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Edited Transcript of MCEP earnings conference call or presentation 31-Oct-19 1:00pm GMT

Q3 2019 Mid-Con Energy Partners LP Earnings Call

Tulsa Nov 18, 2019 (Thomson StreetEvents) -- Edited Transcript of Mid-Con Energy Partners LP earnings conference call or presentation Thursday, October 31, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Chad B. Roller

Mid-Con Energy GP, LLC - COO

* Jeffrey R. Olmstead

Mid-Con Energy Partners, LP - CEO, President & Director of Mid-Con Energy GP LLC

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Conference Call Participants

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* Noel Augustus Parks

Coker & Palmer Investment Securities, Inc., Research Division - Senior Analyst Exploration, Production and MLP's

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the Mid-Con Energy Partners Third Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Jeff Olmstead, CEO. Please go ahead, sir.

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Jeffrey R. Olmstead, Mid-Con Energy Partners, LP - CEO, President & Director of Mid-Con Energy GP LLC [2]

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Thank you. Good morning, everyone. Thank you for your participation in the call today. Before we get started, I'd like to remind you that today's call will include forward-looking statements related to future and not past events within the meaning of federal securities law. These forward-looking statements are based on our current expectations and include any statement that does not directly relate to our current or historical facts. For further explanation, please refer to our SEC filings.

Also joining me on the call today are Chad McLawhorn, our General Counsel; Chad Roller, our COO; and Philip Houchin, our CFO.

Last night, we posted our earnings release and our 10-Q for the quarter ending September 30, 2019. If you do not have yet seen these documents and would like to, please go to our website, www.midconenergypartners.com, and you can find it in the Investor Relations section.

I just want to take a few moments this morning to comment on our results for the most recent quarter. I think the highlight of the quarter was the results of our capital spending. If you remember from our recent quarterly conference calls and investor presentations, most of our capital this year has been spent focusing on de-risking our development opportunities within our portfolio.

As we've highlighted in several investor presentations, our Pine Tree waterflood continues to show positive results. The injection on a per well basis is meeting expectations and the final waterflood unitization order was approved by Wyoming and the BLM this past month. We will continue to update you on this field's progress with each quarterly update.

In addition to our Wyoming development opportunities, we also returned an additional 40 wells to production in Oklahoma this past quarter and drill and cored 2 new wells. The preliminary view on these cores resulted in our deciding to move forward with 2 new potential waterflood projects in Oklahoma. These show similar characteristics to our Cleveland waterflood that we initiated in 2013. And we've talked about the success of this flood many times over the last 6 years. It has become our highest value asset in our portfolio to date. We're excited about the prospect of having 2 similar new fields.

We've not yet booked any new reserves related to these fields and are not yet forecasting any additional production. However, we hope to start injection in each field by the end of the year and hope to see results in the latter half of 2020. In spite of spending most of our time and capital on testing and de-risking our longer-term development opportunities, we were still able to keep production basically flat this quarter compared to the second quarter of 2019. Our long-life low-decline assets have provided flexibility to focus on long-term value creation without sacrificing current production and cash flow.

As we continue the process of assimilating our new assets in our portfolio, we experienced some noise this quarter around our lease operating expenses in Oklahoma associated with these assets. We believe that these were mostly onetime in nature due to having a number of transactions earlier this year. And we expect operating expenses to average in the low 20s on a dollar per barrel basis going forward and not the mid-20s we reported this quarter.

Resulting EBITDA for the quarter was approximately $4.4 million, which is clearly lower than we had anticipated due to the abnormally high lease operating expenses and lower realized pricing compared to previous quarters. Our debt-to-adjusted EBITDA, as calculated by our credit agreement, was around 3.4x, and we expect both of these to considerably improve going forward.

On a positive note, we ended the quarter with production starting to increase due to the capital that was spent earlier in the year. And October has continued to maintain this uptick in daily production. As we look to finish out 2019, our focus remains on de-risking our growth and development of opportunities in our portfolio and identifying the best near- and long-term projects. We continue to expect to fund all CapEx out of free cash flow and putting to use any cash -- any additional cash to continue paying down debt going forward.

With that, I'll open it up to any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have a question from Noel Parks from Coker & Palmer.

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Noel Augustus Parks, Coker & Palmer Investment Securities, Inc., Research Division - Senior Analyst Exploration, Production and MLP's [2]

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I had a few things that I wanted to run by you, just to double check. So the 40 RTPs that were conducted during the quarter, those are separate from the batch you did early in the year, if memory serves me, was that about 50 RTPs? And I can't remember -- I think that was also in Oklahoma, though I think I might be thinking about Wyoming instead. So -- but this is in addition to those from earlier in the year, right?

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Jeffrey R. Olmstead, Mid-Con Energy Partners, LP - CEO, President & Director of Mid-Con Energy GP LLC [3]

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That is correct, yes. Both those numbers are the right ballpark and that is in addition to, correct.

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Noel Augustus Parks, Coker & Palmer Investment Securities, Inc., Research Division - Senior Analyst Exploration, Production and MLP's [4]

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Okay. Great. And as far as the couple of new waterfloods you're planning to move forward with. I recall that earlier in the year, you had done some core samples in a couple of the fields. And were -- is -- were those related to these areas where you're going to be doing these new waterfloods or were those in different areas?

