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Edited Transcript of LLEX earnings conference call or presentation 8-Nov-19 4:00pm GMT

Q3 2019 Lilis Energy Inc Earnings Call

Rocky Mount Nov 27, 2019 (Thomson StreetEvents) -- Edited Transcript of Lilis Energy Inc earnings conference call or presentation Friday, November 8, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Joseph C. Daches

Lilis Energy, Inc. - CEO

* Wobbe Ploegsma

Lilis Energy, Inc. - VP of Finance, IR & Capital Markets

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Presentation

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Operator [1]

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Good afternoon, and welcome to the Lilis Energy earnings conference call for the third quarter ending September 30, 2019. (Operator Instructions) Participants are advised that the audio of this conference call is being broadcast live over the internet and is being recorded for playback purposes. A replay of this call will be available approximately 1 hour after its conclusion through February 8, 2020.

I would now like to turn the conference call over to Wobbe Ploegsma, Vice President of Capital Markets and Investor Relations of Lilis Energy. Please go ahead, sir.

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Wobbe Ploegsma, Lilis Energy, Inc. - VP of Finance, IR & Capital Markets [2]

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Good morning, and thank you for joining Lilis Energy's conference call. Today, Lilis' management will discuss financial results for the third quarter ended September 30, 2019, and will provide an update on corporate developments, along with fourth quarter 2019 outlook and guidance.

After the market closed yesterday, we released our financial and operating results for the third quarter ended September 30, 2019. If you have not yet reviewed Lilis Energy's earnings release, please visit the Investor Center at the company's website, lilisenergy.com.

Our remarks today may contain forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the company. Participants are cautioned that any such statements are not guarantees of future performance and actual results or developments may differ materially from those projected in the forward-looking statements. Please see our earnings release for a discussion of these statements and associated risks. We also refer to certain non-GAAP measures, so please see the reconciliations in the earnings release.

Joining me today is Joe Daches, Interim Chief Executive Officer, President and Chief Financial Officer.

During this call, we will review our results for the third quarter and then discuss outlook and guidance for the fourth quarter of 2019.

I will now turn the call over to Joe Daches.

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Joseph C. Daches, Lilis Energy, Inc. - CEO [3]

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Thank you, Wobbe. Before we start, I encourage everyone to please review our earnings presentation posted to our website for additional details and other operational updates. First, I'd like to thank and recognize the Lilis' team for all of their hard work and dedication throughout 2019.

I'd like to now review 2019 highlights and then provide a brief operational update. During the third quarter, we brought on board a new operations team with extensive Northern Delaware Basin experience that has taken widespread measures to standardize completed methods and implement the latest industry techniques. The team successfully drilled the Grizzly A #2H, the Grizzly B #2H, and began drilling operations on the East Shammo #3H which reached a total depth in October and achieved significant operating efficiencies and cost reductions throughout these new drills.

For example, we significantly reduced cycle times by reducing average drilling days for longer lateral wells from approximately 45 days and that's from spud to total depth to approximately 17 days. We were able to achieve reduced drilling cycle times by incorporating oil-based drilling mud, utilized a higher quality rig and better downhole tools and configurations. These accomplishments result in cost savings over $4.3 million on the Grizzly A #2H, the Grizzly B #2H, the East Shammo #3H compared to previous AFE cost estimates.

We also drilled the fastest well by the company to date. The East Shammo #3H, a 1.5-mile well, at 15 days from spud to total depth of 20,715 feet with approximately 100% in-zone precision. Our in-zone precision during drilling has significantly improved compared to the last year from 89% in 2018 to approximately 100% over the last few wells.

The company successfully completed both the Kudu A #2H and Kudu B #2H with the completions coming in under AFE cost estimates, and both wells are now currently on flowback.

I am pleased to report that we received 2-year of extend flaring permits to mitigate the need for future shut-ins associated with a regulatory flaring compliance and we have successfully brought all 4 of the previously shut-in wells back online and are now flowing through to sales.

