HighPoint Resources Corp
Q3 2015 Earnings Call Transcript

Published: 6 Nov 2015

[Operator:]

Good day, ladies and gentlemen, and welcome to the Bill Barrett Corp Third Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Mr. Larry Busnardo, Senior Director, Investor Relations. Sir, you may begin.

[Larry Busnardo:]

Good morning, and thank you for joining us today for the Bill Barrett Corporation third quarter earnings conference call. Joining me on the call today is Scot Woodall, Chief Executive Officer; and Bob Howard, Chief Financial Officer. A note before we begin today, I need to remind everyone to read the disclosure statements provided in the earnings release and posted to the homepage of our website at billbarrettcorp.com. You can find and review these and they're referenced in our third quarter earnings release, our other filings with the SEC and you can also find them in our third quarter 10-Q which we filed yesterday afternoon. These documents can also be found at sec.gov or also on our website. With that brief introduction, I will now turn the call over to Scot Woodall.

[R. Scot Woodall:]

Good morning and thank you for joining us today to discuss our third quarter results. I'd like to spend some time reviewing our operational results before turning the call over to Bob to review the financial results. Operationally, we posted a very solid quarter with a production volume beating expectations for the third consecutive quarter and we made progress with respect to our cost initiatives on LOE and on capital, with all spending coming in lower than our expectations. This outperformance at all levels led to the earnings, discretionary cash flow and EBITDAX all meeting or exceeding consensus estimates. We captured further capital efficiencies in our extended reach lateral program through faster drilling times and lower completed well cost while also achieving a meaningful reduction in controllable cost. In the release, we also summarize all of the non-core assets that have been closed or pending to close in 2015. All in total, proceeds are expected to be $122 million in 2015 including the proceeds from the Cottonwood Gulch settlement received earlier this year. These proceeds are being used to fund our Northeast Wattenberg development program, maintain debt levels and enhance the company's liquidity position. Bob will touch on this in a little bit more detail in his comments. I'd like to now discuss our operational highlights for the quarter before providing an update on our extended reach lateral program. First, we had significantly higher production volumes during the quarter, total equivalent volumes of 1.7 million barrels of oil equivalent, compared very favorably to our guidance of 1.5 million barrels of oil equivalent. This outperformance was led by the extended reach lateral program in the DJ Basin that saw production volumes grow 72% as compared to the third quarter of 2014 and 14% sequentially. This increase more than offsets a decline in volumes from our Uinta oil program. Our performance to-date keeps us on track to meet recently updated full-year production guidance of 6.3 million barrels to 6.5 million barrels of Boe equivalent. Keep in mind that we will achieve guidance despite realizing the impact of shutting in approximately 1,000 barrels of oil per day in the UOP program in the second quarter and also factoring in a reduction in volumes associated with the asset sales that are expected to close in November. Moving on to cost, we continue to make meaningful cost reductions as recent Northeast Wattenberg extended reach lateral wells are now averaging 32% less than they were a year ago. We have improved operational efficiencies for all of the XRLs by reducing the number of drilling days today by 50%. Our most recent wells are consistently being drilled in less than eight days. Our best-in-class well is now just under seven days. Keep in mind that this is for a 9,700 foot lateral. This focus of capital efficiency across the operational chain is translating into tangible cost savings as complete extended reach lateral wells are now averaging $5.6 million. We have identified other cost-saving opportunities that we are working to capture and expect to realize further reductions from these levels as we continue to drive down efficiencies. On a dollar per Boe basis, our third quarter 2015 LOE was 19% lower than the second quarter as a result of capturing field level efficiencies and lease operating expense cost reductions in both our basins. Total LOE was $5.67 per Boe in Q3, versus $7.01 per Boe in Q2, strong performance by our operational team. So to recap the operations, we had strong execution in all areas

[Robert William Howard:]

