XOG - Earnings call transcript Q4 2018 | Extraction Oil & Gas, Inc.

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Operator

Good afternoon. I’m Liz, and I will be your conference facilitator today. I would like to welcome everyone to the Extraction Oil & Gas Fourth Quarter 2018 Financial and Operating Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. meaning advised include remarks believes statements forward-looking within be to including to Please Securities statements questions, Private your that the Instructions] that Act. today, the answers be Litigation [Operator Reform the of the company subject different These materially uncertainties that to those currently anticipated. risks could forward-looking to and actual cause statements results are from be Commission. Those its afternoon results Exchange operating issued this financial and Securities risks filings news include, the among others, matters that and the company described with its in release and disclaims update Extraction to obligation forward-looking statements. any these

believes the over would they may and factors capital While like now Louis technology commodity statements are schedules, subject these the other I Director Extraction’s Baltimore, environmental company forward-looking prices, cause Relations. to turn are its to of regulatory and to as drilling Investor and reasonable, compliance. results Company’s factors call to such plans materially. competition, differ

Louis Baltimore

Thank afternoon you, and good everyone. to

highlights for to we some the on statements filing go certain aforementioned Jacobsen, Erickson, GAAP statements, Tom our call, reconciliations measures. We’re quarter. we discussion Chairman Kelley, to provided Eric glad call. read President; Officer; earnings XX-K, us today in earnings join the and Please that I’d forward-looking SVP and Owens, now to our through us on financial trading. Rusty I’ll for disclosure Mark turn remind the of non-GAAP in on Chief and a quarter our fourth Operations. addition company’s have earlier in today after our Mark you call of over CEO; Matt the Accounting could of today be CFO; the Brock, like the Erickson, includes close which of sure call, With full today’s and our also to to our release our you forward-looking our Form this our CEO,

Mark Erickson

our Thanks, earnings Louis. Welcome afternoon, call. quarter everyone. Good fourth to

CapEx oil our culminated would some made like and of low-end recap which achievements both the our our year, at volumes guidance guidance. high-end came exceeding our I in the total while last in crude of team also our First, of equivalent to our range,

a below ranges on maintaining As in of of continued of a our the came our our low-cost the all items low-end and expense year. also guidance volumes result structure, for focus higher

focused inside fourth the we $XX our capital from talking XX% about upstream flow our about Looking million at the offset flow than grew key during and land model. we operations capital over on remain minus asset cash oil cash production we flow, a sequentially, at the free we we growth, production When specifically, closed for about during sustainable million $XXX as which of the cash of operating of quarter year view flow, crude level. incurred a on XXXX, generating which sales free business while million cash while talk efficient element We our expenditures. are $XXX other. for We E&P more

to incident. strong in expected the first side, attractiveness new setting standpoint, of a lead have offsetting delivered. Our safety a another remains we recordable the operators by period of operations, brought wells, on the capital the With the strategy active, public during risk oil tightness online evidenced maximizing hours example, operations team production this which terrific of is X.X perception with assets basin. and by single of we million with milestone man production the numbers over focusing land midstream continues close without on employee respect while our DJ another our with the to From the small non-strategic in in and Despite divestitures divestiture Basin $XX million quarter. of both market of regulatory markets, A&D large recognizing remains other the to ongoing,

to Colorado with go with be We by state to federal our and State of efforts beyond recognized and compliance for the continue awards regulations. accolades

to local with communities. commitment improvement and continue partnering Our in leadership demonstrated environmental

production development these to is After continuous as both in Last gathering see the announced impressive development year, activities. planned. of Coyote Codell in updated with continues being production deliver robust second-half Southwest development through than way to our is rates XXXX, and area. rig in our as We Niobrara and online still system Broomfield expect high the later our progressing Wattenberg, expectations, currently the we and Trails built days, exceeding production Pad in our including fully our year, running for under in can development you initial are Broomfield expected wells and strong continue out expected results activity within with located XXXX. more area from be and the formations from operational Our have XXX Elevations being a concurrent presentation.

