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Edited Transcript of TAT earnings conference call or presentation 8-Aug-19 12:30pm GMT

Q2 2019 TransAtlantic Petroleum Ltd Earnings Call

DALLAS Aug 30, 2019 (Thomson StreetEvents) -- Edited Transcript of TransAtlantic Petroleum Ltd earnings conference call or presentation Thursday, August 8, 2019 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 Financial Officer & 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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Good day, ladies and gentlemen, and welcome to the TransAtlantic Petroleum Second Quarter 2019 Earnings Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Tabitha Bailey, General Counsel. Please go ahead.

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

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Welcome to TransAtlantic Petroleum Second Quarter 2019 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 include 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 any forward-looking statements, and you should not place undue reliance on such statements.

Now I will turn the call over 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.

I first want to address the decline in oil prices we've seen over the last 60 days. Earlier this year, we entered hedge collars for 1,000 barrels of oil per day when oil was at approximately $70 a barrel, and these begin paying if oil goes below $55. Brent oil, which forms the reference for how our oil is priced, was at $56.85 this morning. While we have an additional 3 to 4 wells scheduled to drill this year, we can moderate this if necessary. We have already fulfilled all of our work obligations for 2019.

With our blended operating expenses of our wells at approximately $9 per barrel, our ongoing existing production remains very profitable.

We have recently drilled 2 wells, on which we have taken cores. This data, after analysis, should be able to tell us if -- first, if we have additional productive zones in our Baha and Yeniev fields, which we have not completed in our existing wells.

Second, it should give us better measure of oil in place and drainage from our existing wells, so that we can better determine how many wells are required to optimally produce these fields.

And third, it will help us better understand the mineral and physical composition of the rock, so we can implement appropriate reservoir pressure maintenance, most likely waterfloods, and increase the ultimate recovery of the wells in the fields.

Addressing the wells individually. First, the wells we have drilled during this immediate past. The Yeniev-4 well was drilled through the Bedinan and came in structurally high to our other producing Bedinan wells. We recovered a core over the entire Bedinan section. We expect core analysis by month end, which will allow us to commence completion operations. The #1 well has now made over 120,000 barrels of oil by natural flow with less than 500 barrels of water. And the #2 has, likewise, produced over 67,000 barrels of oil by natural flow with negligible water.

We just finished drilling the Bahar #12. It was drilled through the upper Bedinan formation and came in structurally as we expected. We're now logging and preparing to case this well. We recovered extensive cores over the Hazro F4, F3 and F2 zones in both upper Bedinan sands. We expect to commence completion operations in August as the results from the core analysis is not as time-critical to early completion practices as the Yeniev-4 well.

We also drilled a very shallow exploration well in the Thrace Basin, our Karli-1. We are evaluating whether to complete several encountered sand zones or to deepen the well. This fulfilled our work obligation for 2019 in our Temrez block, and we believe approximately 50,000 acres of this block are geologically equivalent to the basin center gas accumulation being tested by Valeura and Equinor and the blocks immediately south of us. And we anticipate further updates on their test over the next quarter or 2 this year.

Our next scheduled well will be the Yeniev-5. We expect to cut and recover cores from 2 intervals of the Mardin formation in this well. These intervals have oil and gas shows in many of our Molla block wells while we are drilling. Our previous ongoing drilling to deeper objectives and the limited completion attempts in these intervals due to the lower productivity of the Bedinan and Hazro sections really cloud our understanding of the productive potential on our blocks of these formations. These intervals are the primary producing zones in the region in the Southeast Turkey. We expect our cores to give us a much better understanding of oil in place and oil-water saturation and production potential.

Future wells to these intervals would potentially cost less than half of a deeper Bedinan well.

Now some follow-up on earlier wells. The Blackeye well, also known as the Karagoz, has produced for several months now at 20 to 25 barrels of oil and 1 barrel of water per day from the Hazro. We were formally awarded the Eastern Molla block as a production license by the Turkish government. Now that the license is secure, we might test that Mardin shows uphole in the well, and we have a lot of running room up depth in that block on our Molla license.

Our Southeast Bahar well, which was mechanically a difficult and expensive well, unlike the other wells we drilled this year, tested oil from the open hole Bedinan at a rate of approximately 8 barrels of oil a day and 25 barrels of water, natural. We fracked this well and have just put it on pump. We expect to recover load and know better what its productive capacity is in about a month.

We just fracked the Pinar well last weekend, and it was -- this well was originally drilled in 2018 and has been producing oil by natural flow from unstimulated upper Bedinan sands. We're now preparing to run a pump and expect about a month, likewise, we'll be required to understand the productive potential of this well.