Thank you, Scot. We posted another very good quarter of financial results. So, our production volumes, cash flow and EBITDAX were all better than consensus estimates. In addition, we continued to make solid progress on lowering our cost structure and increasing operational efficiency as leased operating expenses and capital spending all trended lower than we had forecast for the quarter. I'll address these items in more detail shortly. We and the rest of the industry continue to operate in a very challenging macroeconomic environment. However, the company remains in strong financial position as we maintain a significant cash balance with an undrawn revolving credit facility that provides ample near-term liquidity. In addition, we recently announced non-core asset sales that further enhance our liquidity. I'll provide a summary of our results and highlight some of the key achievements for the third quarter. We reported an adjusted net loss of $0.09 per share, which was in line with consensus estimates. The adjusted net loss excludes certain nonrecurring items, including the $572 million impairment charge related to our Uinta Basin assets. Discretionary cash flow was $1.11 per share or 17% above consensus estimates. And EBITDAX was $68 million, 11% above the consensus. Third quarter production volumes of 1.7 million barrels of oil equivalent exceeded third quarter guidance of 1.5 million barrels of oil equivalent by 13%. Third quarter equivalent volumes in the DJ and the Uinta Basins increased 22% compared to 2014 and oil volumes were 14% higher on a year-over-year basis. DJ daily production of 14,250 barrels of oil equivalent per day grew 72% from the third quarter of 2014, and was up 14% sequentially, which more than offset declines from the Uinta Basin. As a reminder, we shut in approximately 1,000 barrels of oil equivalent production per day in the Uinta Basin during the second quarter of this quarter due to wells having a higher operating cost. The third quarter production mix was 63% oil, 22% natural gas, and 15% natural gas liquids. The proportion of natural gas and NGL volumes relative to oil volumes was higher than previous quarters, primarily due to increased natural gas yields due to the expansion of regional processing capacity in the DJ Basin. We anticipate that our longer term oil ratio will revert back to the high 60% range which is similar to past quarters. We remain on track to meet our full year production guidance of 6.3 million barrels to 6.5 million barrels of oil equivalent for 2015. As it relates to the fourth quarter, we expect production to be down compared to the third quarter as we take into consideration the impact of asset sales. Unhedged oil price differentials in the third quarter averaged $7.72 per barrel less than the WTI benchmark price of $46.43 per barrel. The DJ Basin oil differential averaged $7.43 per barrel less than WTI and the Uinta Oil Program oil differential averaged $8.56 per barrel less than WTI. We expect fourth quarter differentials to be slightly lower in the DJ Basin and similar to the third quarter for the Uinta basin. We continue to reduce cash – operating costs during the third quarter. Total cash operating costs averaged $8.23 per Boe, which is a 17% reduction from the second quarter. Lease operating expense averaged $5.67 per Boe and was 19% lower than the second quarter, primarily as the result of increased operating efficiencies in both of our basins and further lease operating cost reductions. Reflecting the continued progress we have made in reducing our LOE throughout the year in both the DJ and Uinta Basins, we are decreasing full-year LOE guidance by 8% at the midpoint to $45 million to $47 million, down from $48 million to $52 million. Capital expenditures for the third quarter were approximately $63 million and have totaled $243 million for the first nine months of the year. We recently lowered our full-year guidance range to $315 million to $325 million. Based on the timing and sequence of expected drilling and completion operations, we continue to expect that CapEx will fall within this range. I want to give an update on the balance sheet. We remain well position in the current low oil price environment. Our semiannual borrowing base review was completed in September 2015 with the bank group reaffirming our $375 million borrowing base. We ended the quarter with zero drawn and $349 million of available capacity after taking into account a $26 million letter of credit. And addition, we had cash and short-term investments of $113 million, which was higher than the $101 million balance at the end of the second quarter, primarily due to the timing of cash flow subsequent to the end of the third quarter. In total, we ended the fourth quarter with liquidity of $462 million. We have executed agreements to divest non-core assets for proceeds of $79 million during 2015, which includes the recently announced transactions in the in the DJ and the Uinta Basins and transactions completed earlier this year in the DJ and the Powder River Basins. All of the assets were non-core to our future development plans, including the $43 million of proceeds we received from the settlement of the Cottonwood Gulch litigation in February of this year. We expect to receive net proceeds of approximately $122 million from asset divestitures this year. We anticipate closing the Uinta Basin and the latest DJ Basin's divestitures by late November. Cash proceeds from the divestures will be approximately $58 million in the fourth quarter which will further enhance our liquidity. We continue to opportunistically seek to divest additional non-core properties as we focus on our core Northeast Wattenberg acreage position. While marketing our Uinta Basin asset, we were approached by multiple interested parties regarding investing all of our assets in the Uinta oil program. To that end, we have just initiated a marketed process to pursue the possible sale of our remaining oil properties in the Uinta Basin that will be led by Wells Fargo Securities. Lastly, as it relates to 2016 planning, we are running a variety of operating plants in areas incorporating a range of commodity price assumptions. We plan to announce our 2016 plans during the first quarter; however, I should remind you to adjusted models for production associated with our recent divestitures. In summary, although it was a challenging quarter, we were able to post very solid results with higher production and lower costs across the spectrum as compared to the second quarter. With a solid balance sheet and ample liquidity, we continue to be financially well-positioned. This concludes our prepared remarks, we're now ready for questions.

