Talos Energy Inc.
Q2 2017 Earnings Call Transcript

Published: 8 Aug 2017

[Operator:]

Good morning. My name is Sarah and I'll be your conference operator today. At this time, I would like to welcome everyone to the Stone Energy's Second Quarter 2017 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Jim Trimble, CEO and President, you may begin your conference.

[Jim Trimble:]

Thank you, Sarah, and welcome to Stone Energy second quarter 2017 earnings conference call. I'm joined by Ken Beer, Executive Vice President and CFO. First Ken will read the cautionary forward-looking statement and then he will review our financial performance for the quarter. He will then give the floor back to me to provide an operational update and to discuss the adjustments we've made to our operating philosophies, cost structures and which we believe places in the path for profitable growth. Ken?

[Kenneth Beer:]

Thank you, Jim. Let me first read the forward-looking statement. In this conference call, we may make forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. These forward-looking statements are subject to all the risks and uncertainties normally incident to the exploration, development, production, and sales of oil and natural gas. We urge you to read our 2016 Annual Report on Form 10-K and our second quarter 10-Q for a discussion of the risk that could cause our actual results to differ materially from those in any forward-looking statements we may make today. In addition, in this call, we may refer the financial measures that may be deemed to be non-GAAP measures as defined under the Exchange Act. Please refer to the press release we issued yesterday for a reconciliation of the differences between those financial measures and the most directly comparable GAAP financial measures. With this, we'll assume that everyone has seen the press release and the 10-Q that was filed yesterday and the attached financials. Accordingly, we'll focus on the financial and some of the key financial operational highlights. As you know we implemented fresh start accounting in the February, so the second quarter financial statement format continues to show the press as versus successor results as of March 1, 2017 which had some complexity to our presentation. Our second quarter result showed a net loss of $6.5 million or loss of $0.32 per share. This quarter was fairly been as we did not incur ceiling test write-down and there was no impact from Appalachia. However, we did include $8.7 million charge for workforce reduction and employee severance charges and we recognize a $4.2 million non-cash derivative income in the quarter. Discretionary cash flow for the quarter was $32.4 million, around $1.62 per share, driven primarily by greater than expected production and lower cost. Production for the second quarter which excludes obviously Appalachian volumes with 20.6 thousand barrels equivalents per day which was the upper end of our second quarter guidance of 19,000 to 21,000 barrel equivalents per day. In the third quarter, we planned for one week a schedule downtime at Pompano to remove the platform rig and to reinstall living quarters during the month of July, which will affect third quarter volumes. We do not have much production related CapEx planned to the third quarter, so we expect our base volumes to decline slightly. Clear forecasting, third quarter volumes to be in the 17.5 thousand to 19.5 thousand barrel equivalents per day which includes the week of downtime at Pompano, some natural declines and no projected weather downtown. Our crude in NGL liquids totaled 77% of our second quarter volumes with gas at 23% and we would expect this oil to gas proportion to remain fairly constant for the rest of the year. Regarding pricing, our oil price realization was $47.49 per barrel and our hedges added about $1.3 million in additional cash realization for the quarter. Remember we've adopted mark-to-market hedge accounting, so both the current cash and the future non-cash benefit or reduction from our hedges runs through the derivative income or expense volume. I gas price realization was $2.56 per Mcf, which was below the Henry Hub index as the premium price for our liquids rich cash was offset by few yields and shrinkage. On the cost side, we continue to show attractive LOE - Boe for Gulf of Mexico properties. Our LOE was just under $9 per Boe for the second quarter, which included $6 million of planned major maintenance. And we have lowered our full year LOE guidance to a range of $62 million to $68 million for the year, which includes a similar level of planned maintenance major maintenance for the third and fourth quarters. Transportation processing and gathering expense totaled $1.8 million for the quarter. We expect TP&G expense to approximate $1 million to $1.5 million per quarter for the rest of the year as the go for Gulf of Mexico cost for TP&G are significantly lower than the historical Appalachian cost. Our DD&A rate for the quarter was down to $17.22 per Boe and we expect the DD&A rate to run between $17 and $19 per Boe for the remaining quarters of 2017. Our SG&A of $18.5 million included $8.7 million in Ref, reduction and force, and severance charges but excluded about $1.4 million in capitalized SG&A. We expect our quarterly SG&A cash run rate to be around $11 million or 12 million by the fourth quarter with about 16% of that capitalized. Our other operational expenses for the quarter totaled $1.9 million and included - which included a $1.7 million stacking charge for the platform rig at Pompano, which was waiting demobilization and which was ultimately completed in July. We expect an additional $500,000 of related rig stacking charge - rig stacking expenses to hit the third quarter. Reported interest expense for the quarter was approximately $3.6 million with another $1.1 million of the interest capitalized as the restructured balance sheet has $236 million and that - primarily the $225 million of 7.5% secondly notes due in 2022. And we expect this interest to remain pretty static for the remaining quarters of the year. Regarding taxes, we only expect to pay a minimal amount of cash taxes for 2017 tied to the gain on the sale of Appalachian assets and restructuring gains. We had approximately $130 million in NOLs after our margins and we expect to generate an additional tax NOLs during the remainder of 2017. Additionally, we expect to collect federal income taxes - income tax refund of about $26 million over the next few quarters, which will certainly help our care position. Our CapEx for the second quarter was approximately $25 million or $62 million spent through six months, much of it tied to the abandonment operations at Amethyst and other P&A projects. Our portion of drilling the Rampart Deep exploration well was about $4 million for the quarter before the reimbursement of lease costs which will offset CapEx. There are several P&A projects which are scheduled for the second half of the year although some of that P&A spending may ultimately roll into 2018. Our 2017 Board authorized CapEx budget remains at $181 million. At June 30, we had just over $200 million an unrestricted and a little under $50 million in restricted cash for P&A expenditures and $150 million borrowing base remained undrawn except for our $12.5 million in LCs. So we have plenty of near term liquidity and we're fully compliant with all of our financial covenants under the credit facility. Our next borrowing basically the termination is due on or before November 1, 2017. I believe that wraps up the financial overview. And with that I'll turn it back over to you Jim for your comments.

