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Denbury Resources Inc (DNR) Q1 2019 Earnings Call Transcript

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Denbury Resources Inc (NYSE: DNR)
Q1 2019 Earnings Call
May. 7, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Denbury First Quarter 2019 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Director of Investor Relations, Mr. John Mayer. Please go ahead.

John Mayer -- Director of Investor Relations

Thank you, Greg. Good morning, everyone, and thank you for joining us today. With me on the call are Chris Kendall, our President and Chief Executive Officer; Mark Allen, our Executive Vice President and Chief Financial Officer; Matthew Dahan, our Senior Vice President of Business Development and Technology; and David Sheppard, our Senior Vice President of Operations.

Before we begin, I want to point out that we have slides which will accompany today's discussion. Should you encounter any issues with slides advancing during the webcast portion of the presentation, please refresh your browser. For those of you that are not accessing the call via the webcast, these slides may be found on our homepage at denbury.com by clicking on the Quarterly Earnings Center link under Resources.

I would also like to remind you that today's call will include forward-looking statements that are based on the best and most reasonable information we have today. There are numerous factors that could cause actual results to differ materially from what is discussed on today's call. You can read our full disclosure on forward-looking statements and the risk factors associated with our business in the slides accompanying today's presentation, our most recent SEC filings, and today's news release, all of which are posted on our website at denbury.com.

Also, please note that during the course of today's call, we will reference certain non-GAAP measures. Reconciliation and disclosure relative to these measures are provided in today's news release as well as on our website.

With that, I will turn the call over to Chris.

Christian Kendall -- President and Chief Executive Officer

Thanks, John, and thanks to all of you for joining us today. The first quarter has been a remarkable reminder of both the volatility and the potential of the oil market. After entering the year at just over $45 WTI, prices have steadily climbed to above $60. Similarly, LLS opened 2019 around $50 WTI and has reached over $70 in recent days. With oil accounting for nearly all our production, these price improvements coupled with our disciplined spending program and our strong operating performance, positioned Denbury to generate significant free cash in 2019, while still making the important investments that lay the groundwork for the Company's future.

I'm very pleased with our operational performance where we maintained production essentially even with last year's fourth quarter as well as with the year ago quarter. Safety and environmental performance remained strong, reliability was high, and our key capital projects progressed on plan. We continue to test exciting exploitation concepts and expect flow test results from two exploitation wells, a low perm horizontal well at Conroe and a Cotton Valley well at Tinsley during the second quarter.

You'll recall that when we laid out our 2019 budget, we expected to generate $50 million to $100 million of free cash flow at a $50 WTI oil price. As prices have now improved significantly, we currently expect to generate free cash well above $150 million this year. We've also taken the opportunity to improve our hedge protection at attractive prices, most recently focused on 2020 production. And Mark will share more detail on that shortly.

With the additional cash flow, many investors have asked if we plan to ramp up our capital program. And we don't. We are pleased with the current program and its expected outcome in both the near and the longer term. Our disciplined approach to capital spending and the resulting free cash, provide us with flexibility as we continue to prioritize reducing debt and strengthening our balance sheet.

The fundamental driver behind Denbury's ability to generate free cash flow is our operating margin. Slide 6 shows the consistent strength of that operating margin and our oil -- industry-leading oil weighting results in the highest revenue per BOE in our peer group. While the nature of the EOR business results in a higher than average lifting cost per BOE, that lifting cost is much more than offset by higher revenue because of our high oil weighting and strong oil differentials. As an example, during the first quarter of this year, which had lower oil prices, our operating margin was nearly $26 per BOE. You'll see this effect looking back to the prior quarter as well as the year-ago quarter. The nearly one-on-one correlation of operating margin to changes in oil price is consistently evident.

Turning to Slide 7, I'm very pleased with where we stand on our 2019 capital program. Our first quarter spend was just under a quarter of the midpoint of our guided range. EOR and non-EOR investments are well balanced, as our maintenance capital and growth capital. We are on track with the Cedar Creek Anticline EOR development, with line pipe construction and coating continuing, readying us for laying pipe in 2020. Sand on Bell Creek phase six is nearly wrapped up and CO2 injection recently started in that new phase.

We expect second quarter capital spend to be somewhat higher than the first, chiefly due to our expectation that we'll incur the bulk of the 2019 CCA CO2 pipeline pipe expenditure during that quarter. In the second half of the year, we will resume our exploitation work at CCA, where we currently plan to drill up to four additional Mission Canyon wells. And as I mentioned earlier, we feel good about our prior capital guidance and see no need to adjust our plans.

