Comments on the wrap a little later in the weekend (table at the bottom of the post) but first a day in the Life of Zman's Energy Brain, well, part of it anyway. Please find below our pre 1Q12 conference call note and live notes during the call as well as couple of trades that occurred in the morning when the market was concerned more with British Whales than Wattenberg Sharks. This is part of what we do every day. Enjoy.
From Friday's Post:
BCEI Reports Better Than Expected 1Q12 Results; Much Oilier Than Expected Production Mix, and Strong Horizontal Niobrara Well Results
The 1Q12 Numbers:
- Production rose 21% sequentially, higher than I expected
- If you straight line the quarters of 2012 at 20% each starting from 4Q11's levels you get right to the middle of their official guidance and to 4Q rate over 12,000 BOEpd.
- The production mix was much oilier than expected with oil coming in at 65% of production vs 59% expected. Natural gas liquids came in as expected at 11% of volumes.
- Costs came in largely expected with good cost control exhibited on LOE. Production taxes were higher than expected but this is their lowest cash cost component and that's most likely a function of their higher oil mix with oil carrying higher taxes than natural gas.
- On a per unit basis, EBITDA came in at $48 / BOE.
- NGL pricing was the strongest i have seen in the E&Ps that report on 3 streams this quarter at $64.04 per barrel.
Highlights of the Quarter:
- Greater Wattenberg:
- 5 new horizontal wells,
- IPs not given but,
- Two of the new wells had enough time on line to yield 30 day average rates of 541 BOEpd
- Prior to these two wells the average 30 day rate of the four horizontal wells drilled so far was 458 BOEpd and its now been dragged up to 486 BOEpd, 76% oil
- Looking forward color on how much of their nearly 30,000 net acres in the play is now derisked and how they feel about keeping a rig on that is set to leave in 3Q and therefore bump up the horizontal program to > the current 24 well plan.
- No mention of the Brown Dense Lower Smackover play which makes sense since they have said they are happy to let their HBP acres wait on others to crack the BDLS code.
- They reiterated guidance of 8,700 to 10,000 BOEpd which on the mid equates to ~ 110% growth,
Nutshell: Good quarter. It's not often we get unmodeled mix changes of that scale from one quarter to the next … hello Wattenberg and thank you. I'm pleased with the quarter and the progression of the story. Estimates should rise on the oilier mix and the likelihood of an increase in volumes guidance4 on the second quarter call has inrease. I continue to own shares of the common in the ZLT and ZMT and May and June calls in the ZMT. Below please find an updated book report spreadsheet. Next week I will publish a quarterly model on them.
Comments before and during the call on BCEI
Z ~ BCEI going to get ignored early it seems which is fine by me. If a rogue trader can give me a better entry on more June calls I will be happy to be the one guy on the planet who thanks him today.
Z ~ BCEI – opening down 3+% on 3000 shares on a big beat due to the market action.
Z ~ ZTRADE – ZMT – BCEI
BCEI – Added (20) May $20 calls for $0.20 with the stock off this morning with the group. See today's post for details on their strong 1Q12 results.
Z~ ZTRADE – ZLT – BCEI Trading
BCEI – Added a trading position at average $19.22, see today's post for additional comments on the quarter announced last night.
Subscriber ~ BCEI: What took so long for the market to recognize the great report last night? Love it when the market reveals obvious pricing inefficiencies
Z ~ BCEI 1Q12 Notes
$60.9 mm Capex for 1Q12 – budget is $250 mm so they are not out front on the year … that's OK, I'd rather see them front load a bit from a growth perspective but we knew the 24 hz well program in the Niobrara was going to be a big 2Q, 3Q spend.
From a stock perspective, analysts have been punishing people for spending up early in the year this quarter so from that angle it should make the sellside guys happy.
30 wells in the Wattenberg including 5 HZ wells
- CWC flat at $4 mm
- They have not seen any inflation
- They have no supply constraints
- Average for 6 HZ 486 BOEpd (72%)
- 915 BOEpd IP from State Antelope well during this quarter, highest IP yet
- Stage count increased from 16 to 18 in a 4,000' lateral
- 324,000 BOE (65% oil, 35% rich gas (1330 to 1370 BTU gas) - 356,000 BOE on a 3 stream EUR
- Location count is now 290 wells on 80 acre spacing (this is up from prior 215 ish)
- Participating in a 2Q extended reach lateral - plan to drill their own long lateral – $7 to $8 CWC costs, saying economics compete with any liquids play in the country.
- says extended reach laterals are being tested by others (NBL) at 40 acre spacing
- 147 remaining (added 10 locations via acreage adds)
- testing downspacing
- doubling capacity of their NGL plant – note the price they got for NGLs this quarter – guess propane in AR is worth more than in the Rockies
Z ~ Financial highlights
- largely undrawn revolver (see table in post)
- LOE falling but not yet there for the year (no kidding, at $12, going to $8 ish)
- added 30 to the headcount, mostly accounting and IT types
Reiterate guidance for volumes and capex for 2012
"Thrilled by results in Wattenberg"
Q&A about to start …
Z ~ BCEI 1Q12 Q&A
Q) Thoughts on downspacing in the Wattenberg
A) Lots of confidence in the 80 acre spacing, encouraged by what they are seeing from the 40 acre spacing. Drainage from the verticals is very small so it makes sense that the 40 acre horizontal spacing would be the next step
Q) Thoughts on Codell
A) Codell thins to the east but they like what they see on about half of their acreage (the west half ) for the Codell
Q) Wattenberg – ramp?
