U.S. Markets close in 3 hrs 55 mins

Edited Transcript of ROAN.N earnings conference call or presentation 8-Aug-19 3:00pm GMT

Q2 2019 Roan Resources Inc Earnings Call

Aug 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Roan Resources Inc earnings conference call or presentation Thursday, August 8, 2019 at 3:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Alyson Gilbert

Roan Resources, Inc. - IR Manager

* David M. Edwards

Roan Resources, Inc. - CFO

* Greg T. Condray

Roan Resources, Inc. - EVP of Geoscience & Business Development

* Joseph A. Mills

Roan Resources, Inc. - Executive Chairman

================================================================================

Conference Call Participants

================================================================================

* Derrick Lee Whitfield

Stifel, Nicolaus & Company, Incorporated, Research Division - MD of E&P and Senior Analyst

* Duncan Scott McIntosh

Johnson Rice & Company, L.L.C., Research Division - Research Analyst

* Jiuying Ye

Imperial Capital, LLC, Research Division - Associate

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning. My name is Lisa, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Roan Resources Second Quarter 2019 Earnings Conference Call. (Operator Instructions) Thank you.

Alyson Gilbert, Head of Investor Relations, you may begin your conference.

--------------------------------------------------------------------------------

Alyson Gilbert, Roan Resources, Inc. - IR Manager [2]

--------------------------------------------------------------------------------

Good morning, and thank you for joining our second quarter earnings investor conference call. We will start today with prepared remarks from Joseph Mills, Executive Chairman; and David Edwards, Chief Financial Officer. Also on the call available for Q&A are Joel Pettit, Executive Vice President of Operations and Marketing; and Greg Condray, Executive Vice President of Geoscience and Business Development.

Today's call will contain forward-looking statements that will describe our beliefs, goals, plans, strategies, expectations, projections, forecasts and assumptions. Please note that the company's actual results may differ from those anticipated by such forward-looking statements for a variety of reasons, many of which are beyond our control. Additional information concerning certain risk factors relating to our business, prospects and results are available in the company's filings with the SEC, including the company's annual report on Form 10-K and any other public filings and press releases. Roan does not any undertake any obligation to update forward-looking statements made on this call.

Finally, we will refer to certain non-GAAP financial measures. For a reconciliation of these measures to generally accepted accounting principles, please refer to our second quarter press release or slide presentation that has been posted to the company's website at www.roanresources.com.

I will now turn the call over to Mr. Mills. Joe?

--------------------------------------------------------------------------------

Joseph A. Mills, Roan Resources, Inc. - Executive Chairman [3]

--------------------------------------------------------------------------------

Thank you, Alyson. And good morning, ladies and gentlemen, and thank you for joining our second quarter 2019 earnings call. We published our earnings last evening, and I am pleased to report we had a solid financial and operational quarter. During our last quarterly call, I talked about how we needed to refocus on capital discipline and delivering on our production results, while continuing to reduce drilling, operating and G&A cost and to determine the best strategic path forward for our company. We spent the second quarter doing just that.

We feel like the momentum at the company has improved, and we will continue to build on these results going forward. Before I get into the financial and operational results for the quarter, let me address the strategic process and a few other important issues right up front.

First, we remain very focused on our strategic alternative [review] process. Our financial advisers, Citigroup and Jefferies, continue to assist the transaction committee of our Board of Directors with these efforts. We remain committed to making the best long-term decisions for all of our shareholders and the company. We've been working tirelessly over the past 3 months on this process, and we are actively evaluating a number of opportunities. My expectation is that we will have more news to share with you sometime in the very near future. For now, we'll have no further comments to add until the transaction committee has completed its evaluation of the opportunities. Those opportunities, though, let me remind you, do include but are not limited to the sale of the company, potential mergers with another company or elect to remain as stand-alone company if the right transaction does not exist. We appreciate your patience while these important efforts are underway.

Second, at the end of the second quarter, we announced the completion of a $100 million term loan facility to enhance our liquidity position. The term loan was negotiated at favorable terms for the company with an interest rate of LIBOR plus 7.5%. We appreciate the support shown by certain affiliates of various members of our Board of Directors in providing the term loan facility to the company.

