HighPoint Resources Corp
Q4 2015 Earnings Call Transcript

Published: 2 Mar 2016

[Operator:]

Good day, ladies and gentlemen. And welcome to the Fourth Quarter and Year End 2015 Bill Barrett Corp 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. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the conference over to Mr. Larry Busnardo, Senior Director of Investor Relations. Please go ahead.

[Larry Busnardo:]

Good morning. And thank you for joining us today for the Bill Barrett Corporation fourth quarter and year end 2015 earnings conference call. Joining me today are Scot Woodall, Chief Executive Officer; Bob Howard, Chief Financial Officer and Bill Crawford, Senior Vice President, Finance and Treasury. Before we begin today, I need to remind everyone to read the disclosure statements provided within the forward looking statements of our earnings release posted to the homepage of our website at billbarrettcorp.com. You can also find and review these disclosures as they're referenced in our other filings with the SEC or in our 10-K which was filed earlier today. These documents can also be found our website or at sec.gov. With that short introduction, I will now turn the call over to Scot Woodall. Scot?

[Scot Woodall:]

Good morning. This past year presented a unique set of challenges as oil prices plunged to levels not seen for over a decade. We successfully responded by executing on our operational objectives and focusing on the items within our control. Although oil prices have further weakened since beginning of the year, we remained well positioned to endure this price environment. Importantly, we entered 2016 with a $129 million of cash, a hedge book worth approximately $136 million and undrawn credit facility with a borrowing base of $375 million. While it is difficult to know when or if we will see a recovery in oil prices this year, our priority will be to protect our balance sheet and liquidity to ensure that we retain operational and financial flexibility. We would discuss our 2016 business plan in more details in a few minutes. Last week the company announced that it underwent a broader workforce reduction to align its employee base and G&A cost structure. This was not an easy decision but unfortunately it was a necessity. As we along with the entire industry are experiencing the effects of a prolong period of low prices. Including this process was several members of our senior management team including Bob Howard. As you know, Bob is the consummate professional and has been an integral part of the Bill Barrett Corporation since its inception. I'd like to thank Bob for his leadership, contribution and dedicated service during his time with the company. He has been instrumental to our success and wish him all the best in his future endeavors. We also announced the appointment of Bill Crawford to the position of Senior Vice President, Treasury and Finance. Bill joined the company 12 years ago and has given his diverse finance and background has served in positions of increasing responsibility including most recently as Vice President of Finance and Marketing. He will be assuming the primary financial reporting responsibility. I have worked closely with Bill over the past several years and I have complete confidence in his abilities as he takes over his new assignment. I am sure you will all get chance to meet Bill in the upcoming months as we participate in various conferences and meetings. Now I'd like to make a few comments about 2015 results. We entered 2015 focused on execution and delivering operational results. Our operations team delivered and exceed all operating metrics for production, lease operating expense reduction, capital cost reduction and also our safety environmental target. My congratulations to the entire team. Bob will expand on our 2015 results in a little bit more detail in a few minutes. Now I'd like to spend a moment talking about or DJ Basin program. We continue to be pleased with the early results of our XRL development program in the NE Wattenberg field. We have gathered and analyzed significant geologic and reservoir data over the past year that continue to support our geologic modeling across the acreage position. This data has been utilized as we incorporate slightly modified drilling and completion concept to optimize drilling and completion technique while balancing cost to capture the best return and results in the current commodity price environment. Significant improvement has been made since the inception of the development program, the extended reach lateral development program. Drilling and completion cost have reduced, LOE is reduced and EURs have improved. In terms of activity status update, there are presently 17 wells that are currently in a flowback operation. This includes two four- wells extended reach lateral pad and ten -well pad that has nine extended reach lateral wells on it. We've recently finished stimulating a 16 wells drilling spacing unit, 15 of those wells are extended reach lateral. Those wells are in the process to be placed on flowback as we speak. Additionally, we've completed drilling of an 8 well extended reach lateral drilling spacing unit and will commence completion operations this month. In summary, while it is too early in the development cycle, we believe our DJ Basin asset is high quality and provide a large, multiyear inventory of drilling opportunities. Next let me touch on our yearend reserve report. We ended 2015 with proved reserves of 84 million barrels. This was down from a year end 2014 as we maintain a conservative stands in adding PUD locations given the current commodity price environment and assuming a planned reduction in future activity level based on forecasted commodity prices. We only added wells that were in the process of being drilled at year end 2016 and no new un-drilled locations were added to the PUD inventory of reserves. Bill will cover the 2016 guidance in detail in a few minutes, but I want to add a couple of comments. We've set a capital budget of between $100 million and $150 million with production of approximately 5.8 to 6.2 million barrels of equivalent. I believe this capital program provides us the maximum operational flexibility for the current commodity price environment. At the low end, we will complete all the wells that we've drilled to date and drill no additional wells, while high end assumes a resumption of drilling activity during the second half of the year. Importantly, the production guidance only assumes the completion of the well that has been drilled and was not being impacted by the timing of when drilling activities resume. To summarize, I am pleased that we have designed the capital program that is significantly lower than 2015 and will allow us to maintain production flat with 2015 level. And importantly, this plan has a 2016 production exit rate essential flat with the 2015 exit rate pro forma for the asset sales. In summary, I think we are in a position to navigate the challenging -- the challenges facing our industry. We maintain a strong balance sheet with a meaningful cash and hedge position and ample liquidity that puts us in a good financial position as we move forward to 2016. Our 2016 plan favors protecting our long-term financial position. I'll now turn the call over to Bob Howard to review our 2015 results.

