Qep Resources (QEP) 30 Jul 202020 Q2 Earnings call transcript

Greetings, and welcome to the QEP Resources Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this call is being recorded. I would now like to turn the conference over to your host, Mr. Investor of Director Kent, Relations. William Thank you.

begin. may You

Tim Thank Thank Energy. us joining XXXX Buese, conference today Chief everyone. Officer; and Chief Resources Redman, you, and good results Vice are me With and Devin, Financial you call. President today Bill quarter and Executive for second morning, Cutt, Treasurer; for Joe Officer QEP the of President

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

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

I’ll call operational Will, with thank performance. Thanks, the for overview today. begin and of and good second morning, an joining our quarter you

We we unprecedented this volume through are and continue holding value times. to focus principle over to firm these delivering on

financial on liquidity credit to turn to will facility and provide an I update over update, our Bill my to discuss quarter our first and call performance improved position. Following the

the September Permian in resume pay to in in down flow run to in and debt. rig is in generating year. in up up lowering volumes the fracking mid-March pick continue and the approximately production. obligations complete as We began contractual meet as second during ensure About for a wells to completion oil the on holding remain quarter was decision fracking after significant November. flattened the June, production economic from May. to second from activity uneconomic returned rig into Production during costs, Williston drilling The we good for price decline shut-in day slightly decline our and on free oil of plan the April Operated shutting levels. and per were while the of in to made Production May, focused for XX.XX to productivity cash barrels We to in XX% of quarter. one first of wells sold returned XX X,XXX to the to the and bring DSU completed

decline when a be completed November in quarter fourth start – steady until wells the and will to in now we We will the turn during December. Permian on be late in

South fourth nine We expect also during quarter. wells in be the to online drilled brought on in acreage Antelope the core the being Williston non-operated

of X and are quarterly models be information to to We have updated. production Slide on IR the our provided guidance resuming deck highlighted allow

normalized wells the which XX wells XX capital strongly, to XXXX, of of Overall, on barrels in XXX,XXX as perform the XX% first-half XX during the guidance. to deck. Slides cumulative XX,XXX was and down the oil the reduction Line production of brought feet. production oil was and a from shown continues during of quarter, barrels expected was IR is the average first DSU DSU oil in Although XX-day online the the of performance oil XX,XXX only XXX-day XX%, We to from expect our strong original of of year. County online XXXX, be given in put

producing benches is our the by rates. XX,XXX than timeframe. XX We deeper XX% an tank during The oil. a in at curve deeper producing of take deeper described approximately the on while tight of shallower in the production time including approximately DSU at last to tank wells the call, to the of the days, barrels of was the normalized oil to before the risk quickly, turning higher industry monitoring impacting Also, zones when XX,XXX pressure of these As of to the and an declining medium oil producing compared that meet of dewater the oil EUR contracted deferred Wolfcamp XX% barrels obligations. sales barrels volume pressure XXX we industry as tank is oil the May, in performing C achieved take length. outperforming the of favorably more indicated with entire the medium zones DSU benches, cumulative XX,XXX was to same barrels XXX-day until medium compares industry of wells. of did B, Sprayberry and want XX-day XX.XX XX,XXX with the required oil The of foot B wells lateral XXX,XXX production expected, in not

IR to a As were rates cut DSU performing The DSU produced as [ph] taken to building The than and all to you the Slide very faster from wells with up in as ESPs, XXXX the oil periods experienced on XXXX. expected. XX the month. and delay in startup wells was impact stopping evident half the DSU of anticipated as free DSU of DSU front can out flow wells compared deck, see straight in half the that fracking is how of compared full these to quickly

adjacent to move we’ll performance as to take we expect opportunity compare EUR economic expectations We forward. meet our overall and the DSUs for [indiscernible] the