Lastly, our CEO search continues and is well underway, and the search committee has interviewed a number of highly qualified candidates, and we hope to be in position to announce a new CEO sometime in the very near future. The Board and I are determined to find the most-qualified candidate to step into this role.

Turning now to our second quarter results. Oil and gas production for the quarter averaged 50,800 barrels of oil equivalent per day, with 26% of that being oil, 29% NGLs and 45% gas, which is an increase in total production of approximately 41% as compared to our second quarter 2018 results and an increase of approximately 5% as compared to our first quarter 2019 results. This also beat our adjusted guidance of 50,000 BOE, which has been updated to reflect that we were in ethane-rejection mode for the month of May and June. Given where NGLs are trading these days, we expect to remain in ethane rejection, pursuant to our midstream contracts for the balance of this year, which depresses our overall production by approximately 3,300 barrels oil equivalent per day.

EBITDAX for the second quarter came in at a very healthy $79.3 million, which was up 9% as compared to our first quarter and an increase of over 29% since the second quarter of 2018. Our lease operating expense came in at $2.44 per BOE, which was down a strong 28% as compared to the first quarter of this year and well below our guidance range for the year, reflecting the impact of continued focus on our LOE reductions and the impact of the water service agreement that we signed with Blue Mountain earlier this year and that began operations in early April.

Second quarter CapEx totaled $114 million, approximately $58 million lower than the first quarter and well below Street consensus. It is important to note that we anticipate approximately $20 million of capital, that was forecasted to be recognized in the second quarter, will be realized in the third quarter, primarily due to timing and working interest adjustments. Even though some of the capital is deferred to subsequent quarters, we are still meaningfully under budget as a result of having lower completed well costs.

As we discussed last quarter, we have adjusted our spacing assumptions to a more optimal level of 5 to 8 wells per unit, with the potential for upside in some areas. We have optimized the size of our completions and altered the design to better accommodate our recent well results and findings. We remain laser-focused on D&C capital efficiencies with improving success, and we have rightsized the number of rigs for our asset in the commodity environment.

During the quarter, the company spud 17 gross wells. We started the quarter with 4 rigs running but dropped to 3 rigs by early June, and we currently operate at that level. We anticipate maintaining a 3-rig level for the foreseeable future, but we are evaluating the potential of going to 2 rigs. Our drilling team remains absolutely focused on reducing overall drill times and costs. This quarter, the team drilled our fastest 2-mile Mayes well to date in a remarkable 6.4 days after drilling out from underneath surface casing. On a different well, the team drilled over 6,700-foot lateral in 24 hours, which is not only a Roan record but also an Oklahoma State record. After normalizing to 10,000-foot laterals, we drilled 17 second quarter wells on average in 14.8 days, which is our quickest drill times to date. This meaningful reduction in overall drilling times, coupled with lower service cost, has led to average drilling per foot cost of approximately $140 per foot, which is approximately 25% lower than the first quarter of 2019.

The company turned 22 gross wells online and maintained an average of 2 frac crews running during the quarter. This was 3 wells ahead of schedule due to the faster cycle times. Completion cost per foot also improved again this quarter as a result of further service cost reductions, more efficient frac designs and faster drill out times. As a result, we saw an approximately 20% improvement in completion cost per foot over the first quarter of 2019.

The average per well 30-day IP rate for the 22 wells brought online was 1,165 barrels of oil equivalent per day, with 42% of that being oil, 23% natural liquids or NGLs and 35% gas when normalized to 10,000-foot laterals. The average well cost for all 22 wells was approximately $7.3 million. There were several strong performers in this group, including: our Mad Play unit, our Mayes Earl wells, the Mayes Victory Slide wells, our Zenyatta wells and the Red Bullet/Silver Charm unit.