During the quarter, we began implementing solutions for delivering all produced natural gas to sales by year-end.

Currently, we have 24 drilling permits in various stages of submittal and review with the Bureau of Land Management in New Mexico. We expect to have multiple permits approved by the end of the year.

We also completed 2 significant transactions that brought approximately $56 million of capital into the company during the quarter. First, with the sale of 513 net acres in New Mexico, noncontiguous to the company's core operational area for approximately $33,000 per acre. Second, with an overriding royalty interest and working interest transaction.

We continue to focus on cost reductions and have achieved significant cost savings by completing the closing of our Houston office and San Antonio office, consolidating all operations to a single location here in Fort Worth, and reducing full-time equivalent employees, corporate, operations and field personnel, by approximately 28%. The office consolidation and overhead reductions have resulted in significant G&A savings.

I'd now like to take a moment and go over our operational updates for the quarter. As I just mentioned, management continues to focus on overall cost reductions and efficiencies across all aspects of our business. We have begun several initiatives to reduce spending on the primary drivers of lease operating expenses, including contract labor, saltwater disposal, utility expenses and equipment rentals. Our contract labor expenses have significantly reduced by decreasing full-time equivalent employees by approximately 28% during the quarter. The company has also added 32,500 barrels of saltwater disposal capacity throughout Texas and New Mexico, and is continuing to expand those capabilities. Additionally, the company is in the process of fully electrifying the field to remove the reliance and cost of power generators and is heavily focused on expanding high-pressure gas lines to install artificial lift across our field in order to reduce related equipment rentals.

During the third quarter, 2 additional wells were placed on artificial lift, bringing the total to 11 wells being placed on artificial lift to date.

During the quarter, we completed the Kudu A #2H and the Kudu B #2H, with both completions coming in under AFE cost estimates. The Kudu A #2H was the company's first test of a lower Wolfcamp B bench. The well was a 1.5-mile lateral, completed with slickwater design of 38 stages, utilizing mainly 100 Mesh sand. The Kudu B #2H was an upper Wolfcamp B bench, slightly over 1-mile lateral length and was completed with slickwater design of 28 stages, utilizing mainly 100 Mesh sand as well.

The Kudu A #2H is currently flowing at a rate of 1,136 Boe per day or 813 BO per day. The breakdown is 86% liquids, 72% oil. The Kudu B #2H is currently flowing at a rate of 649 Boe per day or 532 BO per day. Breakdown is 91% liquids, 82% oil.

As I mentioned earlier, I am pleased to report that the company received a 2-year extended flaring permits to mitigate the need for future shut-ins associated with regulatory flaring compliance and successfully brought all 4 previously shut-in wells back online and are now flowing through to sales. We also continue to advance the efforts with the implementation of our field treating systems. The treating systems involve chemical intervention, upgrades to surface facilities at each tank battery and upgrades to natural gas handling facilities for specific wells that do not meet quality specifications.

The crude oil treating implementation is expected to be completed by the end of November, and the natural gas treating solution continues to be advanced with a goal of being in a position to deliver all produced natural gas to sales by year-end.

I'd now like to turn the call back over to Wobbe to review the third quarter 2019 financial highlights, along with our fourth quarter guidance.

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Wobbe Ploegsma, Lilis Energy, Inc. - VP of Finance, IR & Capital Markets [4]

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Thank you, Joe. Before reviewing our third quarter 2019 financials, it's important to know that decreases in production resulted primarily from the company voluntarily shutting in additional wells outside those shut-in during the quarter for regulatory flaring compliance to upgrade surface facilities for natural gas and crude oil treating. These upgrades are intended to allow deliveries of all our production into our third-party midstream providers gathering systems.