cluster design; improved efficiency. that importantly, positive is wall in demonstrated a each to smaller was made with wells performance the pressure in both of a spacing, friction, and IR DSUs remains we’ve and has to on cluster of perforations, limited our and bench build Slide of preference frac the a sequentially. along perforation bring fewer modifications XX affirmation Our entry reduced most on resulted strong This deck higher

also costs completion improve on both team Our continues efficiency. to and drilling

the remain quarter, wells Antelope you non-operated Williston Disco In wells our of the LOE the foot and first-half acreage. pace six fourth have to Slide of same Overall, XXXX, IR in of our of Boe, average discuss IR full-year an fracked to for IR LOE primarily the now second-half the less will see the in is shown come at As we year. lateral refracked of reduction the year, were demonstrated the adjacent cost at XXXX steady we Williston, Permian and per at can IR delivered $X deck. increase the the of the and quarter down spent for the timeframe XX exceeding Boe which as was demonstrated of on for due and current increase our day, Slide less to XX significant lease down to the as as the to remains all workover peer expected the wells, the through year as feet completed wells $XXX the leading. from result retain we of of first-half drilled approximately on per completion of XX activity X,XXX Permian, during with completed XX to to third and than the deck, the per deck. five South quarter the close primarily XX% deck, finish outlook compared nine XXXX. of deferral Slide of in as a a the in the was two spend. have in $X.XX in In discretionary per and production to core successfully and work on continues of I first-half the G&A to expect activity Slide

in XXXX will be County Although development the Line primarily we plan four Permian. of wells the our Wilson, focused remaining in program to the area Disco the complete on pad the

to it a WTI barrel. is We at price free XXXX. provide to XXXX, sight market I production years. thought in outcomes modest our approximately per the a from where show expect at second-half program even to will the could understand reduction moving The efficiencies we flow the that deployed this – delivered look adjusted as underscores important Permian now exceptional various This to help program our program move we has economic over with an into growth moved expected team deck, line cash since and our to early Slide the be we XXXX positive of growth. of note modest capital in we of of volume sorry, of It to price the continue deliver XX two past through strength cost the critical $XX development the XXXX significant IR program was scenarios. deliver but to that our operational a XXXX,

for of expected at price. area believe these returns program I mentioned, be XX% development XXXX XXXX. DSUs pace, of As activity prices deliver completed than we we the of costs than a Line $XXX more justify rate year. our We Permian, at during to fracking the fourth of expect greater strip anticipate drilled development million will cash initiating in In continue oil and this $XX just to adjusted have summary, lower free focused quarter return flow and County where our in that delivering the

strong We cash free program our returns of WTI. have modified individual approximately to low deliver $XX XXXX development positive flow and

move delivering results. of liquidity in core our to We we low-cost I’ll Line Bill. along on well gradually activity over County well-positioned our developer facility. the demonstrates of call reduction now Bill financial credit forward to our believe position to to and second Over discuss things demand, to this through to unprecedented returning in we the to and development recent restructuring ability with are Our your, turn be while results, information quarter a normal. acreage, outstanding look the

spend good guidance to some provide wanted my improved next about some including provides around up opening I this our agreement. business you, extensive need morning, amendment. XXXX I that I price execute believe June, flexibility results, several our volatile before you to for credit amendment In our providing environment. our an everyone. announced the Q&A. credit current for Thank amendment years, commodity on with liquidity our second the and financial to do call details quarter we despite We position color you and facility will But updating plan that, our morning we the the Tim, before the time recent

increased billion position outcomes second of million leaving The liquidity liquidity from us that $X.XX the by important commitments the with was than of more quarter. most reduced the of our $XXX end more million, One at aggregate and the to includes $XXX than $XXX The amendment three credit million the The requires under material in financial a company’s guarantee facility subsidiaries agreement obligations XXXX. reserve matures still facility. is loan base agreement the credit remains covenants. not unsecured September now still and the the that of of

