Veren Inc (VRN) 2014 Q3 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 third 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 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 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 statement and management's discussion and analysis for the period ending September 30, 2014, were announced yesterday, 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 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.

Thank you, operator. I'd like to welcome everybody to our third quarter conference call for 2014. With me is Greg Tisdale, our Chief Financial Officer, Neil Smith, our Chief Operating Officer, and Trent Stangl, Vice President of Marketing and Investor Relations. I'd like to give an overview of our quarterly results. Neil will discuss our operational highlights, and Greg will speak to our financial highlights.

We are very happy to report that Crescent Point delivered an excellent quarter, setting a new production record of more than 141,000 barrels per day while keeping our balance sheet strong. Our strong balance sheet and robust hedging and industry-leading asset base position us well to maintain our dividend, and to continue to grow in weak or volatile commodity price environments, and provide stability in the near term with prudent capital allocation while offering significant per share growth potential and long-term.

Looking closer at some of the highlights from third quarter, we sent a new production record of more than 141,000 BOEs per day which represents production per share growth of more than 9% over 3rd quarter 2013. Balance sheet strength is a key part of our corporate strategy, and we've been able to maintain the company's conservative debt to cash flow ratio of 1.1 times while generating a forecasted compound annual growth rate of cash flow per share of 12.4% from 2010 to 2014. Consistent with our business strategy, we successfully completed an CAD800 million bought deal financing, a portion of which partially reduced the CAD1.2 billion in debt that we incurred over the course of the year from several of our strategic acquisitions in southeast Saskatchewan. We generated cash flow of more than CAD618 million, a 12% increase over third quarter 2013 cash flow, and achieved a payout ratio of 48%. Keep in mind that we have never cut the dividend in our history, and during the time oil price has fluctuated between CAD140 to CAD35 a barrel.

We continue to be pleased with the results to date in the Uinta basin, where we have gun drilling our first fully operated horizontal well in the Uteland Butte zone and brought our first well on production in the Mahogany zone. We continue to delineate our significant Torquay discovery at Flat Lake in southeast Saskatchewan, a play that is shown strong results. We continue to push to the end of the play, with 15 step-out wells planned for 2014 and continue to expand the pool.

We've completed a consolidation acquisition of oil and gas properties at Hastings and Fertile in southeast Saskatchewan and Manitoba. We acquired approximately 3300 BOEs per day and 76 net sections of land that is adjacent to our current position in the area. It's important to note the strategic rationale regarding this acquisition. We're very excited about the fact that the we added 44 net sections of undeveloped fee title land, much of which is located in an exciting new exploration trend. We now have over 125 net sections of land in this exploration trend, with three exploration wells planned for 2015.

For the rest of the year we'll focus on developing our high quality asset base, on expanding our waterflood programs, and on refining new technologies and techniques. The dual-track growth plan that we've implemented across our asset base is helping us improve production and lower our corporate declines. We expect the impacts of this plan to continue to compound over time.

We always strive to improve our techniques and technologies to help drive results and set us apart from our peers. Looking into next year -- we are currently in the middle of 2015 budget process, we haven't finalized anything yet, but given the recent volatility in commodity prices, we expect the 2015 budget will be slightly lower than 2014, but not significantly. Likely a lower spending will come from a reduced spending at facilities and land, and we're expecting that costs will be lower, which will help keep our planned activity levels similar to 2014.

I think a key point that I'd like to emphasize is that we're well protected in these kind of price environments and we can execute our business plan and thrive at these levels. These markets often present great opportunities for a company like ours. This was the case in 2009 when we consolidated the Shaunavon, which now has more than 5 billion barrels of oil in place. Our industry leading assets, strong balance sheet, and hedging program allow us to be well positioned to capitalize on similar opportunities into the future.

Before I hand things over to Neil, I'd like to thank all of our employees, including our field staff and executive team and our Board of Directors for their hard work in delivering another record quarter. I'd also like to take this opportunity to announce the appointment of Laura Cillis to the Board of Directors. Laura was formerly the CFO of both Calfrac Well Services from 2018 [sic] to 2013, and Canadian Energy Services from 2006 to 2008. Laura brings tremendous financial acumen and experience to the Board and to Crescent Point.