Production in the first quarter was essentially even with both our fourth quarter production level and continuing production a year ago. Looking at specific fields, CCA production was flat quarter-on-quarter and up year-on-year, benefiting from both Mission Canyon performance and optimization of the water flood. Bell Creek is growing strongly, achieving a new EOR record in the first quarter, supported by strong performance from our new phase five. With strong performance across the board, we expect that second quarter production will be roughly even with the first quarter. We expect production to dip slightly in the third quarter, mainly due to typical Gulf Coast summer temperature effects, as well as planned maintenance at our primary north region CO2 source. In the fourth quarter, production should increase from the third quarter, with cooler temperatures, production from new Mission Canyon wells, completion of the north region CO2 supplier maintenance, and response from the Heidelberg Christmas horizon development.

Turning to Slide 9, total LOE have been fairly even with the first quarter down $3 million from the fourth quarter and up $7 million from a year ago. Focusing first on LOE excluding CO2 costs, the range over the past year is quite small with the fourth quarter down $4 million -- with the first quarter down $4 million from the fourth quarter and up $3 million from a year ago. Our teams continued to find ways to optimize operations and reduce costs, and the consistency of these results speaks to the strong performance and focus of our operating teams.

CO2 cost is up slightly from the fourth quarter and $4 million from the year-ago quarter. This was primarily due to a shift from capitalizing CO2 to expensing CO2, as we've completed development projects at Bell Creek and Hastings. We expect total CO2 cost to trend lower in the second half of the year. We expect overall unit LOE to be slightly higher in the second quarter, before trending lower for the second half of the year, and we still expect full year unit LOE to fall in the previously guided $22 to $24 per BOE range.

I'd like to take the next few minutes to further describe some exciting activities we have going on at Bell Creek, Conroe, and Tinsley fields. Bell Creek continues to be a strong success story. As I mentioned earlier, we reached a new EOR record in the first quarter and we expect even more growth in the second quarter. I'm highlighting this field again, because we also expect strong performance from phase six, similar to what we've seen in phase five. As we previously mentioned, phases five and six are in the best part of that field. We began injecting CO2 in phase six just last month and we expect to see first production in 2020. We also identified an untapped accumulation in the phase four area that we drilled and completed at the end of the first quarter. We're very pleased with the results that this well has produced at over 500 gross barrels of oil per day for the past month, with a low water cut. We believe we may have several more opportunities like this in the field.

In Conroe, we expect to have results in the second quarter from our first lateral and what we believe is an unswept low perm sand, the 2A sand. Historical production from this field has been highly concentrated in its higher perm sands, but our vertical wells in this 2A sand are producing at up to a 60% oil cut. Productivity of these vertical wells is limited because the 2A reservoir is lower perm and fairly thin, which is why we believe horizontal wells could be a great solution. We drilled the first of these wells early in the second quarter and saw good hydrocarbon indications all along the lateral, so we're quite optimistic about how this well will perform and more importantly, how much running room we might have with more than 20 potential locations in this sand alone and at least two other sands with similar characteristics. We also believe this exploitation concept can be applied to many of our Gulf Coast fields and our teams are conducting the technical work to prepare for next steps in this play.

At Tinsley, we continue to work on the Cotton Valley test well. You'll recall from our last earnings call that we identified over 100 net feet of Cotton Valley pay, as well as additional oil pay above the Cotton Valley interval. We'll be flow-testing the Cotton Valley interval in the second quarter and success here could lead to a broader gas condensate development with the added advantage of being able to leverage our significant Tinsley field infrastructure.

I'll wrap up by updating you on our plans regarding our mature asset sales and our Houston area property sale. As I mentioned in our last call, we adjusted our approach on the mature assets sale and are considering alternatives, including selling individual fields to targeted buyers. You'll recall that we divested the Lockhart Crossing Field in this manner in 2018. We will continue to evaluate the remaining mature properties for sale or retention and will proceed in a matter that generates the greatest value for the Company. We continue to progress the Houston area land sales, focused on achieving the greatest overall value, even though this priority has caused the process to take somewhat longer than we originally planned. Total sales to-date exceed $5 million with an additional $9 million contracted and expected to close this summer. And while still subject to negotiation, due diligence and other conditions before reaching an agreement, we've also received expressions of interest for significant portions of both the Conroe and Webster areas, reinforcing our confidence in the value of these properties. We'll continue to update you as these transactions progress.

In summary, I'm extremely pleased with where we are at this point in the year. There is more work in front of us, but we're in a good position to execute on our priorities and to continue strengthening the Company.

Next, I'll turn it over to Mark for a financial update.

Mark Allen -- Executive Vice President and Chief Financial Officer

Thank you, Chris. My comments today will highlight some of the financial items in our release, primarily focusing on the sequential changes from the fourth quarter. I will also provide some forward-looking guidance to help you in updating your financial models.

Starting on Slide 14, on an adjusted basis, first quarter net income was $45 million or $0.10 per share, slightly ahead of or in line with most analysts expectations and flat with fourth quarter earnings. This quarter, we've recognized non-cash expense of $92 million for fair value changes in commodity derivatives, which was the primary difference from GAAP net income.