[Bob Howard:]

Okay. Thank you, Scot. We posted good financial results for another quarter that would generally in line or better than our guidance and consensus estimates. Production volumes, earnings, cash flow and EBITDAX were all better than consensus estimate. I'll touch on the 2015 highlights before turning the call over to Bill Crawford to discuss 2016 guidance and our financial position. During the fourth quarter, our continued focus on operational efficiency and doing more with less was demonstrated by capital expenditures and lease operating expenses coming in lower than third quarter levels. Scot mentioned we continue to operate in a very challenging environment due to low oil and natural gas prices. However, the company remains in a strong financial position as we maintain a significant cash balance and an undrawn revolving credit facility which provides us solid liquidity to withstand what is turning out to be a prolong downturn. I'll provide a summary of our results and highlight some of the key achievements for the fourth quarter. We reported adjusted net income of $0.07 per share which came in better than consensus estimates. A reconciliation of reported net income to adjusted net income can be found near the end of our press release. Discretionary cash flow is $1.10 per share or 4% above consensus estimates and EBITDAX was $68 million which was slightly better than consensus. Fourth quarter production volumes of 1.7 million barrels of oil equivalent was 20% higher than the fourth quarter of 2014 and flat to the third quarter of 2015. A fourth quarter production mix was 65% oil, 19% natural gas and 16% natural gas liquids. Fourth quarter oil volumes of 11,850 barrels per day were 14% higher on year-over-year basis. DJ production of 13,840 barrels of oil equivalent per day was 55% higher on year-over-year basis. While DJ Basin oil volumes of 8,260 barrels per day were 51% higher than the fourth quarter of 2014. For all of 2015, production of 6.6 million barrels of oil equivalent exceeded our full year production guidance of 6.3 to 6.5 million barrels of oil equivalent and was approximately 16% above the mid point of our initial guidance. That represents very good work by operations team. Unhedged oil price differentials in the fourth quarter averaged $6.61 per barrel less than the WTI benchmark price of $42.18 per barrel. This was a 14% sequential improvement. The DJ Basin oil differentials average $6.42 per barrel less than WTI price which was also 14% sequential improvement. We steadily reduced cash operating cost during 2015 and this continued into the fourth quarter. Total cash operating cost averaged $6.54 per barrel of oil equivalent which was 21% reduction from the third quarter. These operating expenses averaged $4.70 per Boe and were 17% lower than the third quarter primarily the result of increased operating efficiencies and lease operating cost reductions in both the DJ Basin and Uinta Oil project. Reflecting this improvement, full year lease operating expense of $43 million was 4% below the midpoint of our guidance range and 10% below the midpoint of the initial guidance. We narrowed our operational focus to our core oil development assets by selectively divesting several non core assets during 2015. These were opportunistic and strategic sales that garnered attractive multiples of forward operating cash flow despite a depressed commodity price environment. The sales generated aggregate net proceeds of approximately $123 million during 2015 of which approximately $58 million was completed and received during the fourth quarter of 2015. Capital expenditures for the fourth quarter were approximately $45 million and total $287 million for the full year 2015 or 10% below the midpoint of guidance. This included approximately eight net extended reach lateral wells spud during the fourth quarter and approximately 14 extended reach lateral wells spuds during 2015. I'll reiterate Scot's message that the company is well positioned in the current environment. Our balance sheet, liquidity and hedge positions are solid and positions us favorably in today's uncertain environment. With that review I'll now turn the call over Bill Crawford to discuss our 2016 guidance and our financial position.

