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Edited Transcript of BCEI earnings conference call or presentation 8-Aug-19 2:00pm GMT

Q2 2019 Bonanza Creek Energy Inc Earnings Call

Denver Aug 18, 2019 (Thomson StreetEvents) -- Edited Transcript of Bonanza Creek Energy Inc earnings conference call or presentation Thursday, August 8, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Eric Thomas Greager

Bonanza Creek Energy, Inc. - President, CEO & Director

* Scott Landreth

Bonanza Creek Energy, Inc. - Director of Finance & Treasurer

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Conference Call Participants

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* Irene Oiyin Haas

Imperial Capital, LLC, Research Division - MD & Senior Research Analyst

* Nicholas Pope;Thomist Capital;Energy Consultant

* Welles Westfeldt Fitzpatrick

SunTrust Robinson Humphrey, Inc., Research Division - Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen. Welcome to the Second Quarter 2019 Bonanza Creek Energy, Inc. Earnings Conference Call. (Operator Instructions) As a reminder, this call will be recorded.

I would now like to introduce your host for today's conference, Scott Landreth. Please go ahead.

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Scott Landreth, Bonanza Creek Energy, Inc. - Director of Finance & Treasurer [2]

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Thanks, Chris. Good morning, everyone, and welcome to Bonanza Creek's Second Quarter 2019 Earnings Conference Call and Webcast. On the call this morning, I am joined by Eric Greager, President and Chief Executive Officer; Brant DeMuth, Executive Vice President and Chief Financial Officer; and Dean Tinsley, Senior Vice President of Operations and Engineering.

Yesterday, we issued an earnings press release, posted a new investor presentation, and filed our 10-Q with the SEC, all of which can be accessed on the Investor Relations section of our website. Some of the slides in the August Investor Presentation will be referenced during our prepared remarks this morning. Please be aware that our remarks will include forward-looking statements that are subject to many risks and uncertainties that could cause actual results to differ materially. You should read our full disclosures regarding forward-looking statements contained in our 10-Q, 10-K and other SEC filings.

Also during this call, we will refer to certain non-GAAP financial measures because we believe they are good metrics to use in evaluating performance. Reconciliations of these measures to the most directly comparable GAAP measures are contained in our earnings release and investor presentation. We will start the call with prepared remarks and then move to Q&A.

Now it's my pleasure to introduce Eric Greager, President and CEO. Eric?

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Eric Thomas Greager, Bonanza Creek Energy, Inc. - President, CEO & Director [3]

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Thanks, Scott. Good morning, everyone, and thank you for joining us for our second quarter earnings call. The Bonanza Creek team delivered a strong second quarter with production increasing 18% over Q1 while reducing our unit cash costs, excluding production taxes, by 24%. We'll keep our remarks brief in order to get to Q&A. But there are a few points from yesterday's earnings release and the operations update a few weeks ago that I want to highlight.

First, our average daily production for the quarter, 24,428 BOE per day, was up 18% over Q1. This was higher than the mid-single-digit growth we had suggested last quarter primarily due to the wells coming online in Q4 of 2018 and Q1 of 2019 performing stronger, for longer than forecasted. As a result of our production performance year-to-date, we are raising our annual production guidance to a midpoint of 23 MBoe per day and a range of 22 to 24 MBoe per day. Consistent with our plans, we didn't turn any wells to sales during the second quarter, but we will bring 23 wells online during the third quarter. Because our production grew at a faster rate than we had planned to the first half of the year, we're now expecting production to be flat to slightly up for the remaining 2 quarters, which is simply a result of having already achieved 38% production growth over Q4 2018.

On Slide 11 of our IR presentation, you see the results from our Legacy East area where additional production history on the Pronghorn B-28 Pad demonstrates results that continue to exceed our East XRL type curve. We've also added production results from the Whitetail A-4 well to the same production plot on Slide 11. We continue to be encouraged by the early results from this well that is tracking with the East XRL type curve.