Turning to Slide 15, our non-GAAP adjusted cash flow from operations, which excludes working capital changes, was $119 million for the first quarter. This was down from fourth quarter due to lower G&A and a larger current income tax benefit in the prior quarter. We generated free cash flow of $26 million in the first quarter, after considering $21 million of interest that is included as debt in our financial statements, $61 million of development capital incurred in capitalized interest. Our first quarter average realized oil price before hedges was approximately $57 per barrel, a 7% decrease from our realized price in the prior quarter. Our hedge settlements were a positive $8 million this quarter, which made our average per barrel realized price, including hedges, approximately $58 per barrel, up 4% from last quarter.

We recently completed our spring semiannual bank line redetermination and as expected, there were no changes to our $615 million borrowing base and bank commitments. Consistent with year end 2018 and at the end of the first quarter, we had nothing drawn on our bank line and our debt principal was just above $2.5 billion.

Our cash position decreased $33 million during the first quarter and on the bottom of Slide 16, we have included a cash flow forward with the major drivers. Offsetting our $119 million of cash flow from operations before working capital changes were cash outflows consisting primarily of the following. $72 million incurred for development capital, including 11 million for capitalized interest; $55 million outflow for working capital changes, consisting primarily of payment for accrued compensation and accrued ad valorem taxes; and a $22 million receivable increase due to the oil price change between December 2018 and March 2019; a $17 million outflow for a reduction in accrued capital; and $8 million for debt reduction and other items.

As we have discussed previously, it is customary for us to have a working capital outflow in the first quarter, but the effect this quarter was a bit greater with the impact of the oil price change flowing through our crude revenue receivable. Recent oil price levels put Denbury in a position to generate meaningful free cash throughout the remainder of 2019, which we now anticipate being well above $150 million for the full year, based on expected performance and recent oil futures prices. We plan to continue our disciplined focus while seeking opportunities to further reduce our leverage and extend maturities, well in front of our first maturities in 2021.

Our next slide shows the improvement in our leverage metrics over the past year. Our trailing 12 months debt to EBITDAX ratio has improved to 4.3 times, a full term better than the comparable metric a year ago. And if you exclude hedging impacts, our trailing 12 month ratio would be 3.5 times, 1.5 terms better than a year ago. We are pleased with the steady progress we have made with our leverage metrics and based on recent futures prices, we expect our leverage ratio to continue to trend down throughout 2019 to a leverage ratio of between 3.5 to 4 times.

Slide 18 provides a summary of our oil price differentials, excluding any impact from hedges. For the sixth consecutive quarter, our realized oil price was higher than NYMEX prices, averaging $1.63 above NYMEX, consistent with the prior quarter. The premium prices we receive for our Gulf Coast production weakened somewhat from the fourth quarter, but recently have regained some strength relative to NYMEX. In the Rockies, the wider differential we experienced in the fourth quarter improved throughout the first quarter, with differentials in that area improving from the minus $4 to $5 range in Q4 to the minus $2 to $3 range in Q1. For the second quarter, we expect that our overall oil differential will remain positive to NYMEX, in a range similar to the first quarter. Beyond the second quarter, recent market expectations indicate that our differential could weaken somewhat as we go through the remainder of the year.

Slide 19 reviews some of our expense line items. Since Chris already addressed LOE, I will start with G&A. Our G&A expense was $19 million for Q1, up about $9 million from Q4 as the fourth quarter included downward adjustments in estimated performance-based compensation, impacted by the negative movement in oil price and our stock price during that quarter. Our net G&A related to stock-based compensation was approximately $3 million this quarter and we continue to expect full year 2019 G&A expense will be relatively consistent with 2018, generally in upper teens to $20 million per quarter with stock-based compensation anticipated to represent roughly $15 million of our 2019 expense.

Net interest expense was $17 million this quarter consistent with last quarter. On the bottom portion of the slide, you will see there is a more detailed breakout of the components of interest expense, which shows cash interest continues to remain steady. Capitalized interest was also roughly flat at $11 million for the first quarter and we currently expect our capitalized interest to be $7 million to $9 million for the second quarter of 2019. Our depletion and depreciation expense this quarter was $57 million, a slight decrease from the prior quarter. We expect this expense will be in the $60 million range for the remaining quarters of 2019.

My last slide provides a current summary of our oil price hedges. Since our fourth quarter conference call, we have added minor additional volumes toward 2019 hedge positions, such that we now have 40,500 barrels of oil per day hedged for the remainder of 2019, representing around 70% of our first quarter oil production level. We also continue to layer in 2020 hedges with about 18,000 barrels of oil per day hedged for the year, or roughly 30% of first quarter 2019 production. For 2020, our hedges have weighted average floor prices approaching $60 for WTI and over $63 for LOS and similar to 2019, approximately two-thirds of our contracts provide for upside exposure of close to $67 for WTI and $74 for LOS. We plan to continue to add to our 2020 hedges as we deem appropriate and depending on market conditions.