[Bill Crawford:]

Thanks you, Bob. And good morning. I'd like to start with our capital plan which we've designed to provide operational flexibility and to more closely align capital expenditures with expected cash flow as we protect the balance sheet and our liquidity position. We believe that this is the prudent approach in the current commodity price environment. We've set a budget of $100 million to $150 million which is approximately 55% below 2015 spending level. This represents one rig drilling program a portion of the year to drill up to 20 XRL wells in the NE Wattenberg. As Scot mentioned, we recently release the rig after drilling four XRL so far this year. We are providing a wide capital guidance range to provide flexibility to either resume drilling during the second half of 2016 or defer activity based on industry conditions in the latter half of the year. We expect that capital expenditures will be funded by cash flow from operations and cash on hand. We expect our first quarter spending to total $55 million to $60 million which includes the completion capital associated with 2015 drilling activity. Completion activity will continue into April and May as we complete the 24 wells Scot just described earlier. Now 2016 production is expected to total 5.8 to 6.2 million barrel equivalent. At the midpoint, this represents a production level that is slightly higher than 2015 pro forma production of 5.9 million barrel equivalent. We also expect a comparable proportion of oil as 2015 about 65%. First quarter 2016 production is expected to average 1.3 to 1.4 million barrel equivalent which is lower than the fourth quarter primarily due to the closing of the non core asset sales Bob just mentioned as well as a minor impact from our most recently announced ten-well pad. An important distinction to our plan is that we expect production to be higher in the second half of 2016 as completion and flowback operation that are planned on the 16 wells DSU and the eight well DSU. Both of which are expected to contribute to second half volumes once peak oil rates are achieved over the summer. As Scot mentioned we expect that our fourth quarter 2016 exit rate will be comparable to our fourth quarter of 2015 exit rate. Also when you do the math on that production profile, you will see 20% to 25% increase from the first quarter to the fourth quarter of 2016, which positions us relatively well as we look into 2017. Now the timing of bringing the rig back in the second half of the year is completely discretionary. We want to emphasize our operational flexibility. We have now material expiring acreage, we have no drilling commitment, we have no marketing commitments to fulfill and we have relatively shallow corporate decline rate. All of which provide us the ability to defer growth to a time when the commodity price recovers. As Scot mentioned earlier in addition to the well level capital reductions we've seen, we've also improved some of our operating cost metrics for 2016. First, we project that LOE will be $33 million to $36 million, which is approximately $5.50 to $6 per Boe at the midpoint of production guidance. This is a 20% reduction from 2015. We accomplished this as a result of increased operational efficiencies and cost reductions in both the DJ Basin and UOP. We continue to challenge our ops team for further improvements to reduce cost and improve margins. Secondly, when excluding non cash and incentive comp expense, our cash G&A is expected to be in the range of $31 million to $34 million. This is a reduction of approximately 25% from 2015 and it was accomplished primarily through workforce reduction. On the revenue side, we expect that DJ Basin oil differentials will average approximately $6 to $6.50 per barrel from WTI. For UOP, we expect the oil price differential to be $7 to $7.50, both of which are comparable to the fourth quarter of 2015. Now on to the balance sheet. We entered 2016 with a $129 million of cash which is higher than the $113 million balance we had at the end of the third quarter due to the closing of the non core asset sales. We remained undrawn on our $375 million credit facility and have $349 million in available capacity after taking into account the $26 million Letter of Credit. Lastly and most importantly, we have no near term debt maturity. The semi-annual borrowing base re-determination for our credit facility will be conducted later this month. Based on preliminary discussions with our lenders and an internal review of our year end reserves and hedge position, we believe that our reserves support nearly $350 million of loan collateral value. However, as our lenders are facing increased regulatory scrutiny and are reducing price decks, we are planning that the borrowing base could be reduced by about 10% more. Now our operating cash flow is protected by an underlying hedge portfolio were approximately 65% of our 2016 oil production is swapped at a price of $80.47 WTI. We also have nearly 700,000 barrels swapped in 2017 at $75.61 WTI providing even further protection. In summary, as we look ahead to what appears to be another challenging year, we have ample liquidity and a strong property base to navigate the current commodity price environment. Combining our reduced capital activity with our cash on hand and hedge book, we do not forecast the need to draw on the credit facility during 2016. In fact, we project that our cash position is more than sufficient to supplement our operating cash flow and capital spending plans well into 2017 or later. While it is difficult to determine where oil prices will be later this year, we retain the operational and financial flexibility to adapt to a changing environment. This concludes our prepared remarks. Operator, will you please open the call to questions.