On Slide 10, we've added another 90 days of production for the I-21 pad. As a reminder, this pad tested both our contemporary high-intensity completion designs and downspacing at 16 well per section density, and we're encouraged that this pad continues to exceed our West type curve. The team continues to find opportunities to lower cost as well, with LOE per BOE down slightly from the first quarter to $2.87 per BOE. Year-to-date, we're tracking in the guidance range we revised downward after the first quarter. Cash G&A per BOE decreased 24% from $4.77 per BOE in the first quarter to $3.61 per BOE in the second quarter. We couldn't be more proud and encouraged by the focus our team places on safe and cost-effective operations.

With that, I will turn the call back to the operator for Q&A.

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Scott Landreth, Bonanza Creek Energy, Inc. - Director of Finance & Treasurer [4]

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Chris, can we go to Q&A, please?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Welles Fitzpatrick with SunTrust.

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Welles Westfeldt Fitzpatrick, SunTrust Robinson Humphrey, Inc., Research Division - Analyst [2]

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Can you talk a little bit about what you're seeing in the market for acreage prices for mineral acres? I mean has it been relatively sticky like we've seen in the past? Or is the slowdown affecting that? I know you talked a little bit to -- I'm sorry, I apologize. It's a busy day. Can you guys talk about the rates on -- the updated rates, the GOR, on the newly updated type curves that you put in the presentation?

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Eric Thomas Greager, Bonanza Creek Energy, Inc. - President, CEO & Director [3]

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Yes. Yes. You bet. So the GOR remains pretty consistent. We really haven't seen market changes to GOR other -- beyond the sort of the guidance in prior quarters and the performance we've seen in the past. It is a solution gas drive environment in DJ and we're in little bit oilier rock, and so a little lower thermal maturation. But like every place else, as you put the wells on production, the GOR tends to rise a little over time. This is really the whole point for our enhanced recovery flowback is to ensure that we use each unit of solution gas drive energy to bring the oil out first. And other than that, we really haven't seen any anomalous behavior in terms of GOR. It's a little higher to the West, and a little lower to that East. And that's pretty consistent with what you would expect, Welles. Does that kind of get at the question?

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Welles Westfeldt Fitzpatrick, SunTrust Robinson Humphrey, Inc., Research Division - Analyst [4]

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Yes. No, no. That's perfect. And then on the Pronghorn, are you seeing -- obviously, that hasn't turned over quite yet. It's been relatively flat, and we're almost at a year here. Are you seeing anything downhole in the pressures that might indicate to you when that will start to turn?

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Eric Thomas Greager, Bonanza Creek Energy, Inc. - President, CEO & Director [5]

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Well, that's a great question, Welles. Thank you. And we're asking ourselves the same question. And you're definitely starting to see it maybe roll closer to flat. But it is still slightly inclining. And what that tells us is there's still SRV, still stimulated reservoir volume, that is logging into the well as compartments that it previously logged in had dropped in pressure as they're delivering their load recovery and then delivering some of their resource potential. And we don't know where that SRV ends necessarily. There are markers that we're watching. E&P companies like us will watch the quality of the flowback water. You look for chloride signatures and other geochemical signatures to try to indicate that you may be seeing the full extents of the SRV. And at this point, we aren't seeing anything that indicates that the well is ready to begin kind of fulsome decline. If you ask me to bet on it, I'd tell you that we're probably not going to be saying the same thing a quarter from now. My hunch is it's probably going to roll flat and then it's going to stay flat for a period of time. And then we're going to see a slower decline than normal. And the reason I say that is because everything we've seen so far in whether you're talking about flowing bottomhole pressures or other markers of reservoir performance and SRV, they indicate that it's genuinely bigger than we had anticipated. And that indicates to us that there's more fracture complexity, there's more fracture surface area, and there's more here than we had even anticipated. But these were big stimulation jobs. And it's the first time that we put this kind of large stimulation and 4-well simultaneously.

(technical difficulty)

And there's still a lot to learn. So I'm going to leave it there, and if you want to follow up, feel free.

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Welles Westfeldt Fitzpatrick, SunTrust Robinson Humphrey, Inc., Research Division - Analyst [6]

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Yes. No, no. That's great. And then just one last one from me. Any update from your partners on French Lake given the turnover there?