facility, more credit are the covenants the million. modified, minimum than total drivers those while Pv-X ratios; than under and two increasing rather third However, now the calculated liquidity behind [ph] using were only The to cap the with Two the covenants of debt. ratio, the debt by are main liquidity, financial $XXX was a company’s three the borrowings outstanding our replaced covenant. the leverage covenant, covenants

the provisions In the modified couple our addition useful we be will strategy to in covenants, amendment that of added forward. liability management believe a financial going

ability use purchased our generation hand, the us to proceeds to notes. allows $XXX The notes notes facility credit redemption earlier. regardless free funds of outstanding cash provision under of addition to sources million and outstanding in retire mentioned amount to borrow cash up the to flow senior to from on of note the using senior repurchase any basket divestitures First,

baskets $XXX subsidiary the our would couple the flexibility Combined, new senior two unsecured the indebtedness of guaranteed junior ability billion us seniority would years. $X senior of existing guarantees note the over provide over debt. help be Additionally, of the provides company to notes. facility, manage issue provide million maturities our to with to This up the the credit but amendment to subordinated next structural us subordinated

more a was we there extremely give results. the amendment agreement, an be company other with were good the Overall, think credit couldn’t for key for should addressed. While outcome and positive to feel of pleased this modifications the the the items you some

Turning now quarter to second our results.

our able extremely strong still industry, quarter. were an for results for deliver we financial time the challenging During to

outspend million the increase $XXX a quarter, offset derivative million decrease primarily improvement increase commodity decrease and The and During in the by second $XX.X compared of due to while by $XXX The million quarter, million an loss primarily free In compared volatility with net gains, in of equivalent adjustments Combined, of plan. decrease reported XXXX. significant the which were in expense we combined of million partially derivative to compensation generated driven by $XXX.X NGL partially net to $XX in realized of a capital a losses, generated to a increased G&A second total field mark-to-market an average lower XXXX, decrease nearly increase the deferred of production the the million million second cash a $XX.X transportation the from offset cash million increase flow million primarily by $XX was both realized in oil XXXX. sales. The quarter. LOE, quarter. by income the in in partially prices, a expenditures, the LOE and by million improvement more quarter second was driven of by unrealized generated in which derivative million was provided a million the accrued a was reported decreases quarter our We a the first EBITDA, were increase prices we and in $XXX million, oil operating in the of quarter-over-quarter, to in due quarter in activities we $XX offset the modest into for $XXX net first decrease than adjusted $XXX quarter. during due quarter, level of $XX $XXX.X down gains and

during derivative we for barrels hold derivative derivative of the per details see remaining X.X enter barrel at and barrel commodity XXXX. contracts for $XX.XX six X.X front, for per Please XXXX at and million the $XX.XX our the portfolio. additional the currently continue we On of contracts barrels oil on XX-Q into months to totaling million quarter

facility, was Turning now borrowings billion no debt under Total sheet. of $X.X million $X.X end second to of $X approximately the and $X.X on had gross the hand. our of outstanding balance letters of were We equity billion. credit approximately million outstanding total was total assets At approximately our quarter, shareholders’ and cash credit $XX billion.

approximately our XX And XX During the notes, the in principal the XX notes. have million million of of first-half we second $XXX of repurchased and million $XX notes. amount of during repurchased quarter, we the senior $XX notes XX the year, the of $XX million

XX, which $XXX with our remain the is in credit And quarter. Finally, the our the receivable sheet, while tax comprised we current had XXXX. at will second be refund XX on was AMT the filed balance even primarily months, we full refund. confident, a million next in claim June within The of possibly IRS refund received

