Goodrich Petroleum Corporation
Q1 2021 Earnings Call Transcript

Published: 9 May 2021

[Operator:]

Good day, and welcome to the Goodrich Petroleum First Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Gil Goodrich, Chairman and CEO. Please go ahead, sir.

[Gil Goodrich:]

Thank you and good morning, everyone. Thank you for participating in our first quarter 2021 earnings call. I'll start by introducing the other management team members here with me; Rob Turnham, our President; and Kristen McWatters, Senior Vice President and Chief Financial Officer. While the first quarter was somewhat impacted by the February storm in Texas and Louisiana and some curtailment of non-op volumes, we nevertheless delivered solid first quarter EBITDA of $20.3 million. In addition, numerous new well additions late in the first quarter and subsequent to the end of the quarter have us very well-positioned to deliver strong results in 2Q.

[Rob Turnham:]

Thanks Gil. Revenues adjusted for cash settled derivatives totaled $31.2 million comprised of $31.9 million of oil and natural gas revenues and $700,000 of cash settled derivatives. Average realized price including cash settled derivatives was $2.77 per Mcfe for the quarter. Our per unit cash operating expense, which is defined as operating expenses excluding DD&A and non-cash G&A was $0.99 per Mcfe and cash interest expense was $0.08 per Mcfe for a total of $1.07 per Mcf equivalent. Cash margin including interest expense was $1.70 per Mcfe or 61% of realized price including settled derivatives. As you will see in our slide deck and discussed later in my prepared remarks, once we were able to analyze first quarter financials for our peers, we expect this cash margin to be at or near the top of our natural gas peer group like we were in the fourth quarter. As volumes grow throughout the year, we anticipate total cash unit costs including interest to continue to decline as Gil said with the midpoint of guidance less than $1 per Mcfe including interest. When combined with much higher gas prices, robust cash margin expansion will drive significant EBITDA growth in free cash flow for the year. As we stated previously, our capital expenditure budget is a little front end loaded and varies by quarter due to completion timing with the first quarter higher than the average for the remainder of the quarters in the year. Capital expenditures for the quarter total $29.3 million of which nearly all was spent on drilling completion and facility costs associated with Haynesville wells. During the quarter, we conducted drilling and completion operations on 14 gross 6.5 net wells and added nine grows 3.3 net wells to production.

[Operator:]

Thank you. We will now begin the question-and-answer session. And the first question will come from Bertrand Donnes with Truist Securities. Please go ahead.

[Bertrand Donnes:]

Good morning. I'm just caught in that Latin well. Is it the little yellow dot in the middle of slide 13? Is that the area where the well was? And then how many locations do you think you can get? Well, looking at the map we will try to.

[Rob Turnham:]

Yes. Bert, it is that area. You see it straddling the Caddo and DeSoto Parish line, kind of northeast of Bethany Long Street on the way towards Swan Lake. So it's a 1,280 acre unit. There was one 4,600 foot lateral. We would have one more remaining 4,600 foot lateral. And this is the first 10,000 foot lateral in that 1,280 acre unit. So we're expecting to have four additional 10,000 foot laterals and one additional 4,600 foot lateral.

[Bertrand Donnes:]

That's perfect. And then as far as the comments you had on your capital program about maybe tweaking out a little bit more free cash flow. Is that a function of removing some activity or maybe adding activity if prices goes up, or was it more maybe internally you're thinking cost savings – some of that?

[Rob Turnham:]

Yeah, this is Rob, again. So I don't think, you'll see us add activity. We're comfortable with the $80 million of midpoint CapEx guidance range. It's moving around slightly. If you really drill down, you'll see we're expecting to complete 9.5 net wells this year instead of 9.4. It's just a change in working interest on a well or two. And yet, we're not changing obviously the CapEx range. So I think the big question is just operating costs and where gas prices go. If you look at the strip, which is $3, we're obviously going to be at the high range of that free cash flow guidance range. And then we're doing our best to control our operating costs and we're not seeing any service costs inflation. So we still feel comfortable with the range of free cash flow that we've guided to even though production is coming in a little bit less. And that's worth talking a little bit about also. Several of the wells that were brought online in the first quarter were non-operated. There was a pipeline curtailment of volumes that we think over time gets resolved. And in essence those volumes were cut almost in half of where they came online. So even though we had a smaller working interest in those wells that still affected first quarter production. And frankly, all we can do is forecast at the reduce rate through second quarter throughout the rest of this year, which is predominantly driving some of the reduction in our mid point of production guidance.