we and Greeley flexibility Additionally, midstream, us area, currently They forward. gives Williams. are an with which our up into Mountain Rocky gather with joint more entered previously line optionality in announced recently us for agreement and KKR to the venture going a building

this line the operational this to the into us we strong finish year, as fourth expect We XXXX. quarter sometime year go be to in enabling

Turning to XXXX our guidance.

flow is sacrificing in goal projects and our longer neutrality time impact Our beyond. will that to in XXXX our lead production balance without investment positively near-term cash

be the capital, level, to are externally wholly-owned at by Elevation but is our Extraction. stock we WTI, is common Specifically, funded targeting funded $XX which capital [Technical fully excluding at fully subsidiary the expenditures Difficulty]

We program. to continue our to land our be and offset ongoing divestiture expect asset capital with other

XQ our very becomes think into high consideration our year production bar production in for XXXX. us. comparing guidance the strong that stronger more As of generating annual detail, more while also low represents This taking XXXX when even when growth, set XQ XXXX this double-digit growth levels impressive we about XQ to

your open up expect for to time everyone With a environment. for nice As set today. mid-XXs items, call further Q&A. our margins see plan expense cash continue as our in let’s should grow, to on I our for to we volumes unit for to support the our per crude decreases like low provide call the operator, which we would that, thank oil

Operator

[Operator question SunTrust. Welles the Our from first Instructions] line with Fitzpatrick comes of

Your line is now open.

Welles Fitzpatrick

good Hi, afternoon.

Mark Erickson

Good Welles. afternoon,

Welles Fitzpatrick

comments, were on over punching almost and in side mean, those Codell stick on compete hitting the and even call they I these mean, guidance. wells this XXX,XXX the guess what or quarter with it, Great prepared better these XXX,XXX just, or pound-for-pound the nice I I point? five are Greeley But Coyote Milkshake? you with doing months. to like look than at

Mark Erickson

strong They’re very wells.

really in with the line first very we’ve goes turned on wells the do. in XX past them back over we’ve far. what area We’re that keep in in model significantly. mind, in the with are But down to very Greeley months months we been or along seen six had performing pleased our have wells that They the thus geologic the there. It Greeley choked normally fairly performance also for also the so

Welles Fitzpatrick

at these? layout Yes, layout know you and on were that’s first fair. And mean, that and Codells on us this can mix they of I of founded some set? then I of can sites. the you also But on the Nios least remind the us remind

Mark Erickson

in Niobrara, XX bench. Yes. that and are do – In And that we’re wells in there’s XX producing A multiple had wells Niobrara. going bench, On that B have there rest we C three much – Codells the we density XX first the set, area, pretty and we to are the had drilled current, per bench to section. wells the and in had that we

Welles Fitzpatrick

looks one, read location additional one should more was just anything Is a into then we last And engineering that locations some count Okay. bit, little the it acreage but up added. that? like jumped just or no

Mark Erickson

it to added acreage of bit core then little engineering was and acres thousand a bit was of a little the There well. few as just a

Welles Fitzpatrick

Thanks perfect. so Okay, much.

Mark Erickson

Thanks.

Operator

next Markets. comes Heffern line Our RBC with the of question from Brad Capital

now Your is open. line

Bradley Heffern

than I good sorry, the Hey, about Was just oil what little well led versus performance? – it you Was that? just lower morning, a bit could it if Any expected? talk everyone on beat afternoon. color stronger consensus? oh, wonder pressures to

Mark Erickson

it I’d constrained, and mixture able and both areas weren’t we of online of in was those. Coyote some a at different our wells exceed we that wells flow more where targets. Obviously, newer settings normal to choke the brought oil that other were say,

Bradley Heffern

Okay. that online? DCP bypass you I bit talk Rocky a deal. comes Mountain about Midstream could then, when And the little Is the you letting wonder system ultimately if more that

Mark Erickson

Mountain that are areas as can offload gather be from will system, the as is in – to we have DCP well onto system Mountain that the connected we dedicated The system. where up Rocky Rocky wells that

Bradley Heffern

be Okay. would And do your you have any numbers on that around what capacity system?