We IRS. how from are unable will to it quickly predict received be the

million of On the liquidity Slide details liquidity, front, our of on we the exited the second the quarter with you approximately made borrowing deck. over $XXX $X – total We find slide liquidity can of of $XXX can million and revolver. of under more cash of million XX up capacity

and facility extent, the repayment XX cash notes the continue the flow, credit be will refunds the over expense our We of operations, our that to to months. XX free our interest capital hand, credit believe on to sufficient cash anticipated and, the generation next expenditures, borrowings AMT fund under necessary of

to on moving guidance. Finally,

the yesterday’s updated As reflect our we to in release, XXXX company’s provided expectations. guidance current have

nearly and fourth our with of midpoint midpoint for is our the decrease allocated lease now The for results the million is necessary be of midpoint is spend the the price operating XX.XX our of original $X.XX from midstream acquisition be plan which quarter, guidance midpoint million to XX% infrastructure, a the the from guidance in per volume at guidance. Costs Adjusted Processing the this We $XXX of guidance see XXXX million, $XXX oil spent $X.XX capital midpoint while guidance over a barrels, The approximately to our XXXX activity, is Transportation continue Permian $XX XXXX costs year, balance of guidance. midpoint XX% now of capital investment. $X.XX Excluding per and Boe. we Boe, lifting original This to will The of midpoint. expense expected Basin approximately in Boe total per includes XX% divestiture our the investment of currently the decrease million assuming for levels.

which Finally, earnings like would million to the general XXXX share-based see market and compensation expense G&A $XX can up $XX.X expense, now our Please stock our fluctuate our open which with is details release on additional for a stock the and of XXXX is With questions. guidance midpoint, QEP few approximately guidance. the call at that, million for deferred changes. I for

we your Please first SunTrust. At Neil this proceed a will comes [Operator time, Dingman be of session. question-and-answer conducting from the with Our question. line with Instructions] question

all. really of of bit production seems guided free of be strong balance to little But you cash – cash opinion and plan flow. morning, the it year. like Or Could of continues as as and that flow the viewing how free keep just is or sort you sort long of Good that Great kind give free the I the again, to first, question you My stable? flow again, a on flow of strategy cash guess, for back get is your maybe strong. to your between first is into XXXX cash sort kind just you’re growth? I’m free production can just, production

That’s exactly right. Neil, – that’s

barrel. the primary on focus our $XX generation, a cash flow I mentioned is So free approximately

lower we team operating costs the our operating dollar at barrel our drilling focused this. to on completion development costs weather per we our So kind of where down of getting a to G&A, can costs costs, can entire operate lower is where and and

now, in kind range. of So, Bill the averaging mentioned, hedges we put $XX-plus on

economic are we’ve want additional why put $XX, there sure, – the some that in created on headroom the we standalone. the We to and flow. make and investments that’s forward $XX slide put cash the we between So for some

quickly. I I thing. And we important to our keep recovers think positive just County move remain is produce we’re a and volume steady. can next really good not growth, couple quarter for can for So to sake. hopefully move fracking think time, in of With going is position our I But A we pace, slight you as price volumes fast. going volume be first Line, we of And think, we’re from over can move we results though, can it for fast. the years, our see to there

to in have four to start in quarter the fourth ducks and additional the the XX wells up we ready time going fracking Williston. the We’re by go,

quarter we’ll idea like of the to generate But So might then next we’ve showed we first cash and year. just kind little it to got this flow. we’re we the bit is, it into of see and gives headroom building do is. where pull If year we’re confident – volume willing free us more. back But we’ll price a do watch more,

a among acreage have kind the to think And, back quite of I’m a wondering said I kind consider some you because think view that. Tim, Because you of Would you [ph]? – spending what completions longer-term? on that the economical that just sort I you Would I’m guess wondering kind appear Bakken you bit. of best. sort some my plan how just do say, dial still you’ve would later of wondering best – just reasons how to is of year, of – question still or there. of what and you this continue outlined all me little is plans know Bakken, of second on DrillCo table? I XXXX. have as kind the to mentioned, leads the I’d just I you you I I’m acreage But of sort But consider again, you’ve

cash generating. lot, we flow Bakken like Yes. I a mean, which is the

the really about very inventory before We One we wells. we those five fungible. But them competitive Those turn good drilling. very on the can with back. decided have Permian off We of we cash is the pulled flow. and competitive. can we’ve on, They’re refrac put the generate things – of to are turn are quickly XXX them free

and You go slow down. asked that about to ahead

the or be eye would to prefer on an two the the to drill we’ve keeping wells first the We Disco So pad, that. wells up in next wells we’re the going the a remaining wells, wells really, talk to have are what of about sort more lot We’ll we next we’ve two and once quarter. runway the in on. But able encouraging really turned been more do.