Also, it's with great sadness that we announce this week the passing of our long time Board member and friend, Ken Cugnet on October 30, 2014. Ken joined Crescent Point in 2003 and served on the Board for the past 11 years. He was a valued member of Crescent Point team and well respected leader in his community. Ken will be missed dearly.

Neil will now discuss operational highlights. Neil?

Thanks, Scott. Crescent Point's record production in third quarter was driven by a very successful drilling program across our asset base, particularly in the Torquay and Uinta Basin resource plays and the ongoing success of our waterfloods and cemented liner techniques. The acquisitions we've completed year-to-date have also contributed to our strong performance and have consolidated key high netback areas for us.

During the quarter we drilled over 200 wells, achieving 100% success rate and averaged more than 141,000 BOEs a day of production. In Viewfield, in the Viewfield Bakken, we drilled 51 net oil wells, and continue to refine our completion techniques to generate strong free-cash flows in the play. We continue to implement our waterflood program in the play, and now have over 15,000 BOEs a day under flood which makes it already the third largest waterflood in Canada, and certainly the largest unconventional waterflood. We continue to be excited about our Flat Lake Torquay on discovery in southern Saskatchewan especially as our step-out drilling program is showing great potential. During third quarter we drilled 25 net oil wells in the play. Through the first three quarters of 2014 we drilled 41 net wells in the area and plan to drill a total of 15 step-out wells about it year-end 2014.

In our Shaunavon play in southwestern Saskatchewan we drilled 55 net oil wells. As we implement our largest Shaunavon drilling program in the company's history, we continue to refine our cemented liner completion technology with positive production response. Based on 12 months of product data to date, the 25 stage cemented liner completion in the lower Shaunavon play is performing up to 20% better versus the previous generation of technology.

Our waterflood program is contributing to our success in the play, with 32 water injection wells currently operating. In 2014, we also plan to drill 90 net wells from pad locations, which should enhance efficiencies and reduce our environmental footprint.

We continue to execute our Bakken and Cantor drilling programs. We assumed full operator ship of the Cantor unit on September 1, and we've already increased production at that unit by close to 16%. Both of these assets continue to generate strong free cash flows. We began our drilling program in the Dodsland area and Saskatchewan Viking play drilling 8.5 net oil wells there during the quarter. We were very pleased with production to date, and the wells have been coming on production at or better than internally forecast rates.

In addition, we continue to be excited about our development and exploration in the Uinta basin. We drilled 27 net oil wells during the quarter. We have multiple projects underway to optimize our completion techniques and improve production, and we remain very optimistic about the development of this world-class resource play. We are also excited to announce that we began operating our first horizontal drilling program in the Uteland Butte zone, and brought our first vertical well on production in the Mahogany zone.

Before sending things to Greg, I too wanted to recognize and thank all of our employees, especially our field staff in both Canada and US for their hard work in delivering another excellent quarter, especially as we start heading into the cold winter months. Greg will now discuss the financial highlights. Greg?

Great. Thanks, Neil. In the third quarter we continued to grow and generate production per share growth of more than 9% compared to 2013. This resulted in cash flow of CAD618 million, or CAD1.45 per share, in the third quarter. This represents at 2% increase over the CAD1.42 per share generated in the third quarter of 2013, despite a 6% decline in realized oil and gas prices. These strong cash flow results result in a payout ratio of 48%, which continues to highlight the successful execution of our dual-track growth business model.

Based on our strong third quarter production results and acquisitions completed year-to-date, we are maintaining our annual production guidance of 140,000 barrels a day. This production translates to cash flow of CAD2.48 billion, or CAD5.90 per share, based on an are revised 2014 annual average forecast pricing of $96.00 a barrel WTI.

On the financing side in the third quarter, we closed the bought deal financing and associated partial overallotment option exercise. A total of 18.4 million Crescent Point common shares were issued per gross proceeds of approximately CAD800 million. As Scott mentioned, a portion of the proceeds were used to partially pay down the CAD1.2 billion in debt incurred from the several strategic acquisitions completed during 2014. This positions us well from a balance sheet perspective in the current volatile commodity markets we are witnessing today. With the weaker Canadian dollar in support of oil prices in the third quarter, we delivered strong netbacks prior to realized derivatives of CAD54.24 per BOE, driven by realized oil and gas sales of CAD84.92 per BOE.