[Operator:]

[Operator Instructions] And our first question comes from Brad Carpenter of Cantor Fitzgerald. Your line is now open.

[Brad Carpenter:]

Hi, thanks and good morning, everyone. Before getting to my questions I just wanted to say Bob congrats on your career with the Barrett group and it has been great working with you. And I hope I have a chance to do so again soon.

[Bob Howard:]

Thanks, Brad.

[Brad Carpenter:]

And then I guess Scot or Bill my first question is on your 2016 production guidance. Appreciate your comments in the prepared remarks about the second half being higher than the first half. But I was hoping you can provide us with a bit more detail. Should we be looking for sequential declines in the first two quarters of the year and sequential increases into year end?

[Scot Woodall:]

No. It's pretty much flat the first two quarters is what I would say Brad. And then you will see the rise started in the third quarter. And it's really the timing of those -- those 24 wells that already all been drilled so really it's just as that production comes online.

[Brad Carpenter:]

Okay and then for your 2016 exit rate to match your 2015 exit rate, does that assume you resume drilling in the back half of the year and if so what's the price trigger we should be thinking about from WTI perspective.

[Scot Woodall:]

No. The production guidance is totally independent of second half capital spend. So even if we do not put the rig back to work we will be in that production guidance range and achieve that flat exit rate of 2015 to 2016.

[Brad Carpenter:]

Okay. All right. That's helpful. And then my second question relates to the press release from January. As we haven't had the opportunity to discuss in an open forum, I guess with half the peak oil rate of earlier wells is it fair to say that the ten XRL on the southern acreage are underperforming. So my question is what gives you the confidence to continue drilling on the southern portion of your acreage in a reduced capital spend environment?

[Scot Woodall:]

Well, there is a lot of reason. One, our geology team has done tremendous amount of work on the south and the south has just as good as geologic in reservoir characteristics if not better than some of the acreage that we have to the north. When we are drilling 640 acre wells actually the 640 acre wells in the south outperformed the 640 acre well to the north. And then we have a real good data point that we don't talk about very much but the most southern well that we've drilled on our acreage position as a single XRL well that had no gas lift, it was done in 40 stages, the old sliding sleeves and it is a great actually producer and so when we think about applying the new completion techniques as we evolved over the last 18 months, would calculate out to a pretty high EUR probably exceeding our expectations. So there are a number strong data points and indicators that want us to continue to drill and to complete well across the entire acreage position.

[Operator:]

Thank you. And our next question comes from Brian Corales of Howard Weil. Your line is now open.

[Brian Corales:]

Yes. Just maybe follow up on that last question on the acreage. Is there a big variation from your western acreage versus your eastern acreage?

[Scot Woodall:]

There is definitely a little bit and probably more in the southeast corner Brian or maybe you as kind of the reservoir characteristics may fall off a bit. I think it's little early; we haven't really drilled much down there. But blanketly west to east we see a pretty much the same as probably just the little bit as you go south to east, you may see a little deterioration.

[Brian Corales:]

Alright. I got two other quick ones. I think -- is it still up on the block, can you maybe comment there?

[Scot Woodall:]

Sure. So we went through the process and obviously I think the strip moved away from us pretty hard while that data room is open, we did get a number of bid, we view those bids kind of unacceptable. So maybe that's the old rumor thing you guys write about all the time about the spread in the bid ask, so maybe we had a spread in the bid ask there. There are several parties that continue to want to have discussions with us and so we continue those discussions but nothing definitive there so we are acting like we own it, we are out there operating it and cutting lease operating expenses and doing all right things.

[Brian Corales:]

Okay. And then one other. You mentioned corporate decline rate, can you -- would you mind sharing that with us. Your corporate decline rate for the company.

