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Edited Transcript of TAT earnings conference call or presentation 18-Jun-20 12:30pm GMT

Q1 2020 TransAtlantic Petroleum Ltd Earnings Call

DALLAS Jun 29, 2020 (Thomson StreetEvents) -- Edited Transcript of TransAtlantic Petroleum Ltd earnings conference call or presentation Thursday, June 18, 2020 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Michael Paul Hill

TransAtlantic Petroleum Ltd. - Principal Accounting & Financial Officer and CAO

* N. Malone Mitchell

TransAtlantic Petroleum Ltd. - Chairman & CEO

* Tabitha T. Bailey

TransAtlantic Petroleum Ltd. - VP, General Counsel & Corporate Secretary

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. And welcome to the Q1 2020 TransAtlantic Petroleum Ltd. Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Tabitha Bailey, General Counsel. Thank you. Please go ahead, ma'am.

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Tabitha T. Bailey, TransAtlantic Petroleum Ltd. - VP, General Counsel & Corporate Secretary [2]

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Welcome to TransAtlantic Petroleum's First Quarter 2020 Earnings Conference Call. On the call today, we have Malone Mitchell, our Chairman and Chief Executive Officer; Michael Hill, our Chief Accounting Officer and myself.

During today's call, we will make certain forward-looking statements, which includes statements regarding our beliefs, goals, expectations, forecasts, projections and future performance and the assumptions underlying such statements. Please note that there are a number of factors that may cause actual results to materially differ from our forward-looking statements, including the factors identified and discussed in our earnings press release, which we issued after the close of business yesterday and in our SEC filings.

Please recognize that, except as required by law, we undertake no duty to update such forward-looking statements, and you should not place any undue reliance on such statements.

Now I'll turn over the call to our Chairman and Chief Executive Officer, Malone Mitchell.

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N. Malone Mitchell, TransAtlantic Petroleum Ltd. - Chairman & CEO [3]

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Thank you, Tabitha. Good morning, ladies and gentlemen. Michael Hill, our Chief Accounting Officer, and I will give prepared remarks, and then we will take your questions.

TransAtlantic utilized the SEC extension on filing to facilitate the change to a Turkey-based auditing company and our reduction in Dallas F&A staff. Even though there was low activity in operations during the first quarter, the sale of our subsidiary, Petrogas, reserve adjustments, and hedging activity, along with market disclosures, added some complexity to the filings, both our auditors, DMF, led by Aslan Kaya, and our staff completed the filings accurately. Cash flow from production dropped significantly from both the same quarter a year ago and from the fourth quarter of 2019, due to the significant drop in oil price and expanded basis differential, coupled with reduced produced volumes.

The second quarter will be worse. Our reduced cash flow will be needed to pay operating expenses and senior bank payments, which amortized through March 2021. Therefore, we do not expect to undertake additional drilling during that time. So production volumes will continue to decrease. Our current hedges will produce a realized oil price of $36 a barrel, adjusted for index and basis differential through the debt amortization period. I will now turn the call over to Michael Hill to review the quarter's financial results.

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Michael Paul Hill, TransAtlantic Petroleum Ltd. - Principal Accounting & Financial Officer and CAO [4]

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Thanks, Malone, and good morning, everyone. As disclosed in our press release, along with our 10-Q filed yesterday, we provide an update on our first quarter 2020 operating results. We reported a net loss of $24.0 million or $0.38 per share during the first quarter of 2020, compared to a net loss of $5.4 million or $0.10 per share for the fourth quarter of 2019, and a net loss of $3.9 million or $0.07 a share for the first quarter of 2019. Our 2020 first quarter revenues were $8.4 million. This was down 49% from the fourth quarter of 2019, and down 56% year-over-year. The decrease in our first quarter revenues as compared to the fourth quarter of 2019 was driven by a 43% decrease in our average realized price per BOE received and a 10% decrease in sales volumes. The decrease in revenues from the first quarter of 2019 was driven by a 46% decrease in our average realized price per BOE received and an 18% decrease in sales volumes.