We continue to actively hedge our oil price exposure. For the remainder of 2014 we have hedged 60% of our production at greater than CAD93 per barrel, and looking beyond this year we are now 37% hedged for 2015 at greater than CAD93 per barrel. On the balance sheet side of our business, we remain strong with, significant unutilized credit capacity. With our low-risk, high economic drilling inventory, and disciplined hedging program, we are well positioned to continue generating strong operating and financial results for the future. I'll now hand things back over to Scott.

Thanks, Greg. And we've had a great year so far and we're looking forward to a strong end to 2014. Despite the current weaknesses in commodity prices, we wanted to reiterate how well positioned we are, given our low costs, high return assets, our strong balance sheet, as well as our conservative hedging program. Our business model is well suited to continue to create value during the current environment. At this point we're ready to answer questions from the members of the investment community. Operator?

Thank you. (Operator Instructions). Your first question is from Pavan Hoskote of Goldman Sachs, your line is now open.

Thanks for taking my question. First of all, I wanted to express my condolences for the loss of Ken.

The first question, and you addressed this to an extent in your prepared remarks, but if you can dig a little deeper here, if you assume relatively low oil prices for 2015, how do you plan to manage your capital program? Would you consider the option of high-grading your program, so that you spend less but still maintain your strong growth? Or would your rather spend less and grow less? Or is there a third option? And how do the existence of the dividends shape your thinking?

Great question, and I think you've set a record for about his the first one on the call the last four or five quarters, so that's great. I think it's sort of a combination of all those things. In these environments, and we've been through several of these over the last 13, 14 years, is that we'll see costs come down in day rates, and we're already talking to our service providers on that. So there's an expectation, I think, in the next year that we'll see some lower costs, and that allows us to maintain a relative balance of activity level with those drop in the day rates on the cost.

And then at the same time, we're going to look at being a little bit more conservative on our capital spend, more so because of the fact that, if prices fall further, so if we assume the strip pricing today and then set our budget and commodity prices drop another CAD20, we don't want to be in a position where we're building a significant amount of debt and being caught. So naturally we want to carve back our capital program on a risk basis and see how the year unfolds, and we typically do that to -- to the middle of the year, to June, and then we kind of make another call as to whether to add capital or then to even focus more so on our higher return projects. And at the same time we may budget for instance CAD50 million in land but obviously with lower commodity prices, we may not need to spend CAD50 million because of the drop in the land cost to the drop in commodity prices and so that naturally lowers our capital program. We can spend the land dollars on key drilling. So, we kind of look at it from all three of those factors and try to manage downside risks, at the same time providing some growth into next year though that.

That was a really helpful response. Thanks a lot for the very detailed response. And then secondly on M&A -- you've not been shy about talking about M&A in the past so given the recent selloff in oil prices and equities as well, would you be interested in consolidation in the Uinta Basin where you already have a presence or maybe other US oil place where you don't have a presence right now?

We're always looking for opportunities. We are strong believers that, in this kind of environment, this is where the best opportunities present themselves. And so companies with weaker balance sheets that are then forced into selling, wind up selling in a down commodity price environment, and with our strong balance sheet and additionally our dividend model, this is where we provide the greatest strength. And so obviously we -- and some of these deals we work on for many, many years, waiting for these types of opportunities to present themselves. And so we have obviously a focus in southeast Saskatchewan and Shaunavon and Uinta and so opportunities that are in those areas, if they come about, and present themselves I think -- and the value is there, we obviously are going to be compelled to act and consolidate, and we feel, for our shareholders, that's going to create the greatest return going into the future with the company.

So we're always, always looking for those opportunities, and I think we pointed to the example of the Shaunavon in 2009, and we consolidated an entire play, mainly because of companies that were debted up and that had to sell something, they had to sell one of their better assets, and because we've been there, evaluated it, been there for many, many years, and well-positioned with our balance sheet and strength, we could execute it. So all those areas that we are focused in are fair game.

Thanks a lot.

