Goodrich Petroleum Corporation
Q3 2015 Earnings Call Transcript

Published: 4 Nov 2015

[Operator:]

Good morning and welcome to the Goodrich Petroleum Third Quarter 2015 Earnings Conference Call. All participants will be in listen-only mode. Please note this event is being recorded.I would now like to turn the conference over to Joe Leary, Interim Chief Financial Officer. Please go ahead.

[Joseph T. Leary:]

Thank you. Good morning, everyone, and welcome to the company's third quarter earnings conference call. The management team on the call is Mr. Gil Goodrich, Chairman and Chief Executive Officer; Mr. Robert Turnham, President and Chief Operating Officer; Mr. Mark Ferchau, Executive Vice President of Engineering and Operations; Mr. Mike Killelea, Senior Vice President and General Counsel; and myself, Joe Leary, Interim Chief Financial Officer.The comments and answers to questions on the call may be considered forward-looking statements, which involve risks and uncertainties as are detailed in the company's SEC filings. We have posted an updated slide presentation on our website at www.goodrichpetroleum.com. That's www.goodrichpetroleum.com. We will refer to these slides throughout the call. You can go to the Investor Relations tab, then to the Events & Presentations section, then to the Third Quarter Conference Call, click on it, and then click on the slide presentation. We will begin with comments, then answer questions.We will now turn the call over to Mr. Gil Goodrich.

[Walter G. "Gil" Goodrich:]

Good morning, everyone. I'd like to start by welcoming Joe to the Goodrich team. Joe brings wide oil and gas financial experience in numerous capacities to the team and we are delighted to have him on board.So, at the end of the second quarter, we have been very focused and extremely active in our efforts to improve and strengthen our balance sheet. We have done this with a sharp focus on reducing cash interest expense going forward, capturing maximum discounts to net debt and extending maturities.For those of you who have access to the website and the earnings call presentation, as Joe outlined, please turn to Slide 3 with me and I will give you a brief overview and then some details on our recent transactions.On Slide 3, we continue to maintain a large, diversified asset base with oil and natural gas exposure in the Tuscaloosa Marine Shale, Eagle Ford Shale and Haynesville Shale plays. Our extensive inventory has acreage either held by production or subject to manageable remaining term, extensions and renewals.Our recent sale of the Eagle Ford proved reserves and associated acreage has increased our liquidity.The recent debt exchanges and asset sales have reduced total debt by approximately $198 million, reducing interest expense by approximately $9.5 million per year. We have a strong technical and financial team in place to address market challenges and exploit the assets once the macro environment improves.Turning to Slide 2 (sic) [4], our large acreage position is in three concentrated plays, the Haynesville, Eagle Ford and Tuscaloosa Marine Shale. This gives us balanced natural gas and oil exposure, which is largely operated and has modest drilling commitments. The Haynesville and Eagle Ford positions are highly delineated with substantial portion of the acreage in the core of the plays.Our TMS position has been well delineated with approximately 150,000 net acres in the core. In the TMS, we have demonstrated repeatable well results. We've moved the play into development mode and achieved significant well cost reductions in 2015.The balanced portfolio provides a number of alternatives in a recovering commodity price environment with multiple drilling opportunities, an inventory of gas and oil-weighted opportunities, and several options for asset sales or joint ventures.If you will now turn to Slide 5, I will walk you through the recent debt exchanges and improvement to the balance sheet accomplished since the end of the second quarter. During the quarter, we reduced the amount drawn on our Senior Credit Facility from $86 million to $17.5 million and we expect to further reduce this amount during the fourth quarter. We added $75 million to our Second Lien Secured Notes in an exchange, whereby we reduced Unsecured 2019 Notes from $275 million to $116 million.We also reduced the amount of 5% convertible notes from approximately $172 million to $99 million currently. As part of the exchange, we've created a new 5% convertible note with a put date of October of 2018, an amount currently of $29.8 million.In total thus far, we have reduced net debt from approximately $640 million at the end of the second quarter to current pro forma debt as of the end of the third quarter, to approximately $441 million for a total net debt reduction of approximately $198 million. This represents a total reduction of approximately 31%.In addition, the high-yield note exchange of the 2019 Notes in October of this year will result in a gain of approximately $62 million in the fourth quarter. We remain actively focused on balance sheet repair and enhancement during these challenging market conditions. As we go forward, we will continue to aggressively structure and pursue additional balance-sheet enhancing transactions designed to improve the value of the investment for our common shareholders as well as all of our stakeholders. And with that, I'll turn the call back over to Joe Leary for review of the third quarter results.