We expect the completion of the discussed wells will more than offset our production decline over the past few months. And if we can drill all of our planned wells, then we can exit the year ahead of last year's production rate.

I will now hand the call to Michael Hill, our Chief Accounting Officer, to review the quarter's financials.

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Michael Paul Hill, TransAtlantic Petroleum Ltd. - Principal Financial Officer & 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, I will provide an update on our second quarter 2019 operating results. To begin, our 2019 second quarter revenues were $17.2 million, down 9.6% from the first quarter of 2019 and down 5.4% year-over-year. The decrease in our second quarter revenues as compared to the first quarter of 2019 was driven by a 6% decrease in our sales volumes and a 4% decrease in our average realized price received per BOE. The decrease in revenues from the second quarter of 2018 was driven by a 10% decrease in our average realized price received per BOE, which was partially offset by a 4% increase in our sales volumes.

Our 2019 second quarter production expenses were $2.7 million. This is up from the first quarter of 2019 at 8% and down 3% from the second quarter of 2018. The increase in production expenses in the second quarter compared to the first quarter was primarily due to an increase in our contract labor and diesel fuel consumption compared to the first quarter of 2019. The exploration, abandonment and impairment, experienced in the second quarter of 2019 was approximately $700,000. And this related to the previously announced write-off of the Deventci R1 well in Bulgaria.

Our 2019 second quarter G&A expenses were $2.7 million, and this was down 12% from the first quarter of 2019 and down 29% from a year ago. The decrease in G&A from the first quarter of 2019 was due primarily to the decrease in personnel expenses, and the decrease in G&A from the second quarter of 2018 was primarily due to the decrease in professional and accounting consulting fees associated with the evaluation of strategic alternatives in 2018.

Our operating income for the second quarter of 2019 was $6.3 million. This was up 97% from $3.2 million in the first quarter of 2019 and down 8% from $6.9 million in the second quarter of 2018. We reported a net loss of $9,000 or $0 per share during the second quarter of 2019 compared to a net loss of $3.9 million or $0.07 a share for the first quarter of 2019 and a net loss of $1 million or $0.02 per share for the second quarter of 2018.

I'll now move on to the balance sheet. During the second quarter, we paid down $5.7 million on our 2017 and 2018 term loans with DenizBank, which left our total gross debt balance at $31.2 million as of June 30, 2019. Our total net debt at the end of the second quarter was $17.5 million compared to $17.2 million at the end of the first quarter of 2019, and $12.1 million at the end of the fourth quarter of 2018. And as of August 1, our 2019 gross debt was approximately $29.2 million.

As of June 30, 2019, our consolidated working capital was $7.7 million, and this is an increase of $5.2 million from the fourth quarter of 2018.

Our capital expenditures were $6.2 million during the second quarter of 2019 as compared to $9.2 million in the first quarter of 2019 and $5.6 million in the second quarter of 2018. We expect our capital expenditures for the remainder of 2019 to range between $10 million to $15 million. However, this is subject to change at the discretion of the Board.

Our second quarter 2019 adjusted EBITDAX was $10.7 million as compared to $12.3 million in the first quarter of 2019 and $8.7 million in the second quarter of 2018. The decrease in adjusted EBITDAX from the first quarter was due primarily to a decrease in revenues of $1.8 million and an increase in our production expenses of approximately $200,000. This was partially offset by a decrease in G&A expenses of $300,000 and a decrease in our transportation expenses of $100,000. The increase in adjusted EBITDAX from the second quarter of 2018 was primarily due to a decrease in our realized hedge settlements of $1.9 million, and a decrease in G&A expenses of $1 million. This was partially offset by a decrease in our revenues of approximately $1 million.

In the second quarter of 2019, we entered into a 3-way costless collars to hedge approximately 1,000 barrels of oil per day through April of 2020. With a full price of $55 per barrel, a ceiling price of $72.90 per barrel, with an additional call ceiling of $80 per barrel.

We are also party to foreign currency hedges to cover the volatility of the Turkish lira on our oil sales collections.

I will 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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Thanks, Michael. There's no question that the energy sector has become extremely unpopular for stock investors. Even the major integrateds are down over 20% over the course of the past 9 to 10 months. Our peer group of small publicly listed energy stocks operating in our region have declined in value by approximately 53% last October, while TransAtlantic has declined approximately 46%, somewhat outperforming its peers.

We appreciate your continued ownership of TransAtlantic and hope that public market sentiment toward energy stock changes for the better soon. We will now take your questions.

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Operator [6]

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(Operator Instructions) There are no questions at this time. Speakers, you may continue.

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

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Okay. Thank you, everybody, for participating in the call this morning, and have a good day. Goodbye.

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Operator [8]

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Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and have a wonderful day. You may all disconnect.