Mark Erickson

the designed Mountain it’s initially feet million handle On day. a XXX system, been cubic to Rocky

Bradley Heffern

do that of have? much how you guys And Okay.

Mark Erickson

Virtually XXX%.

Bradley Heffern

Thanks. great. Okay,

Operator

question comes Macquarie. of next from Our Paul with Grigel the line

Your is now line open.

Paul Grigel

afternoon. Hi. Good

could you be capital should is And could for funded Elevation included should can spending? the maybe on is the there that realizing thinking D&C focusing about we CapEx Just aware any is XXXX we you other XXXX? comment But just spending the elsewhere? that How of broad be there about within any spending guidepost at for make it there? guidance, give

Mark Erickson

Sure.

As you wholly-owned Elevation know, shareholders. the by Paul, Extraction is

funded it unrestricted is However, within sub.

both the – our expenditures out that – what kind which cover about $XXX we which area. into initially apart of kind we project. targeted that point time, total the funded park, building look in cover with at do At at able project separate bring funding to south upstream Southwest this represents funding or Extraction’s was million, Wattenberg we full of up our you the investment. When half would Elevation, from of those those and when of So look the Wattenberg investment, in we are to we’re

Paul Grigel

on of the the And southwest the estimation completion Okay. part there? what’s project

Mark Erickson

early of say, XXXX. to coming sometime wells would probably, going be I our concurrent online quarter or third It’s fourth in the with quarter and

Paul Grigel

use think you come should the usage cash? that’s cash at the sale and/or may up Okay, the for we as priority proceeds free helpful. how asset about year, then, throughout that And look flow of guys that

Mark Erickson

Sure.

use land always get average given type always we our XX%. working to mean, we’re any will – we interest sales acreage when – offset to of drill first our asset investment. stuff, any be and like position, ready used I large is The other

we’re We our renewals, the acquisitions we’re in. small flow types bad nicely creating that So which full of really the that budget. our very bolt-ons, small That’s at standpoint in extensions, for going making bolt-on coming from looking all, debt use of budget, to first out use. those of cash kind is and – fit always some our projects. of And cash ahead end lineup acquisitions,

to to that be but than, XXXX. had kind less similar of we expecting what We’re in

Paul Grigel

use free or the towards with pay business generates cash debt be down? of towards the flow be that that And

Mark Erickson

prioritized cash free is business to a $XX price WTI. from flow we’re reduce Our debt and the first at for looking

incremental other additional commodity means. maybe cash prices, alongside come we shareholder-friendly we’d in outperformance and it either to first look lower as from So debt or see then higher of

Paul Grigel

guys you one one I initiatives last some that pretty materially could. have provide Is the on to in there? Overall, then those comes undertaken could on any And there color guidance the Okay. if you drivers expense lower. certain

Mark Erickson

Matt, do that take you want one? to

Matt Owens

LOE focusing spent We lot per couple absolute only our think of comes the dollars. a really on over on quarters down, numbers through and that’s also I then and evident Yes. our but last our BOE, not getting

pretty our in program So lowering we’ve really successful a that costs. operating had lease

Paul Grigel

Thanks.

Operator

Our with from Suisse. next comes of the Betty Credit Jiang line question

Your line is open. now

Betty Jiang

the the decline of much Hi. being what Can drove year how this initial you since CapEx talk the really spent capital benefiting about XXXX? that’s is guidance and

Mark Erickson

the Yes. same the do. that of I’d – have we working we say kind normally program

far a we’re wells third that’s drilling lot going as of bit will of mostly benefiting the the the money be some to in be our in and and the and the production out XXXX. in on goes, wells fourth haven’t our that and obviously as designs to areas year. completion completing in of innovating end save those found we’re But continually little we So quarter that designs some XXXX drilling be ways frac of designs were a we areas quarter

production those save money of get were in areas. wells good we still So those able and some very to out results

Betty Jiang

could located, Rocky And then where on you XXXX the breakdown that’s and system? some of Mountain Thanks. maybe into are DCP, processing percentage Western turn-in-lines a give color the going

Mark Erickson

even that complete volume specifically, new till look DCP in on to when our DCP look you include any should would at in are wells turn or that that really note XX. the allowable, the And which at we When need any have Plant order to meet don’t we you the Yes. of on our curtailed system. you the on that volumes Sure. system,

Gas or systems So which include or could into go could Rocky the other dollars our it than bulk Western will Mountain DCP, be of Rimrock.