We discussed the Mad Play wells during our last quarterly call. This pad is a 4-well unit that came online in late April with 2 Mayes wells and 2 Woodford wells, with 500 feet of horizontal separation and 200 feet of vertical separation between the wellbores, all located in our west Merge area. The average per well 30-day IP rates for the Mad Play wells was 1,601 BOE per day, of which 44% was oil, 20% NGLs and 36% gas, from a normalized 10,000-foot lateral, with the actual average lateral length of about 6,780 feet. The average per well 90-day IP rates for these same wells was 1,240 BOE per day, of which 42% was oil, 20% NGLs, 38% gas from a normalized 10,000-foot lateral.

We continue to apply pressure management to all of our recently completed wells and still remain very encouraged by the resulting slower decline in these wells. The Mad Play wells were drilled and completed at an average of about $7 million per well.

Next is our Earl unit, a 6-well unit that came online in mid-to-late April with 3 Mayes wells and 3 Woodford wells, with 500 to 800 feet of horizontal separation and 100 to 150 feet of vertical separation between the wellbores, and these are also -- these are located on the eastern Merge. After completion of this unit, we concluded that Woodford wells were not optimally spaced for this unit. These wells were part of our first quarter drilling program, had not been optimally spaced at that time. The Mayes wells though were optimally spaced, and the average per well 30-day IP rate for the 3 Mayes wells was 1,466 BOE per day, of which 39% was oil, 24% NGLs and 37% gas, from a normalized 10,000-foot lateral, with the actual average lateral length of these wells being 10,160 feet. The average per well 90-day IP rate for these same wells was 1,222 BOE per day, of which 32% was oil, 24% NGLs and 44% gas, from a normalized 10,000-foot lateral. Average well cost for the Mayes wells in this unit were $7.4 million per well.

In mid-May, we turned to sales, the Victory Slide unit, which is located in Grady County. The average per well 30-day IP rate for the 2 Mayes wells was 1,170 BOE per day, with 67% being oil and 82% total liquids when normalized for a 10,000-foot lateral, with an average actual lateral length of about 9,900 feet. The average per well 60-day IP rate for these wells was 1,091 BOE per day, with 64% being oil and 81% total liquids when normalized to a 10,000-foot lateral. These wells came in at approximately $6 million per well.

During the quarter, we also completed 2 Stephens County wells that have been spud during the first quarter, those being our Zenyatta wells. The Zenyatta wells are 2 Woodford wells drilled and completed in our southern SCOOP acreage. The wells were drilled with approximately 1,000 feet of horizontal separation between wellbores and drilled in 2 different landing zones within the Woodford formation. The average per well 30-day IP rate for these 2 wells was 1,104 BOE per day, of which 32% was oil, 32% NGLs and 36% gas, from a normalized 10,000-foot lateral, with the actual lateral length being 9,750 feet. The average per well 90-day rates for these same wells was 1,004 BOE per day, of which 27% was oil, 34% NGLs and 39% gas, from a normalized 10,000-foot lateral. We are encouraged by these results in our southern SCOOP area, and we're evaluating next steps for this area.

Another significant unit brought online in June was our Red Bullet/Silver Charm unit. This was a 4-well unit with 2 Mayes wells and 2 Woodford wells, with 800 to 1,160 feet of horizontal separation and approximately 200 feet of vertical separation between wellbores located in the west Merge. The average per well 30-day IP rate was 1,545 BOE per day, with 41% being oil, 26% NGLs and 33% natural gas when normalized for 10,000-foot lateral, with the average actual lateral length of these wells being 9,500 feet. Well cost for these wells were approximately $8 million per well due to the deeper depths and over-pressured environment.

The remaining group of wells during the quarter were all brought on late in the quarter, so we do not have enough production history to date, but early results from some of these wells is very encouraging.

Roan's current production is averaging approximately 52,500 BOE equivalent per day, with 26% of the production being oil. We remain in ethane-rejection mode and expect to remain in ethane rejection for the balance of the year or until we see strength in the NGL markets. As a reminder, the decision to reject and recover ethane is an economic decision and one that we make. For example, we expect to realize approximately $1 million more in revenue for the month of August by being in ethane rejection. For the third quarter, we are projecting to turn 18 gross operated wells to first sales, with 7 already online and the remaining 11 to come online in August and September.