And now, I'll turn it back to John for some closing comments.

John Mayer -- Director of Investor Relations

Thank you, Mark. That concludes our prepared remarks. Greg, can you please open the call up for questions.

Questions and Answers:

John Mayer -- Director of Investor Relations

(Operator Instructions) Your first question comes from the line of Charles Meade from Johnson Rice. Please go ahead.

Charles Meade -- Johnson Rice & Company -- Analyst

Good morning, Chris and Mark and the whole team there.

Christian Kendall -- President and Chief Executive Officer

Good morning, Charles.

Charles Meade -- Johnson Rice & Company -- Analyst

Chris, I wanted to ask about Bell Creek. Can you put a new map on that Slide 10 and can you talk about what the color coding we're looking at in that slide is on the right side? Whether that's permeability or what you think has been swept already? And can you talk about what it is that led you to reevaluate your -- or see this new opportunity in phase four?

Christian Kendall -- President and Chief Executive Officer

Charles, I'm actually going to have Matt Dahan answer that question in the room with us.

Matthew Dahan -- Senior Vice President, Business Development and Technology

Thanks, Charles. Yeah, the map represents basically reservoir quality, so permeability thickness. So, as you can see from the map phases five and six, better than the existing phases we've developed in the past.

Charles Meade -- Johnson Rice & Company -- Analyst

Got it. And -- I'm sorry, go ahead.

Christian Kendall -- President and Chief Executive Officer

So, I guess, it's just probably, Charles, a compilation of the overall quality that you have in the reservoir and all the different properties that you have and we're highlighting five and six in that just to bring that out and where we're focused right now.

Charles Meade -- Johnson Rice & Company -- Analyst

Got it. And so that really, I guess, is to the point that you guys expected these to be the best phases kind of all along?

Christian Kendall -- President and Chief Executive Officer

That's right.

Charles Meade -- Johnson Rice & Company -- Analyst

Got it. And then, if I could ask a question about the Tinsley field. So you guys talked about seeing 100 feet of net pay above this Cotton Valley target. Was that a traditional field pay or were you surprised to see it in your-100 feet is a big number. So, I mean, is this a 100 feet of -- maybe like 6% porosity pay that wasn't considered pay before, or what are we really -- what's the story there?

Christian Kendall -- President and Chief Executive Officer

Well, Charles, we have offset production in some of these horizons that we saw above the Cotton Valley. So I'd say, it wasn't a complete surprise. And I'd also say it's not that lower quality that you just mentioned. It's something that we think is going to be worth taking a harder look at and testing at the right time. Just as we kind of think about this well, we are -- that zone -- those zones are on top of the Cotton Valley. So we're going to focus first on Cotton Valley, but then think about our next steps on how to take a look at what we think could be some additional potential, at least based on the well logs that we've seen.

Charles Meade -- Johnson Rice & Company -- Analyst

Got it. So not at all spud, but you're sticking with the well plan for this well and this gives you more to work on?

Christian Kendall -- President and Chief Executive Officer

That's the way I see it. That's right.

Charles Meade -- Johnson Rice & Company -- Analyst

Got it. Thank you.

Christian Kendall -- President and Chief Executive Officer

All right. Thanks, Charles.

Operator

Your next question comes from the line of Mike Scialla from Stifel. Please go ahead.

Michael Scialla -- Stifel -- Analyst

Yeah, good morning, everybody.

Christian Kendall -- President and Chief Executive Officer

Hi, Mike.

Michael Scialla -- Stifel -- Analyst

Question from Mark. Mark, you had said you're looking for opportunities to reduce or refinance debt. Anything you can add there, just more on if significant debt reduction is possible this year with the excess cash or is it more likely just build that cash in advance of the upcoming debt maturities in 2021 and 2022?

Mark Allen -- Executive Vice President and Chief Financial Officer

Yeah, I guess, what I'll say is, we're going to obviously focus on opportunities to reduce our debt and continue to improve our financial condition. That has been and continues to be a top priority for us. Even though we've made great strides and improvement, we still have ways to go. And so, obviously, as we look at our 2021 maturities, our thoughts will turn to what can we do there in terms of paying down debt or refinancing debt. And so that will be top of mind as we continue to go through the year. We have capacity to do certain things. I would say, under our -- we do have some restrictions under our bank facility and whatnot in terms of how much cash we can use, I think up to $148 million under our bank facility. And so we're going to continue to look for the best ways to utilize our resources and improve our financial condition and we will consider all the opportunities that we have in front of us along the way. So that's probably as much as I can say right now, Mike, but I think it's obviously a major focus for us.