Betty Jiang

to That’s the you would constrained on change question helpful. on onto a as DCP Rocky in What’s the timing follow-up currently that’s on Rocky sir, just from move Mountain. that that? in And production earlier the any result Mountain And step system?

Mark Erickson

will of Timing quarter. – turn-in-line at is wells time fourth that obviously, ability we when sometime at probably that in some of will in they’re on, the turning point that we the the time. that to And have ready have

incremental that flexibility they out to to some take. take ability, develop our we it’s several But best be Greeley quite going under we well we’re going allow point, of tremendous not with system. to As to the provide offload volumes sure very at volumes, for to as take which in able going up plans would DCP the DCP system inventory, to And properties. our forward. QX will hold us area. going years be the current some of build are does be have It those have with us to it that’s unable amount to us And from I’m a

we’re into pace. system, going on much more develop i.e., RMM queue, those able be those to to the move accelerated up the a With

we really efficiency like to the tier our are take from in up a move those our plans. development able bunch capital that of top and wells, in able be to being our of standpoint, So which a inventory

Betty Jiang

Great. Thank you.

Operator

line Nicholson Stephens. Gail with of question comes from next Our the

line Your open. is now

Gail Nicholson

When at everyone. to a it’s XXXX XXXX. rig trajectory, the afternoon, aspect. rigs maybe momentum growth you should you to there very XXXX growth program, that the over are very, in trying I’m more back-half one forward? When we just and Good or that carrying nice that of XXXX conceptualize prepare think the for two the think look to that preparation about XQ XQ

Mark Erickson

Sure.

QX into and kind see note If QX up our – we’ve that the remarks our you’ll completion to QX in of into ramping made, from basically be volumes down. up program them And to and of said in pick we we the QX. that QX in flat expect kind you starting of year, first-half slightly going as

in going finish we’re the So we – year really to expect strong XXXX.

to As when be in well good into we really as go shape. we’re XXXX, going

Gail Nicholson

at looking looks done done like first-half it of of just be the then incremental spuds was XXXX? efficiencies kind up. what in to And the of about talk picked what Can maybe the just the are XXXX, kind planned of you’ve you of seen XXXX XXXX versus that back-half there’s standpoint in drilling versus

Mark Erickson

Sure. you Matt, do take that? to want

Matt Owens

Yes.

In costs, that terms you’re what of implying? well is

Gail Nicholson

days? what is terms like the to In also of well spud costs, but same, TD

Matt Owens

Yes.

They been TD to to continue – spud they’ve have Our days always extremely quick. better. get

year. right down. of last we’ve come ticket new costs much budgeting well to We the But the little and now, right the then given into pace on ones significant a get the are that dip with in two working throughout continue just the had decreases off going XXXX for now for our we the oil any averages of appendix we bit at vendors running forward rest presentation. our haven’t can rigs the that as prices in still major what pretty Our AFEs. relief few go, with seeing months items far the And really we’re the That’s our baked full-time as we are calendar cost year.

Gail Nicholson

Great. Thank you.

Operator

Our question line John the of Goldman from Sachs. next with comes Nelson

Your open. line is now

John Nelson

and on morning, Good the quarter. congratulations strong very

Mark Erickson

John. you, Thank

John Nelson

The guys remains the budget about a you year, the the what remain to flow at a talk later cased? speak in kind $XX to be of base you – than potentially how cash budgets – barrel. Could to stronger built that kind add oil looking $XX in neutral be strip rigs above to of continue at the preference you would prices what release,

Mark Erickson

to it right flow I desire free reduce to be our is mean, cash use any to Sure. going now, with debt.