A) 5 drilled in 1Q, only 3 were on line with the program. Spud to rig release is 14 days, HAL fraccing them in turn, saying spud to first production is only 44 days. Nice. Expecting all 24 wells to be on this year, with the last well being drilled in July. They are discussing upping the program for the back half of the year.
Q) Wattenberg HZ program in 2013 – accelerate?
A) Based on results and market conditions we would accelerate
Q) Niobrara C bench question
A) Everything has been B bench so far, others testing C bench. So they will be looking at testing the C bench, said there have been about a dozen C bench tests. Think there is a barrier there to keep those volumes out of B bench wells, so the laterals for C will solely be for C, landed in the C. The B bench in some cases sees the fracs grow vertically into the A.They are working now to capture all three benches.
Q) Wattenberg – days to production?
A) In early wells they had more non producing days, today days at 0 rate is very limited. Installing artificial lift in about 30 days post completion. Peak rate is in first 3 weeks, oil starts flowing within first 3 days.
Q) IP on other 3 HZ wells?
A) Coming in as expected, have not planned to report those.
Q) Longer rates on the older wells
A) Those 4 wells are collectively crossing the 60 day point, they are within our expectations.
Q) Geological thoughts
A) Geology on the east side – have had no surprises there, on the plus side they have had some wells come in a little higher on the gas side (helps with lifting the oil), have not had any troubles keeping the laterals in zone (helps that they are using the exact same crews that they are using the exact same crews that NBL has drilled many, many wells with)
Q) Mid continent question about strategy
A) Always looking to expand acreage position. Results have been oilier this year there than they have been gassy, they are limited by processing so they can accelerate only after the aforementioned plant expansion slated for completion by 1Q13. Not that they won't
Q) Capex for 2012 … would you reduce it?
A) They said they are running right on track, seeing some lessening due to cost pressure. I would not expect them to cut it but rather to expand slightly to keep drilling HZ Wattenbergs in the 2H12
A) Very encouraged by other operator early results
Q) 2 extra stages
A) just did that so have not seen in well results yet. Early wells were 4mm pounds of sand and 16 stages with 250,000 pounds / stage. They saw overlap in some of the 16 stages, exploring going with more than 18 but based on the that I would not expect a lot tighter frac stage spacing.
Q) Acreage acquisitions?
A) It is very competitive, lease prices up considerably, we continue to look for assets to pick up
Q) North Park Basin
A) Just completed the seismic program, we have 3 wells in the budget for 2H12, still working on optimizing that program … expect to hear more about this area from multiple operators.
Q) Reason for the oil/gas mix shift
A) Bulk comes from Midcontinent region producing more oil as they recomplete wells there, also oilier results adding in from the Niobrara. Thinking going forward they think liquids will be in the 70 to 75% range … estimates going up on that for the beat, and then I would say its not just going to pop back down to 70% so estimates going up on that 2Q-4Q as well.
Q) Revolver question
A) Wanted to make sure they had plenty of room to move so that's the reason for upping the revolver … said that the best deals are often given to the cash buyer … hmm, maybe they have a little M&A in mind.
Q) Timing on 24 HZ wells
A) July finish is probably 45 days ahead of schedule … hello 2Q and especially 3Q volume increase.
Tone of call quite positive
Q) North Park Basin … what kind of data do you have
A) We've been in the NP Basin since 2006, EOG has drilled 7 Hz wells since 2007, last ones were 4,000' laterals with plain vanilla 4 mm pound fracs, we don't expect to have data ourselves to talk about until late 4th quarter.
Nearly all analysts giving them congrats on quarter
Q) Wattenberg locations – what Bench are those
A) B bench is probably draining the A bench, but not the C, would not call it a doubling of their location count but it would be a significant add
Q) Wattenberg HZ program for 2013?
A) We're talking about it. We have lots of capital capacity , it will be up but he's not going to give a count, given that its April and they have less than 10 wells on I'm glad management didn't laugh at the question of the number of wells for 2013.
Q) Question on NGL price
A) NGLs for them is propanes plus with ethane being sent back into the natural gas.
Z ~ ZTRADE – ZMT – BCEI
BCEI - Sold (15) of the 30 (10 from yesterday, 20 from this morning) May $20 BCEI calls for $0.90, up 240% to my average cost, on the mid and easily, with the stock at $20.75. I continue to hold the second set of May 20s, the June 20s, and the common in the ZMT and ZLT.
That's about it, other than fielding a bunch of other comments along the way … come on by and try us out!
Wrap Comments will be added later …