Michael Scialla -- Stifel -- Analyst

Got it. We'll stay tuned there. And then, Chris, you had said you're not going to change the capital plan at all given the -- even with the higher prices. Wondering, you had mentioned in the past that you are looking at potentially bringing in a partner to help fund the CCA pipeline and wondered if the higher oil prices have changed those thoughts at all? Are you still thinking about a potential partner there?

Christian Kendall -- President and Chief Executive Officer

Mike, I'd say that we have not changed our focus on pursuing that option of looking for a partner even with higher prices. To me, it's all about flexibility and as Mark mentioned, the market that we're in has given us some great flexibility to do some different things in our capital structure and we're going to keep looking at the best way to do that. And even in a better oil environment, it still could make sense to have a partner in some fashion on the CCA pipeline. So we're going to keep looking at that. End of the day, of course, we'll do the thing that makes the best sense for the Company. But I see that as an option that can still let us do some other good things on a bigger basis for the Company.

Michael Scialla -- Stifel -- Analyst

Yeah. Okay. Then, Chris, just had one last real high level question for you. If you look out long term for Denbury, do you think the Company remains essentially a pure play on enhanced oil recovery or can these exploitation projects become large enough to diversify the business or do you have a desire to diversify the business with something else?

Christian Kendall -- President and Chief Executive Officer

Great question, Mike. Thinking about EOR and Dendury, I would expect that the long-term future for Denbury is going to continue to be based on EOR, that's what we are graded at. We have tremendous assets, both producing now and to produce in the future. And I see that that's a niche in the industry that Denbury can continue to excel in and one that's going to be needed in the future. So I continue to look for that. At the same time, I'd like to see us continue to build shorter cycle investment options, and I think that what you've seen with us so far in exploitation and what I hope that we're able to continue to build as we go forward is, providing some of that optionality within our own asset base and then what's nice about that as well as having that short cycle investment option is, that many of these opportunities can also become EOR targets later in their life. Mission Canyon is a great example of that.

Michael Scialla -- Stifel -- Analyst

That's great. Thanks, Chris.

Christian Kendall -- President and Chief Executive Officer

Thank you, Mike.

Operator

Your next question comes from the line of Tarek Hamid from JPMorgan. Please go ahead.

Tarek Hamid -- JPMorgan -- Analyst

Good morning, guys.

Christian Kendall -- President and Chief Executive Officer

Good morning.

Tarek Hamid -- JPMorgan -- Analyst

Could you talk a little bit more about Conroe sands development program, sort of maybe just walk us a little bit through the timeline as you kind of evaluate the first well there and sort of when you would think you'd sort of start to attack some of the additional opportunities?

Christian Kendall -- President and Chief Executive Officer

You bet, Tarek. And I've mentioned that we see many opportunities in a similar fashion throughout our Gulf Coast fields, most notably in the Texas area, but we are taking it in a measured approach. Obviously, with limited capital that we have so far this year, we're drilling the well that we drilled in Conroe. We are going to flow test that, look at results of that and at least right now, we're going to continue at a measured pace, so we have in our budget one more well down here, and we expect that that would be a well that after looking at production from the first well that we could get drilled and online in the third quarter. I think from then, we'll decide the pace that we want to move on as we go into additionally into Conroe and to some of these other fields, but with some success I'd look for us to move at a faster pace going forward.

Tarek Hamid -- JPMorgan -- Analyst

And on the working capital front, can you maybe just kind of help us understand sort of how much of that increase in working capital roughly do you think is attributable to higher oil prices versus how much you'd expect to kind of get back through the course of the year?

Mark Allen -- Executive Vice President and Chief Financial Officer

Yeah. So the impact of not -- oil price move in terms of the receivable was $22 million. But what we generally see is an outflow of working capital in Q1 and then kind of building here through a good portion of the year. So net-net, we don't expect to see much of a change through working capital on a year-to-year basis. I mean, there maybe be some, but typically we see that kind of balance out through the course of the year.

Tarek Hamid -- JPMorgan -- Analyst

Do you expect most of it to come back through rest of the year?

Mark Allen -- Executive Vice President and Chief Financial Officer

Yeah.

Tarek Hamid -- JPMorgan -- Analyst

And then just last one for me. As you kind of look at sort of your various alternatives, I guess, how do you think about acquisitions at this point kind of post sort of last year's experience? Do you sort of view acquisitions as a sort of viable path to delever the balance sheet or do you think you'll likely be a little bit more tactical on a go-forward basis?

Christian Kendall -- President and Chief Executive Officer

Tarek, I think that we will continue to keep a lot of flexibility. Certainly we don't want to jump into any particular step. I think we're going to look at what's going to do the best thing for the balance sheet in the long term and prioritize that. So I wouldn't look for us to be doing something similar to what you saw with the last acquisition that we worked through.

