Qep Resources (QEP) 25 Apr 192019 Q1 Earnings call transcript

Greetings, and welcome to the QEP Resources First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, William Kent, Director of Investor Relations. sir. you, Thank

begin. You may

& Cutt, Christine, Senior Officer; joining and quarter Thank you, our and President are morning, results Richard Region; Executive Doleshek, Southern Executive President Redman, good today for Vice HSE. of for Vice the Tim today us me first Chief call. you and the Northern Chief conference Officer; Vice Financial Thank Region and With everyone. Tommerup, President Joe QEP XXXX of Jeff Resources President

If which release, not please financial to tables you’ve materials. slide so done go supporting today’s copies our other the In our already, adjusted use obtain filings. and to costs. processing conference comparable presentation, the of website, including and we’ll with to and results, with GAAP which referred qepres.com, along the with release earnings our measures measures, maps to earnings EBITDA release contains our measures filings, call, non-GAAP and SEC transportation as SEC in most are reconciled certain EBITDA, adjusted in These and is earnings

like everyone robust turn everyone in risks I’d facing we’ll remind filings. the and our forward-looking SEC Tim. forward-looking our reasons, statements a of call We to control. of be numerous earnings our beyond actual materially are refer our to our our statements. which making to discussion more that, for With variety business disclaimer over could statement We forward-looking of many addition, from these results release In and differ that

performance. to against of call an update then operating first the to and G&A you turn financial Richard details joining provide of expense. Today, good reset to performance, the call. I’ll I quarter and everyone, our will discuss our Thanks, plan thank morning, including progress over the Will, the on for

QEP. value on alternatives advisers, of and maximize last the progressing Board I engaged we and As the and to review all company call, financial strategic of has the our are noted legal our

As transaction, until reminder, result not this in a comment a may process further or the complete. do not we to and is effort may plan

I’m performance the operational that quarter, consistent first guidance For every pleased with report category. in to is

is as the production of activity. oil result by Permian increased expect during quarter second approximately grow overall on and XX% a production completion Our target we to

have drilling by help to delivery months, We the which quarter production two of accelerated a Williston the increase our program planned year. will fourth ensure of during

continued expected. spacing on wells and On the XXXX the in drilling at This units density move with first XXXX, our XXXX the production front, spacing during us drilled brought lower during great development our with gives as forward the to along deliver as of XXXX, confidence the program. well quarter we late forecast meeting

mile. Mustang with per in been compared the being zone. in We tests per is Mill along A repeatable, successful per and XX mile, X with to at a developed wells to well in of B. the of mile per in to wells XX selected This have and spacing highly zone current XX Springs, XX at delivering drilling B, wells Spraberry primary results The the Wolfcamp wells economic Wolfcamp as high-density configuration the density Dean, wells Jo and

in optimized production Permian marginal new the the at have spend the We non-consented operated in profile capital facilities third-party our of wells for Williston.

time our which and effectiveness, continuous addition, positively intensity. cost delivering is In teams and operations both on improvement are capital cycle impacting

approximately and decreased of costs per completion As by $XXX,XXX have drilling work, a this result well.

capital XXXX, We within activity while and freed in executing overall shift still to our we is the the and toward guidance. additional an to XX drill drilling Permian plan living Permian. capital now in XX additional will up, wells As complete on completion during

of will and the be volume Permian partially will in the the wells wells additional XXXX, come non-consenting oil gas related however, wells do, non-operated the due and XXXX per XXXX. the production We quarter activity expect of to on X.X guidance our the as late to add by for million the more equivalent business. in fourth additional to wells. than have volume to offset asset anticipated barrels that sale lower the year production of the during Haynesville Williston not from changed LOE the BOE completion levels We first quarter given associated increased

was As per a $X oil reminder, below the equivalent. operated barrel of Haynesville

year expense. full-year a a few LOE I it and will expect guidance. down now discussing in have throughout laser-sharp on minutes efforts reset with our focus see the G&A We trend to spend line to

the planned of reduction quarter, a during we the our the year. place to of take notified first-half During employees