Slide 13 in our investor presentation deck highlights our drilling program for the balance of 2019. We hope this will be helpful and transparent for the investment community.

Lastly, in early July, we entered into a definitive agreement with Blue Mountain Midstream Company to build out a gathering system for crude oil gathering on about 89,000 net acres across our Merge area. In addition, though, earlier this year, we also entered into a definitive agreement with Glass Mountain Pipeline and Navigator Pipeline to blend and ship our barrels directly to Cushing, Oklahoma on those same dedicated 89,000 acres. These 2 agreements are expected to be fully in service later this year. The gathering component with Blue Mountain is expected to decrease Roan's overall crew transportation cost by approximately 50%, improving our net back price and meaningfully decreasing the volatility and the cost structure for crude transportation by significantly reducing our reliance on trucks, which were historically moving our crude product. Not only is this a great financial opportunity, but this will also allow us to retain title on our crude barrels into Cushing and enable us to sell to downstream markets and ultimately realize a higher price for our crude oil. The first phase of the gathering, blending and shipping systems should be operational before the end of this year.

With that, I'll now turn the call over to our CFO, Mr. David Edwards.

--------------------------------------------------------------------------------

David M. Edwards, Roan Resources, Inc. - CFO [4]

--------------------------------------------------------------------------------

Thank you, Joe. As mentioned, the results of the second quarter were a demonstration of the improvements we are seeing in the performance of the asset on multiple fronts as production and capital expenditures beat our quarterly guidance, and operating and G&A expenses were in line or lower than our annual guidance ranges.

Speaking to production, the second quarter volumes were 50,800 barrels equivalent per day, which includes ethane rejection for the months of May and June. This exceeded our updated projections of 50,000 barrels equivalent per day and also represented a sequential growth of 4% or 5% when normalizing all months for ethane rejection. Oil volumes, which represented approximately 26% of production, also exhibited a sequential increase of 5%. Lease operating expenses were $11.3 million in the quarter, a reduction of $3.5 million from the first quarter, implying LOE unit cost of $2.44 per BOE, representing a reduction of over 25% since the first quarter of the year. This substantial improvement reflects the benefits of our new water-gathering contract and the outstanding performance by our operation's team's focus on cost-reduction initiatives.

Additionally, adjusted G&A for the quarter was $1.91 per BOE or $8.8 million, a reduction of over 20% from the previous quarter as we focus on cost control. These components drove EBITDAX $79.3 million for the quarter and EBITDAX margins of $17.13 per BOE, a 4% expansion from the first quarter results, as our operating and administrative cost-reduction initiatives were more than able to offset considerable weakness in gas and NGL realizations.

As Joe mentioned, second quarter capital expenditures of $114 million were substantially below updated guidance of around $140 million and the reduction of nearly $60 million since the first quarter of the year. Multiple factors contributed to these reductions. First, the timing of certain forecasted expenditures were deferred from late in the second quarter, and we now anticipate incurring those capital costs in the third quarter. We expect this rollover to be approximately $15 million to $20 million. Second, well costs have improved materially, as Joe mentioned, as our operations team focuses on efficiency within the well cost structure and industry pricing trends deflate. While we do expect certain anticipated cost to migrate into the third quarter, we are pleased with CapEx trends in the quarter and believe the trend is sustainable. As such, we are reducing our full year 2019 CapEx guidance, which I will explain momentarily.

Turning to the balance sheet. Funded net debt for the quarter was approximately $705 million, which included $660 million drawn on RBL, $50 million funded on our $100 million term loan facility and approximately $5 million of cash on the balance sheet. Liquidity was $145 million at the end of the quarter, which includes $90 million of availability on RBL, $50 million of unfunded commitments on the term loan facility and approximately $5 million of cash.

LQA leverage was 2.2x for the quarter, with covenant leverage of 2.1x. Based on these metrics, Roan was in compliance with all applicable covenants for the quarter.

I'll close on my prepared remarks by discussing updated guidance for the quarter. Our updated production guidance is now 50,500 to 53,500 barrels equivalent per day. The adjustment from prior guidance is primarily due to changes related to assuming ethane rejection for the balance of the year, which impacts forecasted production volumes by a reduction of approximately 3,300 BOE per day as compared to ethane recovery based on our unprocessed gas volumes.