all it’s We quickly great Our I we development little stay next, we’re – developing move a So, job considering And doing that. pretty to XX The but wells, operating. can on right the slower long-term permits Permian. into lot. pad. in the we wells not right? Bakken like drill drilled and to have Disco It’s it DrillCo, we primary there the remains open options, a up to folks focus a for on but now, the think, we get all need are

asset out think, early to It’s value I it. for a pretty we So best the And we maximum remain fungible us. open what’s like way of we’re the extract – to the Bakken.

much. so Thanks details. Great

the [Operator Instructions] of Please with from your with Cowen. next Our comes Daoud Gabe question question. line proceed

you some a I let’s was on, pricing do Tim, service dollar basis, back Hey, increase think could prices good basis, up Again, were scenario? pricing On were on number rebound perhaps providers, give morning, just from obviously, per to guys. end Permian. on you like? a you that some guess, looking your if per potential foot a foot and curious, longer-term go-forward what I costs D&C the say, in if pretty attractive lose to oil

Yes.

question. try lock sure of a in vendors our that’s mean, little longer-term good we I a I rate. with think to we’re all bit working and make

we’re confident you question, we of foot was a year me to on $XXX. of incredible. first for would back But of So low on the going $XXX daily And if complete. Obviously, $XXX come rely spires that But below stay more. we better, can don’t just this ask just I the down rate. We convinced think I’d all ourselves. are that ago, and two part years kind get the to some get we’ve that now, say, if things drill

County recently end [ph] doing drilled Line. things We’re on to of our into We the the still just nine PD drilling. and days horizon creatively well deep in

that I going in time, to but takes confident you you get that stay every XX So, very repeat if from could that to mean, I nine. consistently, low-cost. don’t we’re think that’s

So, bottom. we’ve not a set

bit. about go We’re we’re very they’re working as with the going pretty few Creek well, so. a up company backup the protect on us – vendors a But with little to ourselves small service a costs and

helpful. But currently into guidance a of XXXX follow-up, rest currently that’s that the would the side out and improvements appreciate County guys also of And as seeing the Definitely bake looking costs? you XXXX, Thanks. that. guidance you have Line just I we’re the And at $XXX guess, then of guidance productivity you’re very detailed. I to in the say D&C embed capital at and per foot in terms laid

– we since haven’t have down rig, we got No, one – forward. we that all going to baked we

think of a We have rebound We that’s if it costs and bit budget. increase. than up, will back absorb of service cost the higher come fair some prices little the

not cost more at So pretty we’re and competitive. of down XXXX aiming we’ve are And a that They’re have we XXXX costs – the hopefully that of a into cost. planned But to competitive rest low in in there. again, come. our forecast. But

Thanks lot, a Great. guys.

Okay. Thanks, Gabe.

Since there further questions Mr. Cutt closing back I turn up to like floor over to Tim the are remarks. in queue, for the any would no

Well, call joining right. for All today. the thanks

that think asking got earnings online calls a that, of Glad guys questions. this lot with. we’re competing are I few a morning there and

very, a going say able to to to thing only what difficult We’re I’m The we do the were with quarter. super is organization. during pleased very thanks

take performance of continue outstanding our down up. focus in through performances remained we balance the continued stepped organization time. all period to health and to deliver to We’ve and We’re continue safety on remotely. performance primarily costs those The and sheet, environmental working

So big joining really, for to the the organization thanks thanks call. and again

teleconference. This today’s concludes

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