[Operator:]

Thank you. Our first question comes from the line of Brad Carpenter with Cantor Fitzgerald. Your line is now open.

[Brad Carpenter:]

Hey. Good morning, guys. And thanks for your time today. I was hoping we could start in the DJ and obviously those 18 wells that were started to be brought online in late 2Q, you've had those under your belt for some time now and I know we're maybe a few weeks out from getting official results on those. But, I was hoping you could maybe first touch on just the timing of when we could expect those well results. And then, I don't know if you could add any additional color on what you're seeing from those well results just to help us kind of frame what to expect when we do see those.

[R. Scot Woodall:]

Sure, Brad. So, you know, yeah the 10 wells came on kind of at the end of Q2, beginning of Q3 and then the other eight wells are sometime kind of more in the middle of Q3. And then the nine well pad just went on a couple of weeks ago. So all in, there's about 27 wells that are in various stages of flowback, kind of all testing a few different concepts. So we got some wells in the north, we got some wells in the south. We got some wells that were volume-wise with 750 pounds per lateral foot all the way up to about 1,200 pounds per lateral foot, so a number of different concepts that we're testing on the drilling and completion side. I think as soon as we have the data and have some conclusions drawn, our estimation is to share that. I would expect that we're going to come out at some point, Brad, with a pretty comprehensive view of all of the results as well as some type curve type information too, and I think that all is something that's in the works and should be delivered as soon as the data kind of presents itself.

[Brad Carpenter:]

Okay. Great. That's helpful. And then Bob or Scot, if you'd like to take this one as well, I was hoping to get your general thoughts on balance sheet management. You've done an impressive job of proactively managing your portfolio of non-core assets. And to that point, congrats on the additional sales announced last night. But this is bringing up your cash balance quite substantially and I was curious just to hear your general thoughts on plans for managing that liquidity going forward.

[Robert William Howard:]

Well, Brad, we continue to work on looking at the sources of liquidity and what we have available. I think we've taken a lot of good steps this year to create some cash flow from the assets that we were putting capital into and lowering our cost structure to kind of extend the cash that we have, and of course, you've seen some of the production results have been very good. So as we do our planning, it's multifaceted where we'll continue to balance out getting cash from the assets and developing our assets in a very prudent manner and also keeping liquidity and managing our debt levels for a long period of time. So I think you'll see us continue to try to expand our cash balances. As we look into 2016 and start our planning for that, one of the tenets we have is we have – we're going to get cash flow from our existing properties and we have the cash balances on hand and that's the number we kind of like to stay as far away from the credit facility as we can for most of the year. And so, we'll continue to work toward keeping that liquidity available under the credit facility throughout 2016. Still early to announce our plans. We're going through a lot of scenarios here and incorporating the results that – some of the results that Scot just talked about and what we expect for the year, different commodity price scenarios. But well, we're going to try to stay within the cash flow and cash on hand for as long as we can in 2016 and continue to evaluate the market on a go-forward basis.

[Brad Carpenter:]

Great. All right. I appreciate it. Thanks again, guys.

[Operator:]

Our next question comes from the line of Neal Dingmann with SunTrust. Your line is now open.