We are now projecting total CapEx will be between $495 million and $525 million, down $25 million at the midpoint from the prior projection. This is primarily a reflection of completion cost optimization; improving capital discipline; lowering on D&C costs; and working interest adjustments. We're also lowering LOE to $2.80 to $3.10 per BOE to reflect cost initiatives exhibited in the second quarter. Lastly, we are adjusting cash G&A to $2 to $2.20 per BOE as a result of the impact of the adjusted volume forecast on the unit cost calculation.

With that, I will turn the call back over to Joe for closing remarks before we start the Q&A session.

--------------------------------------------------------------------------------

Joseph A. Mills, Roan Resources, Inc. - Executive Chairman [5]

--------------------------------------------------------------------------------

Thank you, David. So I'd like to end the call by reiterating how strong the quarter was and all the progress that has been made since our last quarterly call. First off, we remain very focused on our strategic process and determining as soon as possible the next steps. As I led off the call, we hope to be in a position in the near future to provide more information to our shareholders. Second, we had a solid operational and financial quarter, and I think we show that our company is focused on delivering on our promises. Our quarterly production was ahead of guidance, and overall, CapEx was well under budget, enabling us to lower our 2019 full year CapEx guidance by $25 million from the midpoint.

We continue to focus on driving down our total cost structure to improve our financial condition and prepare Roan for sustained lower commodity price environment. Drilling cost, LOE and G&A were all down this quarter, and we will continue to focus on further reductions, especially on G&A reductions, as the year progresses. Lastly, we addressed our near-term liquidity situation by negotiating the $100 million term loan as an interim first step to implementing a longer-term liquidity solution.

We still remain focused on achieving a free cash flow business by the end of 2019, assuming no significant changes through the commodity price environment and operating results. Our team is focused on continually improving our capital efficiency and striving to become an industry-leading operator.

I want to thank each and every one of the Roan employees who work tirelessly every day to improve our company's operating performance and to do so in a safe and efficient manner.

So with that, operator, we will now open the call to questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question comes from the line of Irene Haas from Imperial Capital.

--------------------------------------------------------------------------------

Jiuying Ye, Imperial Capital, LLC, Research Division - Associate [2]

--------------------------------------------------------------------------------

This is Claire for Irene. The question is can you kind of walk us through your assumptions used to achieve free cash flow positive by year-end '19, assume as stand-alone case?

--------------------------------------------------------------------------------

David M. Edwards, Roan Resources, Inc. - CFO [3]

--------------------------------------------------------------------------------

Sure. This is David. Thanks, Claire, and I'll take that question. I think, first, what I'll talk through is the guidance on CapEx for the sequence of the year. Obviously, first quarter was a high watermark for CapEx during the course of the year just as we work through our 8-rig program at the end of 2018. For the bulk of the second quarter, we're operating at a 4-rig pace. That is now a 3-rig pace. So we saw a sequential downturn in the second quarter relative to the first, and we expect that continuation -- to continue in the third quarter. So as the lower rig count flows through the third quarter, we should have a completion count that is similar to the second quarter, which is further diminished in the fourth quarter of the year. So CapEx should continue to trend lower through the course of the year. On the other side of that, we see moderate growth from the second quarter level through the balance of the year, [will] continue to extend up higher and ultimately, that's what's leading us towards our conclusions on free cash flow.

--------------------------------------------------------------------------------

Jiuying Ye, Imperial Capital, LLC, Research Division - Associate [4]

--------------------------------------------------------------------------------

The second question would be can you kind of talk about your expectations for this as far as magnitude of future D&C savings and going into 2020, how do you think about managing your pricing exposures?

--------------------------------------------------------------------------------

David M. Edwards, Roan Resources, Inc. - CFO [5]

--------------------------------------------------------------------------------

Let me break that question. In terms of managing pricing exposure, we've been diligent about hedging for quite a while, and it's left us in a good position for 2020. We feel like we have a strong hedge book to -- even before we roll into the year, at favorable hedges, and we'll continue to look to acquisitions to make sure that our commodity price exposures are minimized. As far as CapEx in 2020, I think that was the other part of your question. Simply, it is too early for us to start talking about that. We'll start the budgeting process during the third quarter and be in a position as [closer] to the market at a later time.