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Eric Thomas Greager, Bonanza Creek Energy, Inc. - President, CEO & Director [7]

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Yes. Those guys have got a lot going on. And I'm not sure that French Lake is at the top of their priority list. But our conversations with our partner have indicated they're still making progress and they're still -- we talk to them all the time. And other than the fact that they've got so much going on that they can't help but be distracted with, everything feels pretty good. What I would suggest is at this point, we're talking about Q2 in the rearview mirror. It's probably realistic for us to think about, as we go into our budget cycle, maybe not picking up a rig in early January but talking about something deeper into the year. And we continue to work with our partner on that. They're making great progress. They continue to be very constructive on that progress. But we're thinking it's probably more like a few months into the year rather than right at the start of the year as we had previously indicated. And that's just a practical -- that's just us being practical about how we view the matter.

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Operator [8]

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(Operator Instructions) And our next question comes from the line of Nicholas Pope with Thomist Capital.

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Nicholas Pope;Thomist Capital;Energy Consultant, [9]

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I just wanted to ask about the -- a little bit about the wells that are going to be coming on in the third quarter. Should we expect that they are going to look similar than the wells that you all brought online in the first half of the year and see that big fluid unloading and the ramp that takes production up for the first 5 or 6 months? And I guess trying to understand what that kind of means for the rates as we exit 2019.

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Eric Thomas Greager, Bonanza Creek Energy, Inc. - President, CEO & Director [10]

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Yes. So that's a great question, Nick. Thank you. What -- so we're bringing on 2 pads in Q3. Well, it's a number of pads. It's 3 pads. They're very -- they're in 2 areas. We've got some west -- higher pressure, much higher thermal maturation to the west that we're bringing on early in Q3. And those are going to unload very quickly. They're going to cut hydrocarbon very quickly. And they're going to start contributing to production numbers fairly quickly. That -- those are happening literally right now kind of as we speak. And those are -- that's our pad in the west. Deeper into the quarter, we'll be bringing online 2 pads further east. And those are going to take a little bit more time. And all of this is -- all of this timing is sort of built into our flat to slight upward trajectory on the sequential quarters. And these are -- when we talk about kind of flat to slightly up, those are risk-adjusted forecast. So to the extent that we outperform our risk adjustments, then there is perhaps a little upside there. But our timing of these 23 wells in Q3 is built into that kind of flat to slightly up trajectory. Does that answer your question?

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Nicholas Pope;Thomist Capital;Energy Consultant, [11]

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Yes. I think that's great.

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Eric Thomas Greager, Bonanza Creek Energy, Inc. - President, CEO & Director [12]

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Thanks, Nick.

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Operator [13]

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And our next question comes from the line of Irene Haas with Imperial Capital.

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Irene Oiyin Haas, Imperial Capital, LLC, Research Division - MD & Senior Research Analyst [14]

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So just a follow-up on the last question. So you get 22 wells in the third quarter. And fourth quarter, are you going to complete any wells at all? If not, then could you give us a little color as to how 2020 might unfold, so we'll just have a feeling as to what could happen?

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Eric Thomas Greager, Bonanza Creek Energy, Inc. - President, CEO & Director [15]

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You bet. The -- so we brought on wells, strong wells in Q4, Q1. No wells in Q2, but you had some stronger for longer performance flowing through Q2, and then we're bringing on a slug of wells on 3 pads in Q3. We don't currently have scheduled and don't intend or plan to turn wells online in Q4. Just to be clear though, we will continue completing wells that are under progress. And so as we flow into Q1 of 2020, the way we're thinking about 2020 is in terms of absolute production numbers, it's going to be about the way we soft-guided so far. We're not really seeing indications that suggest anything different from the absolute numbers we've been talking about now for a couple of quarters. When you think in percentage terms though, we've been soft-guiding 20% and because '19 is so much stronger as a base, you couldn't expect the performance of 2020 over 2019 in percentage terms to remain at 20%. So I'm saying, we're kind of holding what we believe to be the 2020 production forecast. But it's not going to be 20% because '19 is so much stronger, and we're raising that base guidance. So does that answer your question about kind of leaning into 2020 and what the balance of '19 looks like?