[Neal D. Dingmann:]

Morning, guys. Say, Scot, when you look at – I'm looking at that slide that shows all that Northeast Wattenberg, and all the XRLs you've done there. I guess when you go after that now, will you continue, will that be exclusively XRLs in that area as well as will you continue to use the plug-and-perf with those?

[R. Scot Woodall:]

Yeah, the general answer to that question is yes, Neal. Right now, we're somewhere – the way we look at full field development of that acreage position, it's 80% or 90% extended reach laterals. And so, I think this year, we drilled nothing but extended reach laterals. I think we drilled one mid-length lateral and that was just kind of an odd configuration from a spacing standpoint. I would envision 2016 plans would be the same. It would probably essentially be 100% extended reach lateral development in 2016 as well.

[Neal D. Dingmann:]

Got it. And then just lastly looking over it, a little more uncertain on the East Bluebell. You certainly are making progress technically on that. What's your thoughts? I mean are you still would like some more delineation before you'd step up the program or how do you think about that play going into 2016?

[R. Scot Woodall:]

Yeah, well, like, just kind of reiterating one of the comments that Bob had there towards the end of his prepared remarks is we're going to probably take all of Utah, or we are going to take all of Utah and put it into a data room. So, it just – the way we view it, and you're right. I think we made a lot of progress in East Bluebell and some of those well returns are pretty good. But where the company sits today, I just can't see it competing for capital. So, right now, we're going to – we signed some agreements with Wells Fargo to put that into a data room and you should start seeing some of that marketing process get underway here very shortly.

[Neal D. Dingmann:]

Makes sense. Thanks for the detail, Scot.

[Operator:]

Our next question comes from the line of Chris Stevens with KeyBanc. Your line is now open.

[Chris S. Stevens:]

Hey, guys. Just in regard to the 10-well pad that came on in June, can you just maybe give a little color in terms of what you're seeing on the rates on those wells, even if they're increasing? Are the rates maybe on par with the last four well pad that came out after four months? Is it basically comparable to that at this point?

[R. Scot Woodall:]

Yeah. I probably would just rather hold that and kind of roll the whole thing out, Chris, like I was saying earlier. We would like to roll out some wells, type curves kind of a very comprehensive review before too long. So if I probably would rather wait and comment on everything as a package of what we're seeing.

[Chris S. Stevens:]

Okay. Fair enough. And then just looking at 2016, if commodity prices were to deteriorate further, how much CapEx could you pull out of that program relative to a one-rig program and keep 2016 and 2017 production flat?

[R. Scot Woodall:]

Well probably the best way trying to answer that one a little bit is, we kind of have spoken to, about 20 extended reach lateral wells keeps production flat. So something in the range of 20 times the $5.6 million would nominally be a kind of almost like a maintenance capital budget, if that's kind of where you're heading.

[Chris S. Stevens:]

Okay. Great. Yeah, that's helpful. I guess in terms of that $5.6 million well cost, do you see room for improvement on that, just based on some of the other operators out there in the DJ are still seeing cost reductions. Are you seeing the same thing?

[R. Scot Woodall:]

We are, and so when I report cost, obviously that's actual realized cost. So the last few pads of wells have all met like that $5.6 million. But no, we always have challenges out to our team of another 5% or 10% and so far they've been able to deliver and been ahead of my expectations. So, I would expect that trend to continue as well.

[Chris S. Stevens:]

All right, great. Thanks a lot, guys.

[Operator:]

Our next question comes from the line of Jason Wangler with Wunderlich. Your line is now open.

[Jason A. Wangler:]

Hey. Good morning. Was just curious, with obviously production in the third quarter really ramping up more than had been expected and then kind of probably slowing down a little bit in the fourth quarter so to speak, have you seen a change at all in how these wells are coming online and producing? I know that we've kind of talked about them having a pretty long ramp-up period. Is that still kind of the same thinking, or you seeing some differences in that? Just curious from the timing aspect of the production coming on, seemingly a little bit earlier than we had thought for this year.