[Scot Woodall:]

Sure. The way we look at things, if you look at PDP of 2015 over PDP of 2016 and I am pro forma this for the asset sales, it's about 20% of oil company.

[Operator:]

Thank you. And our next question comes from Jason Wangler of Wunderlich.

[Jason Wangler:]

Hey, good morning. I was just curious on the completion side in the DJ, is that anything you're going to time or is it just simply going to be getting out there as quick as you can and bringing all the wells online?

[Scot Woodall:]

No. We are just going to go ahead and bring them online. So the 16 well pads has been fracture stimulated and then the process of running the tubing and getting them on production and all that kind of stuff so those should come online over the next few weeks. And then the drilling rig just moved off of the eight well drilling spacing unit and so we are building some production facilities and we should commence fracking sometime this month.

[Jason Wangler:]

Okay. And maybe just in the Uinta since, at least for now, as you mentioned you're going to kind of own that, is there much -- I know there were a couple of wells in the fourth quarter. Is there much spend in that area for 2016?

[Scot Woodall:]

No. We are not really forecasting much spending there at all.

[Operator:]

Thank you. And our next question comes from Neal Dingmann of SunTrust. Your line is now open.

[Neal Dingmann:]

Good morning, guys. Just a couple of questions. Scot, first just obviously that slide where you guys talked about the cost reductions, amazing, I think you're down to 4.75. Your thoughts on a go-forward this year? Is there some things you can continue to sort of peel out of there or what are you thinking on a well cost basis?

[Scot Woodall:]

It sure looks like that we've got room to drive those even lower. I think our team is pretty optimistic, there is another 5% or 10% that's fits out there that we should be able to capture even in the well that are in progress right now .

[Neal Dingmann:]

Okay. And then just two more quick. I think you or Bob mentioned just on the spacing to make sure on -- I think you said about the 16 unit. Can you talk more on what you think sort of spacing after obviously the ducks that you have now, how you all think about the spacing on a lot of that acreage down there, down south?

[Scot Woodall:]

I think the well there in the ground are probably going to provide a whole lot more insight to things and so I think that's something that we'll have a better view on in a few months. We've drilled some 88 acre stuff, we drilled some 68 acres, we drilled some 53 acres and we've drilled some 40 acres test points and so I think we've got to have little bit more production history to really start drawn a whole lot of conclusion.

[Neal Dingmann:]

Okay. That makes a lot of sense. And then just lastly you mentioned about a couple of questions already on this more southern acreage, you haven't drilled as much. Any issues on infrastructure? I know some of your counterparts are more hesitant to drill some of their other acreages because of takeaway constraints. Any infrastructure -- I guess color around infrastructure around your acreage down in Greeley there?

[Scot Woodall:]

Well, obviously we are building out the infrastructure kind of as we go. And that's why you are seeing it up pretty methodical walk kind of from north to south and west to east. But I think we have enough existing infrastructure to meet at least our near-term plans.

[Neal Dingmann:]

Is this something you can -- once -- as you all continue to build that out that you'll be able to monetize or something or just not cumulative still large enough to think about doing something like that?

[Scot Woodall:]

I mean I think that's always an option that you can explore at some point.

[Operator:]

Thank you. And our next question comes from David Tameron of Wells Fargo. Your line is now open.

[David Tameron:]

Good morning. Two things. Bill, congrats on the new job. And Bob, I want to echo what Brad had said. You've always been classy and professional to deal with, so good luck in whatever your next adventure. Scot, a couple questions. The completion techniques are you -- just given the January press release, can you talk a little bit more about -- are you doing things different now? I assume some of the batch of wells that was previously drilled is being completed. With the old styles or new style, can you talk about what that looks like or maybe what it has looked like the past couple of quarters?