Tarek Hamid -- JPMorgan -- Analyst

Got it, guys. I appreciate it. Thank you.

Christian Kendall -- President and Chief Executive Officer

Thanks, Tarek.

Operator

Your next question comes from the line of Richard Tullis from Capital One. Please go ahead.

Richard Tullis -- Capital One -- Analyst

Thanks. Good morning. Chris, just continuing with the acquisition thoughts there, how do you look at maybe pursuing some Eagle Ford acreage to do enhanced oil recovery projects in a smaller fashion of course than the last target, but maybe pick up some acreage to go after that? How are you viewing that opportunity these days?

Christian Kendall -- President and Chief Executive Officer

Sure, Richard. And as I mentioned in our last call, the Eagle Ford is an area that we believe is going to be the next growth platform for EOR in the US and so we think with Denbury's strong expertise and background in EOR that it makes a lot of sense for us to be there at some point. What I'd add though is that, I think that the -- in particular with the CO2 resource that we can bring to bear, that we stand uniquely alone in that. And so I don't sense urgency to get out there and do something different. I think that there will be opportunities that will show up over time, and not necessarily this quarter, this year. But something that we will keep looking for the right opportunity. And as you said, perhaps on a smaller scale or in some different manner that makes sense for the Company. But it is something that we're interested in, but not something that we sense strong urgency around.

Richard Tullis -- Capital One -- Analyst

Okay. And just lastly for me, if you could, Chris, remind us again on the rough cash flow sensitivity for Denbury to changes in oil prices, say, a $5 change in WTI oil?

Christian Kendall -- President and Chief Executive Officer

A great way to think about that is just that a $5 change in WTI unhedged will make about $100 million difference in cash flow. So you'd generally see that. If you look at the first slide I showed in the early part of the presentation, Slide 5, I believe, we show the hedge effect of that. So that impact gets lessened as we get below $55 due to the protection that we have with our hedges in 2019. And then you see it picking up to a greater extent with a $5 move up to $60. So I'd say that's a good representation of how that swings in either direction, unhedged the $5, $100 million rule holds.

Richard Tullis -- Capital One -- Analyst

Okay, that's helpful. That's all for me. Thank you.

Christian Kendall -- President and Chief Executive Officer

Thanks, Richard.

Operator

Your next question comes from the line of Sean Sneeden from Guggenheim. Please go ahead.

Sean Sneeden -- Guggenheim Securities -- Analyst

Hi, and thanks for taking the questions.

Christian Kendall -- President and Chief Executive Officer

Hi, Sean.

Sean Sneeden -- Guggenheim Securities -- Analyst

Mark, maybe just as a follow-up to Tarek's question. You mentioned the plan is to get to 3.5 to 4 times by year-end. Could you just remind us what the kind of medium-term target as we get beyond 2019 is for leverage and is that all ultimately driven by free cash flow generation or how do we kind of think about kind of what it looks like when we get beyond 2019?

Mark Allen -- Executive Vice President and Chief Financial Officer

Sure. And obviously a lot will depend on oil prices and what we're able to do. But the nice thing is, when you look the positions we've been able to layer in so far for 2020, you see us protecting at $60 level on a WTI basis and higher on LLS. And so that puts us in a nice place that we can continue to kind of stay in that range or even delever, generate cash flow that provides good levels to cover CapEx and give us flexibility and so definitely makes sense for us to do hedge there. And so, yes, we want to get below 3.5 times, but that's not our ultimate goal here or 3.5 times as we've talked about before is a kind of a critical line, especially for the banks and regulators, they like to see that on a total debt to EBITDA basis. But we have in our minds, obviously we're going to continue to improve upon that over time. And we'll continue to look at the various ways that we can do that and as we've talked about in the past, we will continue to look at all of our available resources and options here and continue the steady path toward improvement is our goal. We've always said, there's not one silver bullet that can just change everything, but if you look at what we've done over the last few years, looked at our discipline and how we are executing, I think you can see a path for continued improvement.

Sean Sneeden -- Guggenheim Securities -- Analyst

Got it. That makes sense. And I know you mentioned that the 2021 maturities are kind of front of mind in that sense. And should we interpret that as the goal to exit 2019 with some progress on that front, meaning that the current cap structure that we see today is not exactly what we see by year-end or how should we kind of think about that?

Mark Allen -- Executive Vice President and Chief Financial Officer

Yeah, we don't have a gun to our head to do anything, but we're going to look and study all of the options we have here with our first maturity is May 2021. Obviously on the second lien front, there is some call premiums that step down late in the year, that will make it less costly to do something at that point in time. But that doesn't mean we won't consider other things and watch the markets in the meantime and look for the best opportunities for us to attack those things. So I would say, it's -- like I said, it's in top of our mind and we're going to continue to watch for the opportunities that we have to do those type of things to either extend maturities, pay down debt, as it makes sense for the Company.