[R. Scot Woodall:]

Yeah. And of course you have to remember, a lot of the Q3 production I'd probably say is kind of some one-time type things where we had some non-op gas production flow through in Q3 that took the gas production up a little bit. The infrastructure progress that's been made out in the field, I think we got a little bit of flush production associated with that in Q3. So, I think Q3 was kind of some – the gas was a little bit abnormally high versus the way we model Q4 or continued on through the rest of the year. So, I would think that we would still model things still in that 1.5 million barrels and something in the high 60s type of oil cut for Q4.

[Jason A. Wangler:]

Okay. That's helpful. And then understanding that the Uinta process is just kind of kicking off, but do you have an idea of timing, when we'd start to, I guess, look for bids and things of that nature? And then also with how the field breaks down, would you look to sell portions of it or different packages if you will, or would it just be an all or nothing situation?

[R. Scot Woodall:]

In terms of timing, what we have been working out with our advisor is something along the lines of at least getting a PSA signed in 2015 and maybe an early 2016 close. We'll have to see how that goes. In terms of packages or the entire thing, obviously every company that sells anything obviously wants one package and one sale and one closing, but I'm sure we'll be receptive to however it flows through to give us the best value and that's why you've seen us kind of do a few pieces here in the DJ and that South Altamont piece just thinking that you had some logical buyers that came through with some higher pricing and that was more beneficial to the company. So, we're probably open in all those fronts, but the preference would be kind of one transaction.

[Jason A. Wangler:]

I appreciate it. I'll turn it back.

[Operator:]

Our next question comes from the line of Mike Kelly with Seaport Global. Your line is now open.

[Mike Kelly:]

Hey, guys.

[R. Scot Woodall:]

Morning.

[Mike Kelly:]

Scot, morning. The question is on the 27 wells extended reach laterals right now. Just wanted to get a sense of how much science is incorporated in those. And it's kind of my understanding that you're maybe more in the development mode here. You've picked your completion method and you're going to really try to validate that 750-type curve that you put out there. Just, maybe getting a little bit over my skis there. There's still some science left to be done there.

[R. Scot Woodall:]

A little bit. I would probably put more, Mike, in the range of tweaking versus wholesale changes. I think we're pretty set on the long laterals and so almost everything has been averaging about 9,700 feet. Everything we have done recently is the plug-and-perf and by and large, something in that 1,000 pounds per lateral foot and then obviously doing that controlled flowback and the choke management that we're doing on both the oil and the gas volume. So I think that is a pretty standard. Engineers and geologists always like to try to tweak things and improve things and where are you laying the laterals and those types of things. So there's – I will put it more in the tweaking range than wholesale changes. Probably the only difference a little bit is we're probably testing more and more of some spacing concepts. When you think about most of the northern acreage development has been on primarily the Niobrara B and primarily eight wells per spacing unit, where some of the testing that we've done now has been more along the lines of closer to 16 wells per spacing unit, which is either 80 acres in the B and 80 acres in the C or you can look at the Niobrara package at something like 40 acres. So that's some of the work that's been going on here in the third quarter as well as drilling the 1A well up in the north and that was part of a multi-well pad. So it has B development, C development and it has our first A test. And that really was a result of some of the science work that our G&G team did when they pulled a core up there in the northern portion of our acreage position and identified it as a pretty solid looking target, at least from the core and the logs and all those types of things. So I think, there's always refinements, but like I say, I would clearly think we're more tweaking versus wholesale changes, because the results still look good. I haven't really passed on too many comments, but the page 12 in our investor presentation, or it used to be page 12, which talks about kind of the early stage completion techniques that we did a year ago and some of the more recent ones – actually is that page 10 now, Bob?

[Robert William Howard:]

13.

[R. Scot Woodall:]

Page 13 now, in the presentation, where we had the red and the green curves of old completions and positive – our newer completions, that continues to hold up very nicely and is probably, you're seeing more and more separation. I think that actual increase is even stronger, new completions versus old completions. So we think we're kind of pretty close on the recipe, I guess is the way I'd summarize that in a nutshell.

[Mike Kelly:]

Got it. Appreciate that. And just, I understand you want to have a decent body of data here and you'll lay out something comprehensive, but, maybe just in terms of the timing of that, is that something we got to wait for 2016? Or if you got the 10 well pad here, and that should – looks like that probably should be garnering some 30 day rates here soon. Would you piecemeal that out and at least give us those 10 wells? Thanks.