We by workforce announcement by expect in of the total have levels at approximately to will the XXXX, of point of be operating staffing since initiatives mid-year February strategic reduced our at which XX% XXXX. our we go-forward

addition, confident expense normalized of G&A XXXX. have achieving non-employee In lowered and we substantially reduction and between costs are targeted the of XXXX XX%

and confident technical year our and neutrality we our With that systems will per flow rate remain we staff reach significantly continue on we down expense throughout year Although core reduction expense and to payment, ability year-end consistent to delivery, progresses. focus the G&A retained we keep first retention the with price as our aggressive eye in plans. before are included and to with an confident business, our come cash quarter for we required run with G&A the on have our XXXX. plan. the have on achieving forward operating in the execute severance and product been our stated reductions, full-year volume an $X BOE eye cost of business

spacing deliver substantially to and final acreage established with rigs three well the production. predictable the Permian We two that our dropping closer consistent rigs the is in mid-year. are make held guidance should we’ll a which over currently We’ve Permian all on continuous judgment of by to running results the in position,

growing deliver price, be base results. through a cost value will world-class of to outstanding we We $XX and time. which a production structure, our flat deliver grow flow prepared significant oil flow, and annum, XX% moving positive progressing cash our and annum cash retained at able will and are reset within forward, At have at can we employee volume we business $XX, over to while overall Permian XX% per by per live maintain

Our Basin goal at opportunity to competitive, value a is execution while the investment Richard of selective results. now Basin, through call Williston predictable long-term maximizing and oil financial opportunities. the the in low-cost turn over deliver to to I’ll Permian discuss our drilling refrac

at both end X.XX At volumes of first Permian, forecasted. were the quarter were Production gas first more very two prices third XXXX. our quarter quarter, of the their and were quarter this everyone. last on oil the we were about put year. Williston fairway of Natural call barrels the production was the we of drilling the compared during the asset, EBITDA. right the of fourth middle lowest In up XXXX last of in Basin originally we year. oil of is and of down million the open were the give of XXX,XXX to of cheaper for adjusted at of, owed oil Basin, guidance volumes guidance X barrels, and expect barrels, and contributed our Tim, XX% down million regard In have production the due for $XXX.X color Permian our fourth fourth barrels that the days EBITDA and the production the which improved well on X construction were first quarter. XXX,XXX XX from quarter, the things, then update volumes levels for you, in faster replaced was but to NGL million expect XX% in which February drill including additional to about the morning, the quarter. able the year. XXX,XXX first Permian X.XX we’ll is guidance, from With Bcf, quarter quarter progress Thank down Q&A. Oil about well made issued quarter we commenced drilling million in seven marginally I’ll quarter pad, fourth front, X.XX operations good G&A than to million wells facilities which we equivalent. from The XX in complete to the which and first in in our starting lower January. were BCF Haynesville volumes from from to quarter, completion adjusted this the fourth quarter of of XXXX, about we generated volumes year of be barrels, reflective which Haynesville the other we of X.X barrels process, the year, since in revenue down barrels. down the the XX basin assets, fourth Vegas million down or X.XX XX% production wells barrels, to among on Permian some the oil phases our on

for contribute not is unchanged year, significant will so in oil our wells barrels. XX volumes guidance volumes the XXXX those million million XX.X However, to at for

for which guidance. assets, amended to guidance to we volumes our for had reflects our of Haynesville Bcf, XXXX gas Our XX.X a XX.X increased range volumes is the natural from from initial which

for unchanged at for Our to volumes X.X NGL guidance XXXX X.X is million barrels.