Sean Sneeden -- Guggenheim Securities -- Analyst

Got it. That's helpful. And then just two quick housekeeping questions. Did you mention the unsecured repurchase basket, was that $148 million number you had thrown out before?

Mark Allen -- Executive Vice President and Chief Financial Officer

That was actually the -- yeah, that's the limitation under our credit facility today is remaining basket that we have $148 million in cash.

Sean Sneeden -- Guggenheim Securities -- Analyst

Perfect. And then just lastly, could you remind us the well costs for the Conroe wells you're drilling?

Christian Kendall -- President and Chief Executive Officer

That's about $3 million, Sean.

Sean Sneeden -- Guggenheim Securities -- Analyst

$3 million. Perfect. Great. Thanks so much, guys.

Thank you.

Operator

Your next question comes from the line of Joe Beninati from Oppenheimer. Please go ahead.

Joe Beninati -- Oppenheimer -- Analyst

Hey, guys, thanks for all the comments this morning. I'm going to ask you a quick question on Bell Creek. I guess, I was just wondering if you guys could have -- provide any more detail on volumes related to phase six and then if there's any rough timelines that you guys have in mind for future development?

Christian Kendall -- President and Chief Executive Officer

The way I'd think about future development at Bell Creek, Joe, is, so we have phase six and that is going to look, in many ways, similar to phase five in terms of the timing of the construction and then the time of injection before we see first oil. Right now we expect to see oil production in 2020 and we expect, if you step back a bit, I expect that you'd see Bell Creek production continue to grow into 2020 with that phase ramping up. The field has nine designated phases and this would have only been the six of those and we'll continue to look at which steps to go with next there, but we do have additional areas of the field that we can continue to develop. And that's something that I think could take place over time past phase six here.

Joe Beninati -- Oppenheimer -- Analyst

Okay, great. Thanks. And then I guess any additional details you guys could provide on the asset sale front, maybe in the Gulf Coast, just like a rough percentage of the assets that you guys have started discussions with? I'm just trying to get some more color there.

Christian Kendall -- President and Chief Executive Officer

Sure. So starting with the property sales, we've had discussions around nearly every bit of the property that's for sale. And so we are -- even though we've transacted at relatively small amount of that, we feel good about the overall value and being very much in line with our original projections just taking a bit longer. Switching to the mature assets where I mentioned that we had sold the Lockhart Crossing field last year and that we've post the suspension that we put on the sale as we work through the acquisition, we revisited that and I think that just considering the current market, we're going to continue to look at different options. We'll continue to look at the option of selling all of the mature assets as one package. But I think that we may also consider looking at them on one-off basis where we find a specific buyer for a specific asset that makes sense. That's something that I think you could see some progress on in the course of the year. We're going to stay very focused on overall value for the Company and we don't have to sell these assets. We're going to keep looking at what the value that we think we can achieve looks like and how that compares to our other alternatives.

Joe Beninati -- Oppenheimer -- Analyst

Okay. That sounds great. Thanks, Chris.

Christian Kendall -- President and Chief Executive Officer

Thanks, Joe.

Operator

Your next question comes from the line of Eric Seeve from GoldenTree. Please go ahead.

Eric Seeve -- GoldenTree Asset Management -- Analyst

Hey, guys, thanks for the call. A couple of questions. One on -- with respect to LOE, can you give a little more color on why we should expect LOE per BOE to decline in the second half of the year?

Christian Kendall -- President and Chief Executive Officer

A couple of things, and that's a good question. The first, if I look at just the CO2 side, I'd say that we have the capitalization versus expensing starting to go back more toward a capitalizing mode. So you'll see some of those costs come out of LOE and they are already accounted for in our capital program. The other thing that's probably the primary driver, Eric, is the seasonality of our activities. So as we get further into the year, we tend to be more front-loaded on preventive maintenance across the Company and that tapers off in the second half. So I'd expect you'd see that to reduce as we go forward.

Eric Seeve -- GoldenTree Asset Management -- Analyst

Okay, thank you. And then, in terms of production taxes, this quarter your production taxes as a percentage of your revenue was a little bit higher than what we've seen in the last few quarters. Can you give any color there and should we expect that to return to a percentage more like what it's been historically or anything different there?

Mark Allen -- Executive Vice President and Chief Financial Officer

I think this quarter is a pretty good run rate, Eric. Obviously prices have -- there could be some impacts there. I think in Q4, we may have had a bit of ad valorem tax benefit that could have had a positive impact there, but it's pretty minor type of things, but I think first quarter would be -- is a pretty good run rate based on our current expectations.