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Jeffrey R. Olmstead, Mid-Con Energy Partners, LP - CEO, President & Director of Mid-Con Energy GP LLC [5]

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No, no. Those are in relation to the 2 new Cleveland floods that we're going to initiate.

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Noel Augustus Parks, Coker & Palmer Investment Securities, Inc., Research Division - Senior Analyst Exploration, Production and MLP's [6]

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Great. And can you just talk a little bit more about what you found in the cores?

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Jeffrey R. Olmstead, Mid-Con Energy Partners, LP - CEO, President & Director of Mid-Con Energy GP LLC [7]

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I'll tell you what the -- at least the field guys were telling us the cores were coming out, they were dripping with oil was their comments. And that's where a lot of excitement comes from. They did do some fluorescence tests and they lit up similar to what the Cleveland field did when we cored the Cleveland back in 2013.

So at least from the core samples, there's a pretty high optimism around here about having a similar situation where you have the high perm streams, where -- when these were tested 50, 60, 70 years ago, when people tried to inject water into them, that water went through the high perm streams, but did not affect sort of the rest of the column of oil.

So our plan going forward would be to drill new injectors, because the existing wells have all been shot, one shot per foot type thing. We'll have to drill new injectors, put the water in the specific location we want and then see if we get similar results to what we did in Cleveland. So everything sort of looks similar until you actually get water going to the ground. We're not going to sort of estimate what type of production or what type of reserves could be there. But yes, similar-sized fields, similar oil in place and showing similar characteristics in the core. So we're pretty excited about getting these in place as we do and as we see response, we'll obviously talk a lot more about it then.

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Noel Augustus Parks, Coker & Palmer Investment Securities, Inc., Research Division - Senior Analyst Exploration, Production and MLP's [8]

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Great. And I'm just curious for the waterflood potential in these. Did you even have these estimated on a probable or possible basis? Or are they entirely new, unbooked and with any probability until now?

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Jeffrey R. Olmstead, Mid-Con Energy Partners, LP - CEO, President & Director of Mid-Con Energy GP LLC [9]

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The thought was -- the answer is no. There was no probables or possibles booked. If you looked at it on a trend, it looked like it was in the trim of the Cleveland, like we had in our Cleveland fields. And until we drilled the cores, there was just no way of knowing whether or not they still had oil and they still had potential. So no, there was no probable or possible booked. There was just a hunch, if you will.

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Noel Augustus Parks, Coker & Palmer Investment Securities, Inc., Research Division - Senior Analyst Exploration, Production and MLP's [10]

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Okay. Great. And a couple other things. Let's see. With your production guidance for the year, you've narrowed the range a little bit. But that still implies a pretty wide range of outcomes for fourth quarter, just between the lower and upper bound of the annual range. Do you have a rough idea of, kind of, where you might come out as an exit rate in fourth quarter?

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Jeffrey R. Olmstead, Mid-Con Energy Partners, LP - CEO, President & Director of Mid-Con Energy GP LLC [11]

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I mean, I think, you could see a slight uptick from where we are today, a couple of percent, but I don't think it's going to be material before the end of the year.

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Noel Augustus Parks, Coker & Palmer Investment Securities, Inc., Research Division - Senior Analyst Exploration, Production and MLP's [12]

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Okay. Got you. And just -- you mentioned a little bit about the injection up at Pine Tree. And I just was wondering how that would come out. I think you said the response was meeting expectation. And I'm just curious where do you stand on converting the producers to injectors out there?

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Jeffrey R. Olmstead, Mid-Con Energy Partners, LP - CEO, President & Director of Mid-Con Energy GP LLC [13]

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Yes, I just make a clarification point: the injection is meeting expectations. We haven't seen a response yet and wouldn't have expected to see a response yet.

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Noel Augustus Parks, Coker & Palmer Investment Securities, Inc., Research Division - Senior Analyst Exploration, Production and MLP's [14]

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Right. Sorry, the injection rate, yes.

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Jeffrey R. Olmstead, Mid-Con Energy Partners, LP - CEO, President & Director of Mid-Con Energy GP LLC [15]

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Yes. In terms of -- Chad, how many -- have we converted the interjectors yet?

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Chad B. Roller, Mid-Con Energy GP, LLC - COO [16]

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In the process, but not (inaudible)

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Jeffrey R. Olmstead, Mid-Con Energy Partners, LP - CEO, President & Director of Mid-Con Energy GP LLC [17]

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So we don't have any other further injection going on other than that single one. We've just had delays in getting rigs and now you're into the winter weather. So it's -- I think it was minus 2 degrees there a couple of nights ago. So it's a timing thing. If weather cooperating, with rig availability, and again, the goal is to convert roughly 20 wells to injection sort of between now and second quarter next year.

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Operator [18]

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(Operator Instructions) I'm showing no further questions at this time. I would now like to turn the conference back to Jeff Olmstead, CEO.

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Jeffrey R. Olmstead, Mid-Con Energy Partners, LP - CEO, President & Director of Mid-Con Energy GP LLC [19]

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Okay. Well, thank you, everyone. As you get a chance to digest the numbers, if you have any further questions, please give us a call. We'll be happy to review them. With that, I hope everybody has a Happy Halloween.

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Operator [20]

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This concludes today's conference call. Thank you for your participation. You may now disconnect.