down unit than fourth divestiture in barrels lease transportation operating second the quarter, which the against absolute were $XX.X oil our is basis, that details. increase $X.XX the million Haynesville per is fourth BOE, revenue, of in operating the equivalent. quarter. in lease responsible the our to per is was for a the per the per of per million decrease Combined in X.XX see quarter. BOE expenses, The and are $X.XX million Please our from expenses and in higher fourth transportation expense transportation quarter, million unit $XX for earnings expense X.XX of was production expenses per the $X.XX release assets BOE primarily which For guidance down expenses. Adjusted additional including BOE, adjusted quarter. from were $X.XX netted On $XX

$XX guidance and quarter our activities. including XXXX $XX $X down match to cost $X our of Our fourth million G&A $XX E&P million is quarter, from expense to for at operating corporate and BOE. per alternatives were of for the unchanged million the adjusted scaling strategic up our expenses to the structure quarter, better expenses where valuation transportation in lease related

million guidance compensation XXXX which by We $XX have to $XXX reduced G&A the of million, is midpoint expenses of our for $X expense. million for share-based

including million our Our severance retention guidance our initiatives, employee and strategic with programs. expenses includes million $XX to $XX associated of

which a below XXXX. the the detail to incur to earnings or release slide yesterday, $X expect accompanied that in provided at We BOE in is a significant that first-half per our of path deck the level year. portion of We the our more G&A illustrates in expenses

the million $XX G&A of will about Excluding be what stock $XX around expect include referring expense. advances we which as quarter second to in we’re our special price, driven G&A by to million,

Driving reported a $XXX million. Basin net net $XXX and excluding million with $XXX expenditures, the XX. first Capital value quarter. $XXX mark-to-market March the million was loss XX, $X December were $XXX was to was was of the expense the quarter, quarter reported our For loss acquisitions we on Williston million, the million, net At of associated basis less million, compared commodity million net $XX to directed Basin. in in DD&A loss to of of first the of of a the fourth million million liability $XXX $XX accrual which at Permian than which unrealized we was an the portfolio. derivatives asset portfolio

$X.XX Q&A. we million and $XX the from prepared shareholder all end Total approximately about facility billion in in million excluding the at equity comments end and reflects senior capital credit $XXX now second for Basin. At divestiture Capital of guidance Vegas drilling Our the we’ll the for billion. we debt sheet. $X.X for have expenditures has of quarter, activity assets our quarter, revolving the been total were the quarter. cash and be in and call Williston $X.XX notes regard me, million, of to in billion, is XXXX, the nothing the which the was the balance pad unchanged. activity $XXX those acquisitions, excluding which With was was range to With on of had acquisition should our expenditures open

you. Thank

We question-and-answer you. Instructions] Thank now be [Operator will conducting session. a

from question Daoud Gabe comes line the first with your question. Our with Cowen. Please of proceed

density Could learned But about, you Obviously, Hey, just X. density lower. impact at from case also the the a the inventory? outside the current guys. be Middle and impact bit you plan? case, does about good to how talk the now Slide morning, near-term starting that Maybe with you what then high will quantify make how just little slide, of And point? guess, density sense it going your XXXX since have this can I development Spraberry

Yes.

we the the – the developing is Dean, the very year. that put bringing Obviously, of the think where Wolfcamp other zones, Jo demonstrate that of most the now next slide over I Dean we’re money including we’re out on kind in to going B, our positive. are wells Mill,

didn’t the most represent in thought change to we delivering So It had data ones and we the our just we slide we’re delivered. we these what are says any want thinking. the on

the you should about So feel good consistency.