[Gil Goodrich:]

And Bert, this is Gil. I might just add one quick caveat to that and that is that particularly the second half of this year, our ability to forecast non-op plans that we can't currently foresee is a little bit challenged. So to the extent some non-op activity came in that we think made sense that could obviously have an impact on the full year CapEx.

[Bertrand Donnes:]

Absolutely. That makes sense. And then really the last one and this is more just big picture. With the Alta announcement this morning, is there any interest from you guys for kind of a go-public situation with launch -- just some privates trying to cash out or anything like that?

[Rob Turnham:]

Yes. This is Rob again. Well, we're entertaining all of the above. We're looking to continue to bolt-on acquisitions. We like the drill to earn because it provides no upfront cash and you capture the opportunity by shuffling your drilling rigs. So that's important. We're looking at bigger packages. And we're open to any other ideas that make sense that are accretive for our shareholders. It's all about the shareholders and figuring out how best to create more value. Thanks, Bert.

[Operator:]

The next question will come from Phillips Johnston with Capital One. Please go ahead.

[Phillips Johnston:]

Hey, guys. Thanks. It looks like the Haynesville rig counts ticked up about 33 rigs or so which is the highest it's been about a year and a half or so. Rob, I know you just said twice that you haven't seen any cost inflation, but at what point do you think we might start to see some? And if we do see some which areas do you think you would expect to see it show up first?

[Rob Turnham:]

Sure, sure. That's a great question. And in fact, as we said on the last call, we're baking in a little bit of cost inflation. In particular, second quarter through the end of the year, we just think it's inevitable. You can't generate 100% rate of return or greater for an extended period of time without seeing some service cost inflation. I think the biggest driver of your completed well cost is the frac. Right now, we have excess pressure pumping capacity in the basin. If oil prices continue to rise and we see a good bit of frac fleets moving back into the Permian from where we are now then that could obviously impact frac costs to some degree. But right now, we're just not seeing it, but we do think it's prudent. And if we're in a $3 and some people are calling for even $3.50 gas in the back half of this year then we're expecting a little bit of cost inflation. It's just all a supply-demand of the equipment in particular. But our $80 million midpoint does have -- the range of $75 million to $85 million does have some internal service cost escalation built into it in case we see that.

[Phillips Johnston:]

Okay. That sounds good. And then if we look at your production guidance for the second quarter and the full year, it implies you'll probably average around 180 or so in the second half of the year. I'm not sure if I missed this, but should we assume that the growth in the second half of the year will be fairly even so maybe 171 to 175 or so in the third quarter and then exiting maybe 185, 190-ish, or is the cadence a bit more lumpy than that?

[Rob Turnham:]

Yes. Phillips, Rob again. I think we can't argue with those numbers. We haven't specifically given guidance in the quarters. But sequentially that make sense and we are comfortable with the yearly average. So if you look at the cadence, second quarter CapEx clearly going to be down significantly, third quarter back up and that would cause your exit rate in the fourth quarter to be higher than we've seen to date. So can't argue with those numbers, but we will as we get closer. Certainly on the second quarter call, we'll announce. We'll get guidance on third quarter and maybe a little more direction on fourth quarter. But those numbers seem to be in the ballpark.

[Phillips Johnston:]

Okay. Sounds good, Rob. Thank you.

[Rob Turnham:]

Thanks, Phillips.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Gil Goodrich for any closing remarks. Please go ahead sir.

[Gil Goodrich:]

Thank you everyone. We appreciate your participation this morning and we certainly look forward to presenting our second quarter results to you in August. Thank you.

[Operator:]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.