[Scot Woodall:]

Sure, David. And so the team continues to tweak little things. I think we are still kind of a basic design of doing Plug-and-Perf in 55 stages and about 1,000 pound of sand per lateral foot in general. Now we've done a number of other things. Some of those wells in the ten-well pad were done smaller with like 750 pounds of sand per lateral foot. Some of the other wells that we've done recently, we've done 900 on -- 900 pounds of sand per lateral foot. We have some test in the ground that are 1,200 pound per lateral foot, so you can see that we varied anywhere from 750 to 1,200 pound of per lateral foot. We've done a number of the diverter type fracs where you are using the excess type product or you are diverting fluids and sands. So we have a number of those tests in the ground. We actually just did a few well -- we are instead of doing 55 stages we did 82 stages I think on four those wells. We continue to tweak little things just trying to kind of find that right recipe. I told the group that was in here a few weeks ago. I think that just kind of part of ongoing good engineering and good geology of trying to find the right technology to apply. If you go back where we were at 18 months ago, I think we've improved very dramatically. The cost structure and the EUR and so we drilled I think 50 something of this extended reach lateral and we think we have more than 1,100 of them in our inventory. I think is right for our team to experiment and try new things. And I would like to say that everything that team does is going to work perfectly but I think they are good but they are not quite that good. And so there is probably going to be a few variations to things but I think they have designed everyone of their test in a very controlled environment. So that we learned something on every single pad.

[David Tameron:]

Okay. Do you have a favorite -- as I say, a favorite child at the moment? What's the -- I don't know if it's individualized for each section of each well, but like do you have a standard design that is your preference right now?

[Scot Woodall:]

Like say I think still that basic kind of the Plug-and-Perf and somewhere around 55 stages and somewhere around 1,000 pound seems kind of as the base and then we are just doing little tweaks after that.

[David Tameron:]

Okay. Just one more question. As far as -- I guess it's a two-part question. HBP, any issues as you pull back on the capital? What does that schedule look like? And then secondly are you able to -- does the CapEx budget -- are you able to -- do you have to go knock on center or anything, or does this include some non-op wells and keeping your acreage interest in those?

[Scot Woodall:]

Sure. So first off on your HBP question. I am assuming this is kind of directed towards the NE Wattenberg and really there is essentially none, David. I think this year I think there is one well that we need to drill this year to hold that NE Wattenberg position to gather and I think in 2017 is in that same range is like one or two wells. So clearly that doesn't drive the capital implementation decisions alright and then on non op, we are just be the kind of see how that goes. And so we have some non op dollars in our budget as we've always do and what you have to see the planned activity and see if we get like to participate or not.

[Operator:]

Thank you. And our next question comes from Steve Berman of Canaccord. Your line is now open.

[Steve Berman:]

Thanks, good morning. Just following up on the last question, how much is in the CapEx budget for non-D&C leasehold, seismic, et cetera and things like that.

[Scot Woodall:]

It is probably small maybe 10% or 15% or something like that, that would go into facilities and miner lease renewals and a little bit of G&G spending.

[Steve Berman:]

Got it. And then Scot, just one clarification. The press release says the 16-well DSU would go on flow back in April but it sounds like from your comments that are ahead of schedule. Is that fair?

[Scot Woodall:]

It could be. It's going to be next couple of weeks. So if he hits the last week of March or the first week of April somewhere in that range, yes.

[Steve Berman:]

Got it. Then one more. The DD&A rate in Q4 is $27 and chances is well down from where it had been going. What should we be thinking about that in 2016?

[Bob Howard:]

Now the reason for the DD&A rate going down was the impairment we took in Uinta basin that reduced the basis, so that therefore for the full quarter of -- that kind of represents the mix of the properties between the DJ and Uinta and the cost basis so that should be a good starting point for the DD&A rate going forward as long as we continue to hold both DJ and Uinta basin properties.

[Operator:]

Thank you. And our next question comes from David Beard of Coker and Palmer. Your line is now open.

[David Beard:]

Good morning, gentlemen. Kind of a bigger picture question related to timing of putting a rig back to work. Where would commodity prices be and what level of cash would you have on the balance sheet? Could you run through a couple of scenarios of are your commodity price dependent where you would add rigs, and is there sort of a level you wouldn't want cash to get below as you roll out into 2017?

[Scot Woodall:]

Well, David, I guess that's probably -- I probably can't give you an absolute answer because you are probably hitting in on the variables that roll into that. So clearly we are going to have looked at commodity price and obviously not just the prompt month but the next couple of years of commodity price. Probably you will also say if we were choosing to hedge those prices and how that would fit. It probably has to play into account what we think service costs are doing. And then also is that the best use of our capital drilling wells or is there other better usage of our dollar as well. So I think we are going to have to kind of weigh all those things when we make that decision. What I am excited about is at least we have that flexibility. As Bill was saying with no commitments on refineries or takeaway or holding acreage or any of those types of things that gives us that flexibility to weigh those choices.