the the we these out can the of more per that. zone, Although the has alternate down learn zones more density come add about three, into we

over if So it a the economic higher at price? makes to time. are density, go ask really it The we price, of sense. answer lot back remaining we kind to on location might was spacing change I it’s more the hard about a of higher mean, question, a could much

length. and of kind improvement lateral continuous on was also there, it We’re cycle

another as to how lateral will change million and we that we look it attract at we’ve of XX to time. through – drill million So, got XX kind feet

to went we you’ll find when like felt our that right we you it’s the in you not near well it the we So type And high-density curve. that are will, was a if top lower-density, from competitors, do your show we’ve with line on which to comparisons, bit important of curve. that we got

the on just terms will that would Got side and in it, on bit Is determine around exactly your third even seeing, third you rig, you’re final make or the whether any in rig? the like tightness keep I mentioned that additional a anything, of of kind helpful. pricing, a just field for And gas or any mid-year. maybe on maybe then looking thanks, that’s that you there not you follow-up, elaborate guess, more just be Can you and what you’re what color decision, comment helpful?

rigs, on interesting, stay about interesting about. think, curve. really $XX talked that take XX-plus potential running. I around case in two a to our neutrality on – but and dropping it’s and have if cash talk can the those we we forward the backwardation over time mean, going Yes, to we – we things. to Board all keeping saw that the to compelling of flow I forward, our do and kind the debt flat flow cash we’d like grow It’s rig

Williston. take desire so, to would out of our And Basin we be cash grow Permian our the as

of to desire but of neutrality keep that so flow And very, making achieving staying the there’s ahead be that. guidance, to within it, sure and cash a we going we’re go very rigorous don’t ourselves on

So in change in higher would we’ll consider forward the change doesn’t the I’d say. probably we think, right few we’d the now, the If see I watch base next change goes I either might or the over lot, months, a think, curve price much see we that a drop strategy. If backwardation, rig. we

great. right, All guys. so Thanks much,

Thanks, Gabe.

proceed with from comes Neil SunTrust. Our Please next question the line your with Dingman of question.

the service far be as the wondering it just efficiencies efficiencies? mean, give on going that, I’m it would is the mentioned could you cost I’m enable question here if trying appreciated? the about Tim, little the you’re are you and shed some on XX wells. to morning, just I the light in Good maybe completion details – and side, it more down along any as on that? you savings, that all, there. costs nice my is of seeing XX then Tim, to some can details a is, with more

Yes.

cost the in really kind If we I talk seeing in drill the some deck efficiencies so can would round it XX of save million drilling we million a efficiencies. a So about be $XX number a the is need. we gave we our think slide well, $X completion completion that drilling of wells few we’re a about hopefully does of and drill more,

basically If important. area. to non-consenting, Permian acreage that into We’ll now pretty non-consenting it piece in at components, better now sell the where wells acreage non-consented of that wells that portfolio. it’s about but Williston it’s the you money spend remote our million. the $XX the evaluate down of small Timing is kind break The a acreage, a to the comes facility see is in from, we’re we it were

a a time availability. So we we to that assure And spent quarter, in the would the just money first ahead adjusted. that where quite building lot facility like in bit had we manufacturing time, saying, time has have a process, barrel every on been of of we’re cost us timing ourselves availability and

continue per completion $XXX,XX-plus $XX and million, us on try the was It to save will well. about that we and So that. million optimize million or drilling $XX about And $XX finally, cost. then to it’s

will number recycle to We play it basins, BOE that go about in optimization, in-basin sand, and then of $X.XX year $X for down for water. throughout buying think recycled the that full versus of perforation up all with utilization some I and the comes water increase [ph] optimization.

there. lot on whole a going So

So costs, time of not down on continue the only structure, are massive we’re we’ll focused we as on cost over that. the and that do bringing to MTV G&A amounts entire working

guess, Great Great. alternatives strategic the alternatives, outside – of should But they’ve I’m Bakken, about in Since sell if your details. whatever, the that one or then your strategic you follow-up. is a just comments wondering? or obviously that dealings you there. And what part to in your maybe piece decide or, of said, to going just as of is is the that, non-consent, that point I

our good felt These mean, their we at and were mean, investment. have make business. was I compared in Yes. every subpar look decisions. to inventory I these to afford operator inventory. we to like it’s just capital smart tough The

too to want destroy value don’t need We to staying we by in also then long. say, potentially

acreage. anything that outside core, we’re to returns have is, we sure outside we in and acreage that what look to XX% want to kind we understand our of focused it’s at you as But reinvest projects. of available think we’ll – on it’s that what of cash So the XX% make once