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Irene Oiyin Haas, Imperial Capital, LLC, Research Division - MD & Senior Research Analyst [16]

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Yes. So you're going to continue to complete fourth quarter. So presumably you're going to [be ready to turn] some wells on first quarter of 2020?

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Eric Thomas Greager, Bonanza Creek Energy, Inc. - President, CEO & Director [17]

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That's right. Yes.

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Irene Oiyin Haas, Imperial Capital, LLC, Research Division - MD & Senior Research Analyst [18]

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And then would you kind of do a similar pattern where you chill for a quarter and then turn more wells on. It's going to be similar to [that]?

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Eric Thomas Greager, Bonanza Creek Energy, Inc. - President, CEO & Director [19]

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Yes. That's right. It's -- just to be clear, we're not deliberately chilling for a quarter, although it's kind of the cadence that's setting itself up. It's more a result of the way we engineer the deliberate sequential growth. And on a risk-adjusted forecasting basis, we engineer that sequential growth. And also the way we work to achieve kind of the maximum operational efficiency. For example, you might recall at the beginning of the year we talked about having no frac crew running at the beginning of the year and then we picked up our frac crew kind of midway through Q1. And we were going to run 1 continuous frac crew for several months and then we were going to pick up a second. And then we were going to go back to 1 and then possibly to 0 at some point later in the year. As we've been able to pace ahead in Q2, both on the drilling side and on the completion side, the fracture stimulation side, we were able to avoid picking up that second frac crew and maintain hundreds of stages ahead of schedule just with the 1 frac crew, and that's really an efficiency story. So we're 5 rig releases ahead of schedule, and we're hundreds of stages ahead of schedule on the fracture stimulation side. And this gives us optionality to manage on a much more efficient basis and kind of capture some of the opportunities that, that efficiency lends itself to. And I explain all of that primarily because I just don't want you to misunderstand that we're sort of going hard for a quarter and then deliberately skipping a quarter. It's just the way it sets itself up as a consequence of our engineering the sequential guidance and trying to be predictable and methodical about maximizing our efficiencies.

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Irene Oiyin Haas, Imperial Capital, LLC, Research Division - MD & Senior Research Analyst [20]

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Okay. And maybe you can give me a little color as to how those stair-stepping on production might look like in 2020? I mean is it going to be more of a pretty steady sequential growth? Or is it going to be more lumpy?

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Eric Thomas Greager, Bonanza Creek Energy, Inc. - President, CEO & Director [21]

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Yes. We're going to work to engineer a steady sequential pace. These are pads though. And so to the extent that the pads outperform our risk-adjusted forecasts or something about the environment, it just maybe we get some really superior circumstances, and things outperform. There'll be -- there may be some lumps in the profile but those we intend to be pleasant surprises and not lumps to the other side.

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Irene Oiyin Haas, Imperial Capital, LLC, Research Division - MD & Senior Research Analyst [22]

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Okay. All right. And one more quick follow-up. The $10 million acquisition that you did in this quarter. Any color on that?

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Eric Thomas Greager, Bonanza Creek Energy, Inc. - President, CEO & Director [23]

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Yes. Yes. From time to time -- so we budget for this. We've got accounts like everybody else in our proposed budget that we carry for opportunities that present themselves. And acreage in the DJ is just not something that's happening. Acreage purchases and sales. Upside in terms of just well inventory and upside inventory on acreage is just not something that's moving very effectively in the DJ. But from time to time we get opportunities to acquire working interest in our own operated pads where we're not already a 100% working interest partner, and to the extent that those are value accretive to our company, we're going to capitalize on them.

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Operator [24]

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(Operator Instructions) All right. And at this time, I'm not showing any further questions on the phone line. I would now like to turn the call back to Eric Greager for any further remarks.

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Eric Thomas Greager, Bonanza Creek Energy, Inc. - President, CEO & Director [25]

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Thanks, Chris. Thank you all for joining us on the call this morning and your continued interest in Bonanza Creek. As a reminder, we will be attending EnerCom's oil and gas conference in Denver next week. I know many of you will be there and I hope to see you. Thank you. Bye-bye.

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Operator [26]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's conference. You may all disconnect. Everyone have a great day.