[R. Scot Woodall:]

Yeah. I'm not sure. We'll have talk to Larry about that a little bit, because at some point, I still would like to come out with kind of the whole package, type curves. It's pretty timely, because we're in the middle of the year end reserve audit procedures, to bundle up everything and come out with a pretty solid comprehensive view of everything that we're seeing. But I'll take input from Larry and we'll see how we message things going forward.

[Mike Kelly:]

Okay. Thanks guys.

[Operator:]

Our next question comes from the line of Steve Berman with Canaccord. Your line is now open.

[Stephen Berman:]

Thanks. Good morning. Just one question for Bob. A lot of companies that are reporting their quarters when they're taking impairment charges, their DD&A rates are going down sequentially from the prior quarter. Yours is pretty much the same as Q2. I'm just wondering where you see that rate going as we move forward into Q4 next year.

[Robert William Howard:]

Okay. Well the – the DD&A – the impairment charge is recorded at the end of the quarter. So, we would have recorded the depletion on the production through the quarter and then taken the impairment charge. So the impact would have been more in line with what would happen at the end of the quarter and what goes into the fourth quarter. And the impairment was on the Uinta Basin and so that's the property that both Scot and I have mentioned, we're in the process of marketing. The DD&A rate on the Uinta is probably going to be – go from somewhere around high $30s, $40 down to low tens or teens in that. That's kind of proportionate to our acreage position or our production levels there. So, on overall basis how you blended that, we'll have a reduction of our overall depletion rate, but it will be weighted toward production from the DJ Basin. That rate continues to come down with some of the good F&D costs that we were seeing. But we will see the impact from the impairment in the Uinta production in the fourth quarter. And of course it will impact us as long as we continue to own those properties.

[Stephen Berman:]

Can you tell us what the DD&A rate or the depletion rate is just for the DJ, or just ballpark?

[Robert William Howard:]

DJ is kind of right there at the high $20s, $28 range. $28, $29, okay?

[Stephen Berman:]

All right, great. All right. Thanks Bob. Perfect and thanks.

[Robert William Howard:]

Yep.

[Operator:]

Our next question comes from the line of Gabe Daoud, with JPMorgan. Your line is now open.

[Gabriel J. Daoud:]

Hey. Good morning, Scot. Good morning everyone. Just maybe wanted to go back to the kind of the tinkering of the completion design and apologize if I missed this, but did you say or do you intend on maybe pumping or increasing sand loading to about 1,500 pounds or so per foot or do you think the level that you're at currently, 1,300 pounds or so makes sense?

[R. Scot Woodall:]

Right now, all we've pumped is something that is in that 1,200 plus type of a range. I think pinning those results is we make decisions of whether or not you go larger or not. And so I think we've got to get a little bit of that data in. So I don't think we have anything at 1,500 planned for the immediate future.

[Gabriel J. Daoud:]

Gotcha. That's helpful. That's all I had. Thanks guys.

[Operator:]

Our next question comes from the line of Brian Corales with Howard Weil. Your line is now open. Brian Michael Corales - Scotia Capital (USA), Inc. Hey, guys. Just a couple questions. Can you maybe talk about – I'm assuming we're just going to have one rig going through 2016. Can you talk about – was this a good proxy for your quarterly CapEx number or should we see that coming down?

[R. Scot Woodall:]

I hate to probably get that specific, Brian, today. But in the third quarter, you've got a little bit of noise with Utah spending. So we did go out there and complete, I think, three East Bluebell wells. And then so we've got a little bit of that dollars that flows through there, but outside of that you would just have the one rig, DJ Basin in there. Brian Michael Corales - Scotia Capital (USA), Inc. Okay. Now that's good enough to start. And then, on the Uinta, has this data room been open for a while? Because it seems like if you could potentially have something announced at year-end, that's relatively quick process?

[R. Scot Woodall:]

No, the data room is not open yet, Brian. But we have been working with the advisor for a period of time. And so, do expect that it will open very shortly. Brian Michael Corales - Scotia Capital (USA), Inc. Okay. And so, but, you still could have a deal announced at year end, or by the year end.