Okay. so Thanks details, much Tim. for the

Thank right. you. All

question Please Our comes with from next question. Stifel. with line of proceed your the Whitfield Derrick

all, a congrats and operational on morning, update. Good strong

you. Thank

Perhaps for Tim.

patterns for X, those sharing thanks to on Page you’re Stateline approach. to and those areas? back the it assume Going Springs both fair Would and plots density spacing that utilizing be details current Mustang your for

That’s question. a good

edge of activity our returns about a how thought We maximizing little bit early interference plenty project think avoiding for feel of second-half optimum of When year with slightly is there. good concept rig County because the little to finish in zones activity into going we’re of I we we’ll associated drilling concept the DSU Mustang But little It’s down will be a Springs, and be Springs. has Configurations that. would the as Line most you be Line. overall into well. but been configuration, the of different across, So process this but which in bit a have County Mustang kind primary [indiscernible], we’ll we’ve it. there. our about repeatable of our done the and quarter out we’re complex, XX, the with will is sticking move Line. of to overall that, Eastern in different, the the a recently are able the and over say, talk good spacing different bit are We of spacing probably next the to brought on County taking success

on remaining shifting South and for estimated the FBIR? you then some offer inventory Bakken, And Antelope over Thanks. color to could

level. Yes. little a starting higher I’ll bit about talk the at –

Bakken So on lot decline. of about – had when questions what’s we going with think a we’ve about

pad. into at look drill bring you we’re our the on seven them we quarter. fourth – have drilling wells, If year, Vegas We’ll

bounce fourth with going quarter. quarter. the equivalently we’re So first the end fourth will pretty quarter The up to

at the a dip middle and what’s the looking we’ll best So have. have we’re inventory we in

at looking have on all the quite We’re refracs and follow-up the positive. been our inventory results

near-term, wells. And drilling lot so obligation although we’re of not doing a because we’re

excited long-term that. We’re actually the quite on for

probably have amount our a refrac of substantial what get program and So depending in in price I does. inventory that on going on we’ll hope think XXXX to

limited numbers than Permian don’t to of there on than don’t As few have do I – going it substantially quite put feel that, grow forward. my XXX It’s the Basin. see but And a drilling the about we want We core top far we then the as head. really have the understand in does our exact I all a of certainly even, the we greater inventory, but it’s price. wells, really number wells assets out a in where more

see program same So, not and certainly we’ve refrac good think, opportunity but kind of to Permian, the time. the I some we certainly a got growth of in halt a a that modest drilling growth profile and show program, with mix decline the over

helpful. Thanks for It’s your very time.

to going in jump is on. Rich

advertise the drilling has We Fort across more – the because Berthold kind it’s South in Richard. to with Antelope side where XXX We of yes, side activity Fort XXX Antelope and wells wells Berthold been. just our to of South spread than on

So refrac condition that’s And we historically. well can mechanical kind of of we areas. number that both then we’ve been doesn’t think number, refrac have sort talking some the that across virtually on about every

So pretty it’s substantial inventory. a

spent of Permian focused we’re there, haven’t the because lots of what Basin. We on time

Understood. Thanks, Richard.