[Jim Trimble:]

Thank you, Ken. As Ken highlighted, we're back on our feet and have a number of initiatives that we are moving forward. We completed the Mt. Bona well in April and it is currently producing 850 Boe per day into the Pompano facility. Drilling operations on the Rampart Deep well are ongoing and we're eagerly awaiting its drilling results which we expect later this month. These results could have an impact on our progress the Derbio prospect later in the year. Beyond Rampart, we also have a handful of development projects around the Pompano and Amberjack platforms that we're evaluating including assessing the benefits of drilling them out Pompano prospect with a floating drilling rig. We're also evaluating several lower risks exploration prospects where we have a multiple partners. Our teams have been refocused on targeting areas within the Gulf of Mexico to better leverage our assets, our seismic coverage and our technical talents. In this environment, we are focused on taking a lower working interest and more projects to spread out our risk, whether it be operated or non-operated. The cost of drilling and services has reduced significantly and there are a number of projects that look attractive in the $50 oil. We're also looking at Gulf of Mexico property acquisitions to help balance our producing portfolio from the concentration at Pompano and Amberjack. As noted earlier, our balance sheet is in good shape with over $200 million unrestricted cash and $236 million a long term attractively priced debt. We have no draw on our $150 million boring except the $112.5 million in letter of credits. We have taken the painful step from getting our SG&A in line with our reduced size and expected the SG&A will be less than 12 million of cash outlay per quarter. We are planning for a $50 oil and want to be profitable in this lower price environment. Our management team and our board have been very active and involved since March and our focus on shareholder return. Accordingly, we continue to review very strategic and tactical options. As it has been for many and I understand this has been a difficult time for Stone. However through a series of tough decisions, we have strengthen our balance significantly and improved liquidity, right sized the company and positioned ourselves to move forward. We appreciate your interest in Stone and thank you for participating in the call this morning. With this, we're now happy to take any questions.

[Operator:]

Thank you. [Operator Instructions] There are no questions at this time. Presenters, I'll turn the call back over to you.

[Jim Trimble:]

Thank you, Sarah. I appreciate it and thanks everyone for calling in this morning and we'll look forward at the next quarter. Thanks. Bye.

[Operator:]

This concludes today's conference call. You may now disconnect.