Our 2020 first quarter G&A expenses were $2.4 million. This was down 34% from the fourth quarter of 2019, and down 23% from a year ago. The decrease in G&A from the fourth quarter of 2019 was due primarily to a decrease in personnel expense as well as accounting, tax consultancy and legal fees.

Our 2020 first quarter production expenses were $3.5 million. This is up 7% from the fourth quarter of 2019 and up 41% from a year ago. The increase in production expenses in the first quarter, compared to the fourth quarter, was primarily due to an increase in personnel expenses and contract labor and an increase in workover expenses, compared to the fourth quarter. In the first quarter of 2020, we recorded approximately $20.3 million in exploration, abandonment and impairment expense on our oil and gas properties. Of the $20.3 million, $11.7 million and $6.5 million related to the proved impairment on our Bahar and Selmo oilfields. This was a result of a steep decline in oil prices experienced as a result of market concerns about the economic impact from COVID-19.

Additionally, we incurred $2.1 million of exploration expense for 2 unsuccessful wells during the quarter. In the first quarter of 2020, we completed the sale of our wholly-owned subsidiary, Petrogas, for cash proceeds of approximately $1.5 million. And we did record a loss on the sale of approximately $10.1 million, which primarily related to the reclassification of the accumulated foreign currency translation adjustment that was realized into earnings from accumulated other comprehensive loss within shareholders' equity.

First quarter 2020 adjusted EBITDAX was $8 million as compared to $8.5 million in the fourth quarter of 2019, and $12.3 million in the first quarter of 2019. The decrease in adjusted EBITDAX from the fourth quarter was due primarily to a decrease in our revenues of $8.1 million and an increase in production expense of $200,000. This was partially offset by our realized hedge gains of $6.5 million and a decrease in G&A of $1.2 million. The decrease in adjusted EBITDA from the first quarter of 2019 was primarily due to a decrease in revenues of $10.7 million and an increase in production expense of $1 million. This was partially offset by our realized hedge gains of $6.5 million, and a decrease in G&A expense of $0.7 million.

On March 9, 2020, we unwound our three-way collar and swap oil contracts with DenizBank and realized $6.5 million in proceeds. We used these proceeds to repay a portion of our term loan with DenizBank and made 2 additional amortization payments during the quarter for the total debt reduction of $9.4 million. This left our total gross debt balance with DenizBank at $10.6 million, as of March 31, 2020.

As part of the hedge on the line and subsequent paydown, DenizBank extended a grace period for principal repayments until the end of June when they will continue with 1 monthly installment of $600,000 and 7 subsequent installments of $1.4 million, beginning in July until maturity.

As of March 31, 2020, our consolidated working capital was $3.2 million. This is a slight increase from $2 million from the fourth quarter of 2019. Our capital expenditures were $2.9 million during the first quarter of 2020 as compared to $4.7 million in the fourth quarter of 2020 and -- or fourth quarter of 2019 and $9.9 million in the first quarter of 2019. We expect our capital expenditures for the remainder of 2020 to be minimal with range between $1 million and $1.5 million, however, this is subject to change at the discretion of the Board.

I'll now hand the call back over to Malone.

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N. Malone Mitchell, TransAtlantic Petroleum Ltd. - Chairman & CEO [5]

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Thank you, Michael. We faced a lot of challenges during the balance of the year, and I refer you to the Liquidity and Capital Resources section of the press release and to the full 10-Q filing for additional detail. And these all materialized from the pandemic and resulting oil market changes during the first quarter. We'll now take your questions.

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Operator [6]

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(Operator Instructions) At this time, I'm showing no questions. I would like to turn the call back over to Malone Mitchell, CEO, for closing remarks.

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N. Malone Mitchell, TransAtlantic Petroleum Ltd. - Chairman & CEO [7]

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Thank you for joining the first quarter 2020 10-Q call for TransAtlantic Petroleum, and have a good rest of your week. Thank you.

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Operator [8]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating, you may now disconnect.