Instructions] [Operator you. Thank

question question. comes next Kevin of with Heikkinen. from the your Please Maccurdy proceed Our with line

see of should little see the maybe guys. – wonder those Hey, a liquids Bakken NGL on year? you has than realizations lower you looked quarter? expected trend? realization you How is particularly, the realization remainder comment for could How It how if Permian? the the trending outlook and this I in maybe

ethane boxes at end called of rejection. the Richard. is plants facility black because guys gathering don’t this to And – sometimes are think processing a these predict challenge we those These it’s our that it, ethane Kevin, they when is be would things control. wouldn’t you recovery in Hey, gas

to to months trying of XX plant those what predict is the history to do. look gas at XX forecast going and last our So operators

ethane the or back ethane to Belvieu with Mt. Sometimes they’re to constrained regard getting gas, into pipeline there’s because other places. putting

outside decisions because majority So, plants the controlling of our NGL number we’re the and those not is are of guidance, probably part of vast control. the those our weakest

done the we’re the commodity you, looks how NGL rejection of just the with to in because asking guys are between price you recovery of you if and to a So funny really have pipeline control be to because and trying don’t that that we’ve elections those or acknowledge past constraints. making either it’s consistent lot guidance

ask that we’ll indulgence So your one. on

Thanks. And any color realizations? Bakken the on

or… realizations NGL The

No, realizations? oil the

what’s in of the going volatility with been went on refinery the Bakken the the quarter. on that Just in turnarounds first

are We Brent at made of our differential of that. some selling index crude a and off

So there versus are are going things on couple the different on the in of going Bakken what’s in that Permian.

All right. Thanks for the color, Richard.

Our with next line Tim question. question proceed the with comes from of Rezvan your Oppenheimer. Please

Good ago, taking off based curious Thanks of rigs question. or that the non-consents books. kind why I curious like you number Is consideration the a annual issue, is curious XQ I’m on the so annual guide on wouldn’t Permian, the take the CapEx why CapEx had quarter of for just of spending down? unchanged? the in there morning, any given you seems well folks. drove CapEx my one-time CapEx was guidance below

was We year, to want move million equivalent. so. decision of barrels flow hold neutrality that Again, flow Eastern from previously, good news to redeploy positive the into said the That we What CapEx DSU XX, on the is, Yes. good able deliver drilling Permian and it field. which will we cash the delivers is will X.X side about of cash can. quickly business of – thought that do out the as up as we this are a past we to but finish

in also non-operated consenting wells quarter of actually business. a our were the non-consents, timing that we mix first was The of but

will So overall, but that was back – Williston some forecast, in Richard’s that spend we’ve come back all got built low, in. we’ve in, of

staying in if do flow try volume push Permian high-returning and So, neutrality. while within we’re we that and to it save cash redeploy wells going money, up, the

then about think rest CapEx a And cadence the about going fairly we should year, thinking of forward? thanks. Okay, the steady

our Yes, look third second first talked about We Tim, in quarter, at guidance was dropping that about then the you what and rig the the Permian million. $XXX Basin. the guidance for quarter as

pretty quarter and with drives be that in the coming do – third much but in capital looks second that to think, equation the I the same in fall what reduced and and math second activity quarter quarter, you of quarter out and spend think results of third the of third terms consistent. should see the relatively we fourth the fourth regard rig

you for context. Thank Okay. the

you. Thank It questions to time. this like turn Mr. comments. we Kent, for now over further back closing at appears you to the would have no I floor

much. asking Well, thanks, your you hope and for we’re you’re and also everybody cost joining predictability. again calling questions. your call saying for on Thank very and that the questions with I in focused

For best got great as hope of we Basin, we’ve to what Martin in around that of to County to the and exciting things Midland just can’t the some best in – some this oil And about all it’s the a I we process into show in we And all want do. not all have. a opportunities. that is people every There’s that’s prove manufacturing I some heard happen, heard best have and that’s and no we’re the turn every It’s think lot, might category the project. XXs something and we’ve be heavy And need our for that workforce many on years. on but best back is up as reason part We a other caught inventory. deploy trying the all investment up to very category our good we we focused that. in

So for thanks, joining. again,

does this gentlemen, teleconference. today’s and Ladies conclude

a day. lines for participation, You you this may Thank wonderful disconnect have your your time. and at