[David Beard:]

I totally understand. It was meant to be a big picture. There's a lot of moving parts. Congratulations for steering the ship through all of these rocky waters.

[Operator:]

Thank you. And our next question comes from Pearce Hammond of Simmons. Your line is now open.

[Pearce Hammond:]

Good morning. Yes, I want to just pile on real fast and say congrats and best of luck to Bob Howard, really enjoyed working with you and best of luck as you move forward with retirement and all. I guess my first question is I was pleased with the commentary you mentioned that you think you could have like a 10% reduction in your credit facility when the re-determination occurs. I was thinking it might be a little bit more than that. What is driving that? Is it the hedges that help you out in that regard? I'd just love to get some color on that.

[Scot Woodall:]

Well, I think as we looked at our year end reserve report and all of the PDP growth that we had, it does provide strong reserve support on top of the hedge book that we have. And so I think it's just factor of the economics that we have in the play.

[Pearce Hammond:]

Okay, good. And then a follow-up on the Uinta. How should we think about the Uinta moving forward for Bill Barrett? Is that something if you've got the right number, you would certainly divest it, you just haven't seen that thus far, or is it something you could end up holding onto?

[Scot Woodall:]

I guess I'd probably say is that I think there is just always going to be better investment choices in the DJ. So I think we had prices went up and we had access to capital and want to drill wells, you probably would rather add a second, third, fourth rig in the DJ over spending in Uinta. So I think at some point Uinta exits out of portfolio. When that time is probably is where it gets little bit more unclear, but I think at some point it probably does.

[Operator:]

Thank you. And our next question comes from Jason Wangler of Wunderlich. Your line is now open.

[Jason Wangler:]

Hey, I just had one follow-up. With the cash balance where you're at and obviously your good liquidity position is there any thought about going out and buying some of the debt back? Obviously it's trading at depressed levels and I understand liquidity is a big issue but also getting debt reduction would be helpful too.

[Scot Woodall:]

Yes. It's something that we look at constantly. And obviously it is guaranteed corporate return that would be very valuable but as you said liquidity is extremely precious. So I think as we finish our borrowing base outlook and maybe take more holistic view of liability management is something we'll always consider.

[Jason Wangler:]

And is there anything in the credit facility that restricts you or is there any limits or anything? Would you expect anything like that come up when you do the re-determination?

[Bill Crawford:]

We've discussed with our lenders in general. And with cash on hand that we have and as long as we maintain a minimum liquidity cushion we are comfortable we could at least do some of it.

[Operator:]

Thank you. And our next question comes from David Tameron of Wells Fargo. Your line is now open.

[David Tameron:]

I know it's shocking; Scot, but I have a follow-up. If I think about -- but if I think about, and this goes back to borrowing base. With the hedges and with the dynamics I guess the way that they determine the borrowing base and kind of first six months of hedges, first six months of cash flows being written off, do you guys think at all about, given the cash position, about rolling forward some of your 2016 and trying to monetize those or mirror those rolling forward and do something in 2017 and 2018 to protect the out years? Is that something you would even consider?

[Scot Woodall:]

There is a lot of like you said the hedge book is an asset we have. And we know how it is timed for the cash flows we have on hand and how that protects certain get metrics through 2016. So that's probably our primary objective through that. But it is something we always again consider options to adjust the hedge portfolio.

[Operator:]

Thank you. And our next question comes from Gabe Daoud of JPMorgan. Your line is now open.

[Gabe Daoud:]

Good morning, Scot. Good morning, everyone. I just maybe wanted to go back to the 10 XRL wells down in the south. Just curious if there is a particular zone, whether the A, B, C, or the Cordell that stood out, or if it was really just again coming down to the type of completion that was put on.

[Scot Woodall:]

Those wells are -- half of them are not where B has or nor where C is, so far it looks they are performing about equally. So I can't say that. I think one is outperforming the other.

[Operator:]

Thank you. And there are no further questions at this time. I'd like to hand the conference back to Mr. Busnardo for closing remarks.

[Larry Busnardo:]

Thank you again for joining us today. Please feel free to reach out to us if you have any additional questions regarding the press release. And we look forward to seeing you at future events. Thank you

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. And you may all disconnect. Have a great day everyone.