add another transloader or so to our current 10,000 barrel capacity and see that grow. So, there's lots of optionality, I think, there on the volume side. We're not worried about being able to move our volume.

Yeah. And Travis, it's Neil here. I never like to say that capital is a light switch that you can turn on and off. The rail capacity, adding a transloader is very quick.

Okay, perfect. Thanks very much guys.

Okay, thanks, Travis.

(Operator Instructions) Patrick Bryden, Scotiabank.

Good morning, everyone. Thanks for your time. Just wanted to maybe ask a quick question on the corporate decline rate, where do you think that is today and as you blend in CanEra at lower base declines, what do you think the pro forma number looks like?

I think we generally we budget -- it's the same answer I probably give every time -- but we budget around 33%, which is pretty conservative. We think we're probably sub-30 kind of, with the CanEra deal, we probably went from 30% to 29%. It's not a huge on a percentage basis drop, it might be because just of that size of the deal relative to our base production, but it obviously helps. And I think we are continuing to drive that decline down.

And you've got to also understand we are growing at the same time. So, we grew 20,000 barrels a day of brand new production at the same time that we have lowered our decline on the rest of our base. So that's sort of -- the fact that we are trending down is even a bigger magnitude than you really realize, I think, from the amount of production built already. And then we are also shutting in production to convert producers to injectors. So there is a couple of thousand barrels a day that we are actually making up on waterflood volumes at the same time. So, I think it's pretty positive from that perspective.

If we think about just the round budgeted number of 33% and you were to -- I don't know if you can maybe hazard to guess, if you didn't have the benefit of the Terra waterfloods kicking in and the cemented liners working in your favor, how much do you think that would add in terms of decline rate points?

Like if we weren't waterflooding and we had higher decline [packer] system --

Yes.

We'd be probably in the mid to high 30s, I would guess, because as you accelerate and drill more wells you're growing your decline rate. We know that in our modeling. We run our five-year model. If we accelerate capital too hard, we exacerbate our decline in it, bumps up about 2% to 3%, so we'd be mid-30s 36%. So I think that we're sitting pretty slick with our technique and the waterflooding. And you've got to keep in mind a large component of our conventional production it's all water flooded or bottom-half [preferred] driven, hence low decline. So we also have another 30,000 or 40,000 barrel base of conventional assets that are lower decline, sub 20-type declines that are waterfloods as well, as our unconventional shale gas shale water plays. So, you got to factor that in.

Good. Understood. Appreciate that. And then just one more question from me, please, if you don't mind. Obviously the Torquay in Flat Lake is coming into its own here and it looks very exciting for you folks. If you think about -- I don't know if you can just maybe quickly compare and contrast what you think some of the similarities and differences are between that play and Viewfield?

Yeah. So a great question. In what we've delineated to date, i. e., the sort of the lands that are in and along the border in that one map I guess would be in our presentation, the tighter [end core], the rates of return and economics are in the same ballpark as our Viewfield average core well. And in our first run-through on our five-year model, it's really improved our five-year model, when you add in a whole another round of Viewfield style, high rate of return, quick payout, economic wells to that five-year plan. So, immediately with that discovery it's been accretive across the board on improving that five-year plan and I think that's probably a key highlight.

We have exposure to now 880 net sections or 24 townships of land. So on a size and scale basis, depending on our delineation drilling and it's obviously an exploration play at this stage, past those core lands and we are hopeful that there is maybe another trend of similar size or scale to the core lands we have and that could even further enhance our five-year model and our growth plans in Southeast. And so, I think that's what really excited us was the 30 or so wells we drilled across that three or four township area, matched in general our average type economics of the Viewfield.

And then what's also interesting is all those lands are crowned. So, unlike Viewfield, half of the lands are fee titled and half are crowned, where this is all crowned and so your royalty holidays and the economics are that much stronger on an overall general scale basis. And then we can accelerate waterflooding in this play because of the crown nature and that'll be hugely positive, obviously, for that play and for the province in that matter for royalties.

Great. Appreciate that. And maybe I can just tack on one more question to that answer, appreciate your comments here. As you went through the history of the development of Viewfield and you look at the pacing of Flat Lake here, how do you think you proceed? Are you going to continue along in a pretty measured pace or do you think you might accelerate and what would dictate that?

Yes, I think, similar to Viewfield where we did it in stages, in that we drilled wells, built the batteries, built the gas plant. We're not flaring gas and we're not losing value from that perspective. And then as we fill that gas plant, we'll then drill more wells, expand that gas plant and pipeline system and batteries. And so that's sort of what dictates that pace of growth and I think we're really well ahead of the game, probably there, just because it's kind of cookie cutter to what we did in Viewfield. And so our costs -- already, I think, we lowered our cost by couple of hundred grand on our horizontal drilling in Flat Lake just in the last six months and through efficiencies and having more rigs and crews out there. And we're ahead of the game on building batteries and gas plants, because we're more confident, obviously, in the production results because of our experience in Newfield and our other areas. So I think efficiency wise, it will be stronger and more consistent growth. And then we'll probably very quickly add in water injection into that play as we need water disposal and so forth. So, yes, it should be a lot more efficient development than our Newfield drilling.

Thank you. Appreciate the answers.

Great. Thanks, Pat.

There are no further questions registered at this time. I'll turn the meeting back over to Mr. Saxberg.

Great. Thank you very much. And again, we're very excited about 2014 and what lies ahead going forward at the end of year, obviously, in Utah with the horizontal drilling impact and the results there and our further waterflooding in our main fields and pushing of technology and capturing plays. So very excited and thank you very much for attending our conference call.

Thank you, ladies and gentlemen for participating in Crescent Point Energy's First Quarter 2014 Conference Call. If you have any more questions, you can call Crescent Point's Investor Relations department at 1-855-767-6923. Thank you and have a good day.