--------------------------------------------------------------------------------

Jiuying Ye, Imperial Capital, LLC, Research Division - Associate [6]

--------------------------------------------------------------------------------

And just as far as D&C savings in the future. Where do think that would come from? And what can we expect as far as magnitude of that?

--------------------------------------------------------------------------------

David M. Edwards, Roan Resources, Inc. - CFO [7]

--------------------------------------------------------------------------------

Yes. Let me talk about that. As Joe mentioned, our quarter average well costs in the second quarter were $7.3 million. So there's been a lot of stride made thus far in terms of bringing the well cost down. I think it's been on multiple fronts. One is, there's been significant improvements in our capital efficiency within the completion program. So making sure that we're getting those efficient completion job for the capital spend, and that has been the biggest driver of the cost reductions thus far. And then on the drilling side, we continue to see that, as Joe mentioned, cycle times on D&C have reduced dramatically, which is driving those costs lower as well. And I think underlying all of that, we continue to work with our vendors to make sure that pricing is efficiently dispersed now that we're at a lower rig program. And that combined with general deflationary pressures in the industry (inaudible) able to take advantage of lowering the service price.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

Our next question comes from the line of Derrick Whitfield from Stifel.

--------------------------------------------------------------------------------

Derrick Lee Whitfield, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of E&P and Senior Analyst [9]

--------------------------------------------------------------------------------

I also want to thank you guys for the (inaudible) disclosure on your Merge asset this quarter. At a high level, could you speak to the approximate acreage split between the West, Central and East regions of your Merge asset?

--------------------------------------------------------------------------------

Greg T. Condray, Roan Resources, Inc. - EVP of Geoscience & Business Development [10]

--------------------------------------------------------------------------------

Yes. This is Greg Condray, by the way. The East Merge breaks out to be about 40,000 net acres. The West Merge breaks out to be about 20,000 net acres, then the remainder being in the Central Merge.

--------------------------------------------------------------------------------

Derrick Lee Whitfield, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of E&P and Senior Analyst [11]

--------------------------------------------------------------------------------

And then perhaps as a follow-up, referencing Slides 7 and 8, your chart suggest there is upside to your spacing and resource projections for the West. While I acknowledge this clearly is in the environment to test science. Could you comment on how you're thinking about balancing competing priorities between corporate returns versus efficient resource recovery?

--------------------------------------------------------------------------------

David M. Edwards, Roan Resources, Inc. - CFO [12]

--------------------------------------------------------------------------------

Greg, now I'd say our focus is on efficient returns. That's going to be our core focus. We found a spacing paradigm that generates derisk returns in the West. And we see that continuing forward. We don't see a need to experiment and take on supplement risk to lower our capital expenditures by trying to down-space from where we were in the second quarter.

--------------------------------------------------------------------------------

Derrick Lee Whitfield, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of E&P and Senior Analyst [13]

--------------------------------------------------------------------------------

Makes complete sense. And if I could sneak one more in. Shifting over to the SCOOP. The Zenyatta well results, particularly the IP 90 rates, appear relatively strong versus our type curve. Could you speak to your HBP requirements for this asset and how you're thinking about capital allocation in a constraint capital environment?

--------------------------------------------------------------------------------

Joseph A. Mills, Roan Resources, Inc. - Executive Chairman [14]

--------------------------------------------------------------------------------

Yes. So I'll take that one. This is Joe. So thanks, Derrick. Yes, so look, we've been -- the Zenyattas were the first 2 wells that we've drilled down in that southern area. As I said in my prepared remarks, we've been pleased at the early performance of those wells. Obviously, we're still studying the area pretty carefully. Most of our acres there is, [in] primary terms, they're remaining on, so we don't have any near-term lease expiration pressures that we have to go spend additional capital there. Obviously, it's a new area. Right now, we remain heavily focused on the Merge. So I would say, for now, we don't plan on any capital allocation to that area, at least in the near term, i.e. the balance of this year or even in the first part of next year. Really want to evaluate the performance there. There's also competition that are drilling some wells nearby, and so we want to see the results of that, which will give us more confidence in the area either to allocate capital or eventually maybe monetize the asset, right? It's a new area. We have a pretty significant position there that had been built up over the past year or 2. There's a lot of interest in the area. So it could be an asset that we eventually monetize to help, again, kind of deleverage our balance sheet.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

(Operator Instructions) Our next question comes from the line of Dun McIntosh from Johnson Rice.