Thank you. Your next question comes from Patrick Bryden of Scotiabank. Your line is now open.

Good morning, thank you. I'm wondering if it might be possible to get a little bit more color on what you might be going after around of Fertile and southeast and southwest Manitoba.

Yes, we've got a play there we're developing. Obviously confidential based on it's an exploration play and we're still capturing land out there through land sales and fee title, so it's hard really for us to speak to it in much more detail -- obviously our competitors out there know the play, but our preference is to keep that to ourselves [inaudible] at this stage. But we think it could be a significant play and we're excited about it.

Would you be willing to say if it's unconventional in nature or is it more conventional?

I think it's probably on that borderline, borderline of those, unconventional to conventional.

Okay.

It's a fairly large area, so 125 sections isn't small, so --

Yes.

It's something that I think we can speak to that more next year. You're going to see -- we're -- in Saskatchewan, in general I think there's still some legs there on varying different exploration place and our goal over the next year to two years is to pursue some of these other plays and, with our land capture and the amount of land that we have, I think we probably have 2 million acres or something like that in southeast Saskatchewan. It behooves us to really put the money to those exploration plays to expand. And that's our biggest bang for a buck for the company, and going forward. So pretty excited about the area.

We'll dig around and stay tuned on that, thank you. If we move over to the west side on Shaunavon, just curious if you can give us a -- us a bit of a sense of what specifically you think is driving the higher IPs with the evolution and completion. It's obviously notable there and eye-catching.

Yes, I think it's similar to the Bakken we're placing more sand more efficiently and across more of the well bore and I think in the Shaunavon case it's a thicker reservoir. So I think the earlier fracks, we weren't seeing the thicker pays receiving the frack fully and opening up those fractures. And I think that's really -- it was the same sort of uplifts we saw in the Bakken when we shifted to the cemented liner.

And it's more on consistency. So doing 25 fracks, and we were 25 for 25 versus other systems we might have been 20 for 25 on the fracking, and I think that's where you're seeing the percentage gains and the reserve gains. And then combined with the waterflooding, the cemented liner technique allows us to manage where the water goes in each of the fractures along those horizontals, and gives us a lot more flexibility to refrack those wells. We have a large inventory of refrack candidates throughout both fields to provide improved recovery and productivity. So those kind of completions are key in our strategy as a company and technology that we've developed, proprietary to ourselves.

And as you continue to transfer tidal waterflooding from Viewfield to Shaunavon are you seeing any commonalities or differences in how you do that?

I think where you've seen the difference in the Shaunavon, which is really interested because it's a medium gravity crude (inaudible) so you wouldn't think the waterflood wouldn't be as strong there. But the waterflood in Shaunavon is a lot more consistent and we've seen better, quicker results there just because we moved to the cemented liner and the fracking techniques with the better technology a lot sooner in that play relative to the Bakken, where a lot of the wells there were surgi-fracked and then packer-fracked and so there's they're not maybe as -- there's large areas that were drilled up with the older technology.

Area. Okay. And then lastly, I'm just wondering if you can maybe help compare and contrast the activity in the Uteland there, which you're going after with the horizontals and touching maybe on the Mahogany. Obviously you've started with a vertical there. I'm just curious what you see in that zone as well and if that translates to horizontal potentially later.

Yes, I think all of those zones are fair game for horizontals, and really it's so early days there. There's only been wells drilled in the Wasatch and the Uteland Butte in the horizontals. And there's another five other zones when you include the Mahogany that we can drill horizontally that have large oil in place that meet all the characteristics of the Viewfield, Shaunavon, Bakken plays or any of the other plays in the US.

And we're pretty excited about each of these different zones and testing them, and then implementing a larger horizontal program, and you'll see over the next two, three years real transition of that area from vertical drilling to probably all horizontal drilling, as we try to get the regulations and the horizontal applications in to the system and developed. And so obviously we're drilling our first well here horizontally, we're going to learn a lot.

And on the Mahogany, we drilled our first vertical well and that really was an experiment in that what we did was we took core all through the zone, we completed five different zones within the Mahogany, testing in which each zone produced oil or water, and tried to identify that, and then we're going to try to carry that over throughout the whole area. There's townships of potential in that zone. And so learning in this well is going to carry across to the others.