With that said, I will review our third quarter financials. Production for the third quarter was 355,504 Boe or an average of 3,864 Boe per day. A decrease of 31% from the third quarter of 2018. Average daily oil production for the third quarter totaled 2,053 BO per day, a decrease of 38% from the third quarter of 2018. Natural gas liquids and natural gas production for the third quarter totaled 47,225 barrels and 716 million cubic feet, representing a 31% and 16% decrease, respectively, compared to the third quarter of 2018.

Lilis' average realized price for oil, NGLs and natural gas for the third quarter, excluding the effects of commodity derivatives, was $54.03 per barrel, $14.76 per barrel and $0.97 per Mcf, respectively, compared to $52.82 per barrel, $28.59 per barrel and $1.79 per Mcf, respectively, for the third quarter of 2018. Our crude oil realized pricing as a percentage of WTI continues to improve. During the third quarter, we realized oil pricing of 96% of WTI compared to 93% during the previous quarter.

Net loss attributable to common stockholders was $27.6 million or $0.30 per basic and diluted share for the quarter compared to a net loss of $5.3 million or $0.08 per basic and $0.09 per diluted share for the 3 months ended September 30, 2018.

Total revenue was $11.6 million for the quarter versus $19.5 million over the comparable quarter in 2018. We decreased our total GAAP G&A expense by $2 million or 29% quarter-over-quarter to $4.8 million for the quarter. However, on a Boe basis, our recurring cash G&A per Boe increased to $8.62 per Boe compared to $6.55 per Boe in the same quarter in 2018. This increase was a direct result of lower production associated with shutting in wells to begin testing and implementing our natural gas and crude oil treating system.

Total capital expenditure in the third quarter was $14.3 million, primarily comprised of $11.8 million related to our 2019 D&C program, 400,000 related leasehold expenditures and $2.2 million related to facility construction, infrastructure, artificial lift and our freshwater asset.

I'd like to reiterate that decreases in production resulted primarily from the company voluntarily shutting in additional wells to upgrade surface facilities for natural gas and crude oil treating.

I would now like to review our fourth quarter guidance. Early in the fourth quarter, the company finished drilling the East Shammo #3H and completed the Grizzly A #2H. On their completion, the company shifted focus to production and facilities optimization, while the operations team evaluates the performance of the recent drilling and completion activity. Company currently plans to resume drilling operations in the first quarter of 2020. The company's fourth quarter guidance includes production from the Kudu A #2H and the Kudu B #2H, with production from the Grizzly A #2H layered in as the well comes online during the quarter.

For the fourth quarter, we are projecting oil production to range from 2,900 to 3,200 barrels per day, and NGLs to range from 500 to 700 barrels per day, with our liquids mix accounting for approximately 65% to 70% of our total production. We are maintaining our full year oil production guidance to range from 3,000 barrels to 3,200 barrels per day. We expect realized crude pricing to be between 90% and 95% of WTI and CapEx to be between $6 million and $8 million in the fourth quarter.

I would now like to turn the call back over to Joe.

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Joseph C. Daches, Lilis Energy, Inc. - CEO [5]

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All right. Thank you, Wobbe. I want to conclude by saying that we have and continue to take significant steps to better position the company to further enhance the value of our current asset. In addition to reporting our third quarter operating and financial results, we also announced that the Board of Directors has formed a special committee comprised of independent directors, tasked with reviewing and evaluating strategic alternatives that may enhance the value of this company. The special committee has retained Barclays Capital as financial adviser to assist in reviewing and evaluating strategic alternatives. While the Board has established a special committee to review and evaluate strategic alternatives, no assurances can be given as to the outcome or timing of the process or whether any particular transaction may be pursued or consummated. The company does not intend to make any future announcements concerning this process unless and until the company otherwise determines that the disclosures are necessary and/or are appropriate. In light of this development, we will not be hosting a question-and-answer session at the end of this call.

I would like to thank you for your support and interest in Lilis Energy, and we look forward to updating you on our continued progress. Thank you all. Operator?

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Operator [6]

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Lilis Energy's 2019 Third Quarter Earnings Conference Call has now concluded. You may disconnect.