Eric Seeve -- GoldenTree Asset Management -- Analyst

Okay. And before leaving the subject of costs, are there any other cost improvement initiatives? I know in the last couple of years you guys have made a lot of strides on this front. Are there any other things out there that you guys can or are pursuing to try to continue to lower your costs?

Christian Kendall -- President and Chief Executive Officer

I'll tell you, Eric, we stay highly focused on costs, whether it's G&A, LOE or even capital and so we're continuing to work that lower. We've made a great step here on G&A here in the last few months by subleasing some of our office space here, which took effect at the beginning of the year. And we're going to continue to look at options for that. Then we specifically focused on chemicals and power and I think you'll see, as we go forward, results of that. But those are big buckets for us in areas where we think we can make improvements, where we have folks dialed into reduce some of those costs. So stay tuned on that.

Eric Seeve -- GoldenTree Asset Management -- Analyst

Okay, thank you. And then just lastly for me. On the hedge front, it looks like you guys made a lot of good progress during the quarter. It sounds like you'd like you'd like to add to 20 position if you get more opportunities to do so. Where ultimately -- and I know this is fluid and it depends on the opportunities that are given. But where ultimately would you like to get the hedge ratio to as a percentage of your production and are you pretty much done for second half of 2019 or could you add there as well?

Mark Allen -- Executive Vice President and Chief Financial Officer

If you look at where we've been kind of historically, we usually end up in the 60% to 70% range. From time to time we maybe have gone a bit higher than that, but I would say those are general levels that we target as we think about it and it is fluid. It can change depending on where we see prices go and then how much certainty we want to bring into the cash flow stream. But we do like the positions that we've been able to layer in. We like being able to protect certain levels, but also providing an upside optionality to exposure to oil prices and so I would say we'll continue to look at 2020 especially and keeping a nice steady approach to layering in more hedges as the market allows us.

Eric Seeve -- GoldenTree Asset Management -- Analyst

And it looks like the book is pretty heavily weighted at this point toward collars as opposed to swaps. Is that consistent with what you've done historically?

Mark Allen -- Executive Vice President and Chief Financial Officer

Yeah, I think we have about maybe two-thirds or so weighted toward collar structures versus swaps or I guess providing -- or generally that's where we've been, but it could be -- in some cases, if you go back, I think last year we had mostly swaps because that's what the market basically where it was in terms of the levels where we could hedge where it -- we felt that it was beneficial to protect. And so we have to be responsive to what the market provides us at various times. We do like collar structures that provide upside optionality, but we also want to make sure we're getting the price high enough to give us the level of certainty that we want as well. So we'll continue to look at both and just to provide a good combination of contracts that give us the level of certainty that we desire.

Eric Seeve -- GoldenTree Asset Management -- Analyst

Okay, thank you. And I guess just as an observation. It would seem that you're going to use a higher proportion of collars versus swaps that if you want to provide investors the same level of certainty, it could make sense to use a higher proportion of overall hedges to your production than historical, but I appreciate the color and congratulations on the quarter and look forward to talking to you.

Mark Allen -- Executive Vice President and Chief Financial Officer

Thanks, Eric.

Christian Kendall -- President and Chief Executive Officer

Thanks, Eric.

Operator

And at this time, there are no further questions. Mr. Mayer, please continue.

John Mayer -- Director of Investor Relations

Before you go, let me cover a few housekeeping items. On the conference front, we will be attending the RBC Global Energy and Power Executive Conference on June 4, followed by the Bank of America Merrill Lynch 2019 Energy Credit Conference on June 5 in New York City. The details for these conferences and webcast for the related presentations will be accessible through the Investor Relations section of our website at a later date. Finally, for your calendars, we currently plan to report our second quarter 2019 results on Wednesday, August 7 and hold our conference call that day at 10:00 AM Central. Thanks again for joining us on today's call.

Operator

Ladies and gentlemen, this conference will be available for replay after 12:30 Central Time today through June 7. You may access the AT&T teleconference replay system at any time by dialing 1800-475-6701 and entering the access code 426563. International participants dial 320-365-3844. Those numbers once again are 1800-475-6701 or 320-365-3844 with the access code 426563.

That does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

Duration: 49 minutes

Call participants:

John Mayer -- Director of Investor Relations

Christian Kendall -- President and Chief Executive Officer

Mark Allen -- Executive Vice President and Chief Financial Officer

Matthew Dahan -- Senior Vice President, Business Development and Technology

Charles Meade -- Johnson Rice & Company -- Analyst

Michael Scialla -- Stifel -- Analyst

Tarek Hamid -- JPMorgan -- Analyst

Richard Tullis -- Capital One -- Analyst

Sean Sneeden -- Guggenheim Securities -- Analyst

Joe Beninati -- Oppenheimer -- Analyst

Eric Seeve -- GoldenTree Asset Management -- Analyst

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