[Joseph T. Leary:]

Thanks, Gil. Good morning again, everyone. I will cover a few items on the financial side. The company had $540 million of debt at the end of the third quarter, down $100 million from the end of the second quarter. As Gil mentioned, debt was further reduced in early October by additional debt exchanges as indicated in the earnings release. These material reductions of debt were due to the Eagle Ford property sale and the Company's debt exchange program.The Company's revolving credit facility has been reconfirmed at $75 million. $17.5 million was drawn at the end of the third quarter. Selected covenant relief was also agreed to by the Company's bank group led by Wells Fargo. As at the end of the third quarter, the Company passed all of its required covenant tests.Adjusted EBITDA was $20.3 million for the third quarter, down 16% from the second quarter due primarily to the Eagle Ford sale. EBITDA for the trailing 12 months was $112 million. Discretionary cash flow, that is net cash provided by operating activities before changes in working capital, was $8.8 million for the quarter, down 31% from the second quarter.Capital expenditures totaled $16.4 million in the third quarter, 96% of which was for completion costs and extending leases for future development operations in the TMS. Very little CapEx is planned for the fourth quarter.Total production for the third quarter was 645,000 Boes, 50% oil, or an average daily production of 7,008 Boes per day, down 15% from the second quarter. Natural gas production was 2 Bcf, down 14%. Oil production was 320,000 barrels down 16%. Again, as I mentioned, production was down primarily due to the decline in Eagle Ford property and its subsequent sale.As to commodity prices, for oil, the Company received $45.92 per barrel, down 20% from the second quarter. However, with oil hedges in place, the Company received $88.83 per barrel, up 3%. For gas, the Company received $1.76 per Mcf, down 5%. For the fourth quarter, the Company has 3,500 barrels a day hedged at a blended rate of $96.11.We continue to watch the commodity mark for attractive hedging opportunities. The Company is reporting a net loss of $17.8 million for the third quarter compared to a net loss of $31.6 million in the second quarter. This loss is primarily due to

[Robert C. Turnham, Jr.:]

Thanks, Joe. I would like to pick back up with the earnings slides and focus on our core properties beginning on Slide 6. Our assets are in very good shape and provide substantial upside. We retained 17,000 net acres in the oil window of the Eagle Ford, approximately 25,500 net acres in the core of the Haynesville in North Louisiana and the Angelina River Trend, and over 300,000 net acres in the TMS. We have an extensive inventory of both oil and natural gas resource potential and a team that is capable of supporting those assets.On Slide 7, we show

[Walter G. "Gil" Goodrich:]

Thanks, Rob. While we have made significant progress with our recent debt exchanges, more work needs to be done and we will continue to actively seek to strengthen the company which makes sense for all of our stakeholders. At the same time, as Rob mentioned, we are closely following the current enhanced completion designs and longer laterals with very strong results in the core of the Haynesville shale play and the potential to allocate capital to our Caddo and DeSoto Parish acreage in 2016.With that, we'll turn it back all to the operator for Q&A. Operator?

[Operator:]

Sorry.

[Walter G. "Gil" Goodrich:]

With no questions in the queue, we appreciate everyone's attention and dialing in for the call. Thank you.

[Operator:]

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