share also well repurchase repurchase and we’ve we as as program, ongoing debt open and have program. – the So – an

looking and use. categories kind those we’ve it could opportunistically – of flow, kind different free targeting of been best of So at our however, each we cash it’s put to

John Nelson

have Okay. that pipeline been there in And Rocky guys with are Mountain any the some XXXX? on – MVCs then that associated discussing, XQ start-up you

Mark Erickson

into system. for order to volumes volumes us, look There we in consider project be are with the to When and to MVC get we’re brought in Greeley at we K. bringing they covered well that are disclosed that that our the them the

John Nelson

last a be XXXX. I the to that’s me roughly the Great. just spend I saw guess, still for slipped for in And a bit, not little good Hawkeye, $XXX midstream in for timing if in? sure neighborhood million one subsets is, neighborhood

Mark Erickson

million number. That will million be around the $XXX to $XXX

John Nelson

– just That’s for but for XXXX?

Mark Erickson

Yes, just for XXXX.

John Nelson

Okay. Thank you.

Operator

Our next from with comes Welles question the SunTrust. Fitzpatrick line of

Your line question Morgan with line is Stanley. of now comes open. This Gomolinski-Ekel from Jacob the

open. now is line Your

Jacob Gomolinski-Ekel

questions. evening, the and taking good Hey, thanks for

of is a excess flow, at and RBL higher capturing in, the – bonds stock reducing terms than the You you of at Obviously, kind the down looking or with debt. call the yield of of you bonds of balance the the mentioned play? a and on use it, was on we’re you XXs some that. the prepaying How on and discount looking you paying buying cash given bonds mentioned back sort bit are versus sort like based on WTI The the $XX free or little it at in lows focus do of – budget low-XXs. –

Mark Erickson

alternatively, really our So pick there how a looked it. we’ve in and shows now. try noticed that’s have day at significant We our some of those the bonds market. stocks every at are our – buying to out that But that balance discount. kind are like And value our bonds We’ve both when we is trading great when up right to it then stock up.

ahead in and picking And it been so going up. certain just windows, we’ve

Jacob Gomolinski-Ekel

call? allocations? on might quarter’s the for for missed room their some I sense. discussion if or with additional of on And – It sounded there based last – DCP conversations most ongoing I in but additional then any Okay, be that apologize any makes had terms methodology ongoing like have this, you

Mark Erickson

very far goes can to We as in But our as we numbers to regarding the going what often year-end. with assume imagine. status was in didn’t as DCP We’re it at quo just for assumed there you it any be to change. that is discussions what budget XXXX, was

Jacob Gomolinski-Ekel

Okay.

there’s So would successful is of some just DCP? it’s – it kind – if discussions upside there fair to some with

Mark Erickson

They not account that into very in But well something our we’re it’s be. could budget. it’s, again, taking

Jacob Gomolinski-Ekel

just Okay. your additional you might Colorado from how Senate affect detail put the and building last together the by moment the Do or House and the on question any me. And at operations? thoughts then that have

Mark Erickson

abreast of realistically, stay try does, can. anybody really any news as We as know clips. information the than else more that’s really to don’t it we But we in different

having the – going we’re that – parties, to sides developing going feel be hopefully, outcome brings clear of that discussions have that We’re and outcome allows with both the multiple issue together the is to a path we industry a is balanced forward.

Jacob Gomolinski-Ekel

Okay. sense. very much. Thank make you That

Mark Erickson

Thanks.

Operator

the have Fitzpatrick Welles Instructions] of [Operator question We a with from SunTrust. line

further Your time. questions line is showing I’m be queue line I’d Mark Mr. now closing remarks. on in Fitzpatrick, no turn like open. the call back at for your to may mute. to this Erickson

Mark Erickson

I’d participating Thank QX. like in really and pleased results call for Sure. the everybody to in did you. our deliver strong just we thank to

Operator

for thank a you participation great concludes Ladies and have program, you in your disconnect. gentlemen, and Everyone, today’s conference. the now day. may This

Extraction Oil & Gas (XOG) 22 Feb 192018 Q4 Earnings call transcript