And I think from a technical viewpoint, we've had really good success there, and so we're going to try to implement that across and test other areas of lands we have. So it's just sort of, to me, highlights the multi-zone nature of that area and the large oil plays and the ability to just do some recompletions and horizontal drilling in all the different zones and the geological changes throughout that basin, and it's pretty exciting, that basin that's going to provide us with a significant amount of growth over the next five years or so, or more.

And just maybe one more question. As you go down in those layers, is there any zone that sort of stands out to you as ahead in the horse race for horizontals right now? And as you drill all of them, any kind of completion or drilling complications that are maybe a little trickier versus traditional work you've done?

Well, we're in our first horizontal well, so obviously we're learning a lot, drilling our first well. So like the Viewfield, like Shaunavon, we've got to get several wells into it and then you start to make it more a manufacturing process and drilling. And so we're first zone, first well, pretty -- we're at the birthing stage, I think, is probably the best way to describe it.

And so my view is the Douglas Creek, based on vertical performance and the fracks that we put into that zone, have the highest IPs, highest potential. It maybe isn't as consistent across the whole basin as some of the other zones, but we're going to get some really high return, juicy areas there drilling horizontally, and that's our -- probably our one place that we can see that will have the biggest growth potential in a short window. And then longer term sort of Uteland Butte, Wasatch -- obviously what Newfield is doing and what they've proven up is pretty compelling. So I'm pretty excited on all of those zones. We've got two or three new once that nobody's ever drilled into, and so you just never know where those go.

Okay. Thank you very much.

Thank you. (Operator Instructions). We have time for one more question. This question comes from Gordon Tait of BMO Capital markets. Your line is now open. Mr. Tait, your line is now open.

Oh, high, sorry about that. On the new -- the 25 stage completions you're doing in the Shaunavon, are you expecting to get some reserve revisions? I mean, I understand that these completion techniques lead to higher IP rates and EURs. Do you think you'll see that show up in your reserve report?

In the past, with Viewfield, we've seen that. In Shaunavon we've seen that because we obviously every year, techniques have kind of continually changed. So I -- I don't think -- Neil, if you want to comment on that.

It's early days. When you're dealing with the independent engineers (inaudible) N1-51-101 strict regulations, so you take a look at our average infill in the Viewfield area. It was 75,000 barrels, going to the 25 stage. It took us three years before the independents brought them all up to the 100,000 based on performance. So we're continuing to improve the recoveries, drive the costs down, get the recoveries up, improve our payouts. I expect, if we're seeing this data and it hangs in there over the next couple of years, there will be sufficient data for them to start doing some positive reserve revisions.

So that could be just sort of a lag between the time that you do it and they recognize it.

They need data and, again, their probability levels are high.

Okay. And secondly, just on the waterfloods, there seem to be other companies now in Canada that are waterflooding tight oilfields. What is your experience in the US? I know that you're looking at doing it in the Uinta. How do other operators down there look at waterflooding these tight fields?

I think the nature -- this is what, really, I think, sets us apart from the US players is the shallow nature of the Viewfield/Shaunavon plays are more conducive to waterflooding for cost or and then the regulation and the fact that we have Crown and fee-title land and we have larger areas that we can set up the waterfloods on quickly versus in the US, most of the plays are deeper, have very fractionated fee-title ownership that the make it really complicated to set up a waterflood. So there's limited areas where they can quickly create a waterflood and turn it on without consent of all the fee title owners, and so it's a little more difficult in the US. So I think you combine that with the fact that the US producers are more driven to short-term growth versus long-term value, they don't -- they're on a bit of a treadmill, and for them to shut in, like we do we shut in 1500, 2,000 barrels a day every year to convert to injector so we lose a 0.5%, 1% of growth on our company to do for the long-term, and it shows up in our lower decline. So I think there's --

Thank you. There are no further questions registered at this time.

I apologize for the interruption. Please continue to stand-by. We are experiencing technical difficulties. Please continue to stand-by and we thank you for your patience.

(technical difficulties) The conference call has now concluded. Thank you, ladies and gentlemen, for participating in Crescent Point Energy's third 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.