[R. Scot Woodall:]

That's what – yeah, that's the expectations that the company has put forward to the advisor. Brian Michael Corales - Scotia Capital (USA), Inc. Okay. Okay. And one final question, more, I guess, granular. we've seen some other companies now like increase proppant count in the Niobrara and I saw you all tested the 1,200 pounds per foot. Are you all still continuing to test higher levels?

[R. Scot Woodall:]

We haven't done anything past 1,200 yet, Brian, but it seems like, the industry seems to be trending a little bit larger. So I think we'll kind of look at all that data and think about our go-forward plans. Brian Michael Corales - Scotia Capital (USA), Inc. Okay. That's all from me. Congratulations.

[R. Scot Woodall:]

Thanks.

[Operator:]

Our next question comes from the line of David Beard with Coker Palmer (sic) [Coker & Palmer]. Your line is now open. If your line is on mute, please unmute. If you phone is on speaker phone, please lift your handset.

[David Earl Beard:]

Good morning, gentlemen. Can you hear me, okay?

[R. Scot Woodall:]

Sure.

[David Earl Beard:]

Was wondering if you could give us some color on the effective Uinta on your credit line, only because it has a decent amount of reserves, but you're bringing more DJ reserves online. Whole bunch of moving parts there, so any color you could give would be helpful.

[Robert William Howard:]

We're probably a little early on determining exactly what it would be to the credit line, David. It certainly – the proceeds would be well above what we would expect to get from any reduction in the credit line. Meanwhile, as we get through the end of the year, as we think we've seen in the mid-year reserves, we've added PDP reserves in the DJ Basin and continue to get good results there, and that's driving more and more of the credit line. So, I don't want to put ourselves in this spot or throw the banks on the spot as to what that number may be at this point in time. But as we roll it out, that's something we will be looking at, and that'll be part of the evaluation we look at as to whether or not the proceeds are adequate to justify the sale between the cash flow and the credit line and just what it means to the overall company. Just a little too early to kind of throw numbers up in the air on that one.

[David Earl Beard:]

Nope, I totally understand and appreciate it. Thanks for your time.

[Operator:]

Our next question comes from the line of Drew Venker with Morgan Stanley. Your line is now open.

[Drew E. Venker:]

Morning, everyone. I was hoping you could maybe – I'm sorry if I missed it, but hoping you could talk about how you're thinking has changed on Uinta and I think of selling that asset. In the past it's been something you weren't as open to. Can you just walk us through how your thinking's changed?

[R. Scot Woodall:]

Sure, I think what we've always been messaging, Drew, that as the confidence continues to improve in our Northeast Wattenberg position it makes a lot of the other assets in the company non-core. And so, it's been kind of a methodical process I would probably say over the last year or so that, as the confidence and the results keep coming through in the Northeast Wattenberg area, it makes us say Piceance Basin doesn't compete for capital; West Tavaputs doesn't compete for capital. And now we're kind of putting Utah in that same place that in the current commodity forecast and with the rate of returns and the results that we're getting out of the Northeast Wattenberg, Utah also doesn't compete for capital. And so in today's environment it seems like that we've got good use of those proceeds, either to continue to fund development in the Northeast Wattenberg, to maintain our liquidity and do things. And so that's led to this type of a decision that we're announcing today.

[Drew E. Venker:]

And Scot, is there anything else in the portfolio that also maybe would be worth more to someone else beyond the Uinta?

[R. Scot Woodall:]

Well, there isn't much left. After doing the vertical, DJ production that we're doing now in Utah, we really have become a company that's just strictly focused on that Northwest Wattenberg.

[Drew E. Venker:]

Okay. Thanks for the color.

[Operator:]

At this time, I'm showing no further questions. I would now like to turn the call back over to Larry Busnardo for closing remarks.

[Larry Busnardo:]

Thanks again for joining us today on the conference call. I understand it's been a long week for many of you with earnings, so we appreciate you joining us. Please feel free to give us a call if you have any additional questions. Thanks.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You now may disconnect. Everyone, have a great day.