--------------------------------------------------------------------------------

Duncan Scott McIntosh, Johnson Rice & Company, L.L.C., Research Division - Research Analyst [16]

--------------------------------------------------------------------------------

As you mentioned earlier, evaluating -- looking at maybe going down to 2 rigs, I was thinking about 2020. Does that kind of put you in a maintenance mode? Is there still some growth with 2 versus 3? Or how should we kind of think about that for 2020 goalposts?

--------------------------------------------------------------------------------

Joseph A. Mills, Roan Resources, Inc. - Executive Chairman [17]

--------------------------------------------------------------------------------

Yes. That's a great question. So again, we've not provided any guidance for 2020. And as David said earlier, we will definitely do that later this year. But suffice to say, we definitely are looking at 3 versus 2. So good news is, we -- our long-term rig contracts are really running out. So we have a lot of flexibility to determine what is the optimal that we stay at 3 or go down to 2. At 2, I think it's fair to say that we essentially hold production flat year-over-year. And so that's probably the best way for you to be thinking about it. We haven't made the decision yet to go down to 2. But obviously, as we watch the commodity cycles, we'll be making decisions on whether we stay at 3 or go down to 2 probably sometime between now and the end of the year.

--------------------------------------------------------------------------------

Duncan Scott McIntosh, Johnson Rice & Company, L.L.C., Research Division - Research Analyst [18]

--------------------------------------------------------------------------------

That's perfect. And then on the Blue Mountain agreement, that looks like it's going to be very beneficial on the transportation front. How quickly -- you touched on it a little bit in the prepared remarks, but how quickly do -- are we going to see that in your kind of realized oil price take effect? Is it going to be more gradual or...

--------------------------------------------------------------------------------

Joseph A. Mills, Roan Resources, Inc. - Executive Chairman [19]

--------------------------------------------------------------------------------

Yes, unfortunately, probably a little more gradual. So obviously, the agreement was signed really right at the very tailwind of the second quarter, beginning of this quarter. And obviously, our friends at Blue Mountain are aggressively trying to put pipe in the ground. And I think that we probably won't see realizations really start until sometime in the, call it, mid-, early fourth quarter, potentially mid-fourth quarter. Obviously, we're working closely with them to identify the pads that they would lay to first. And I can assure you they're going to move as fast as they can, and we'll certainly be helping them. But yes, it's a meaningful reduction in our trucking cost. And so I think it's fair to say we should see the benefits of it probably sometime by, call it, mid-fourth quarter. And so you will see it impact us during that quarter.

--------------------------------------------------------------------------------

Operator [20]

--------------------------------------------------------------------------------

I'll now turn the call back to Joe Mills for closing remarks.

--------------------------------------------------------------------------------

Joseph A. Mills, Roan Resources, Inc. - Executive Chairman [21]

--------------------------------------------------------------------------------

All right. Well -- So ladies and gentlemen, again, thank you very, very much for your time this morning. I know there's a lot of other calls going on at the same time. And -- but we really appreciate you dialing in and listening to our story. I'm proud of where the company -- or what we accomplished during the second quarter. We have more to do. I want to assure everybody on the phone, this company is laser-beam focused on delivering on its promises. Obviously, it's difficult tape out there with the commodity prices. But we're doing everything we can in order to really improve our bottom line and deliver on the production guidance and results.

So with that, we look forward to seeing many of you soon and certainly to the next quarterly call. Thank you.

--------------------------------------------------------------------------------

Operator [22]

--------------------------------------------------------------------------------

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