Battalion Oil Corporation (BATL) Q4 2015 Earnings Report, Transcript and Summary

Mark J. Mize - Chief Financial Officer, Treasurer & Executive VP Floyd C. Wilson - Chairman & Chief Executive Officer

Good day, ladies and gentlemen, and welcome to the Halcón Resources' Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Mark Mize, Executive Vice President and CFO. Please go ahead. Mark J. Mize - Chief Financial Officer, Treasurer & Executive VP: Okay. Thank you. Good morning. This conference call contains forward-looking statements. For a detailed description of our disclaimer, see our earnings release issued yesterday and posted on our website. Before I make a few comments on the fourth quarter and year-end results, I want to remind everyone that we have published full year 2016 guidance and an investor presentation that's posted to the website. Production for the fourth quarter averaged 41,087 barrels of oil equivalent a day, which was up slightly from the third quarter production level. For the full year, we produced 41,542 barrels of oil equivalent a day, which is within our guidance range. On the cost side, I won't go through each individual item specifically, but LOE, G&A, gathering, transportation and other were all at the low end of the guidance range that we had published, and taxes other than income was actually below the low end of our guidance range. So, overall, total operating cost adjusted for a few selected items that you can find in the press release were $17.80 per Boe, which is considerably down from the fourth quarter of last year. With respect to D&C CapEx, we incurred approximately $58 million during the fourth quarter and $320 million for the full year, which is in line with guidance and expectations. Looking forward to 2016, we expect D&C cost to be less than half of 2015 as we scale back drilling activity to one rig in the Bakken. And having said this, our 2016 D&C CapEx will be frontend loaded, given we're ramping down from three rigs running in the first part of this year. As far as hedges, we did realize a gain on settled derivative contracts of $129 million during fourth quarter and $440 million for the full year and we expect hedge cash receipts to be significant in 2016, based on the robust hedge book that we still have in place for this year. As of the close of market yesterday, our hedge portfolio had a mark-to-market value of just under $400 million, and for 2016 we have just under 26 million barrels of oil hedged at an average price of just under $81 a barrel, and we continue to monitor the strip in 2017. We ended the fourth quarter with right at (2:52) $800 million of liquidity, which was consisted of cash and undrawn capacity on our revolver, that has a borrowing base currently of $827 million. We are working with our bank group right now going through our spring redetermination. Based on discussions with the bank, our expectation would be a borrowing base of $650 million to $700 million. During 2015, we made progress on improving our balance sheet. We had several transactions. We had debt for equity exchanges and discounted debt for debt exchanges and some open market transactions as well that reduced our debt by more than $1 billion and interest expense by $50 million. And although these were meaningful for our company, we still have work to do to reduce leverage and we'll stay focused on that effort in 2016. And with that, I'll turn the call over to Floyd. Floyd C. Wilson - Chairman & Chief Executive Officer: Thanks, Mark. Look, today's call is a brief as our focus is unchanged since our January 21 update call. As indicated on that call in January, we expect to operate one rig – only one rig companywide until we see material improvement in commodity pricing. We will spend less than $140 million on drilling and completion CapEx this year. This will result in only a modest decline in year-over-year production less than 10%. This capital program will allow us to be cash flow positive this year, resulting in strong liquidity throughout the year. This approach is appropriate in this environment and we'll wait for the macro signals that we need to change this approach. In the Williston Basin, we continue to do quite well. Our drilling and operations continue to improve with wells drilled last year throughout the year exceeding our – and we will exceed on Fort Berthold, our publicly disclosed 801 MBoe type curve. We expect the average EUR of our 2016 drilling plan on Fort Berthold, whether it's Middle Bakken or Three Forks, to be in excess of 900 MBoe per well. On the cost side, we continue to experience improvements, some through pricing and quite a few through just more efficient drilling and completion practices. We're down to a D&C cost of about $6.2 million per well in the Fort Berthold area and I think we'll continue to push that down perhaps a little bit less than $6 million. We have plenty of economic locations to drill at the current strip, but it makes no sense to drill a lot of these grade locations at the current strip. We have over 200 locations in Fort Berthold and over 400 locations in Williams County. This is many years of inventory. We intend to manage that inventory. At El Halcón in East Texas, we've postponed drilling activity there. We continue to see strong results and economic drilling even at current prices. However, it's just not the right time to drill there. Our D&C costs are down to about $6.8 million now. This accounts for longer laterals and increased proppant load there and we're continuing to drive those costs down even further on the wells that we haven't fracked yet and then when we pick the drilling up again, we'll see what happens then. Most of our acreage in El Halcón is HBP, so our capital spend on leasing in 2016 will be nominal, less than $5 million. We have in excess of 600 locations at El Halcón to drill when oil prices improved. So brief summary, we're operating in an environment that requires flexibility and a focus on cost control. Costs have come down dramatically and will continue to do so. Although, we have materially reduced our staffing, sadly, we have the core operating staff in place to ramp up activity in both of our core operating areas as soon as prices give us the guideline to do that. I want to touch on our balance sheet initiative before we conclude this call and our ongoing exploration of opportunities to improve our capital structure. We differ from most of our peers that have announced restructuring initiatives recently in several important respects. First, we began restructuring our balance sheet nearly two years ago. Second, we have ample liquidity that provides us with two plus years of runway to continue operating even at the current strip. We have time and we have optionality. Last, our board and management team are highly invested in the company and our interest are perfectly aligned with all of our stakeholders. Deliberate evaluation of potential balance sheet improvements are ongoing. We have no debt maturities for several years. So, as I said, this is a very deliberate approach. Thanks considering the brief update that we had today linked with the fact that we just had a lengthy update call, we won't be taking questions today. Refer to the press release or give us a call if you want to touch on something we haven't talked about. Thank you.