Goodrich Petroleum Corporation (GDP)
Q4 2008 Earnings Call Transcript
February 26, 2009 11:00 am ET
Gil Goodrich – Vice Chairman and CEO
Rob Turnham – President and COO
David Looney – EVP and CFO
Ellen Hannan – Weeden & Company
John Freeman – Raymond James
Subash Chandra – Jefferies & Company
Scott Wilmoth – Simmons & Co.
Kim Pacanovsky – Collins Stewart
David Heikkinen – Tudor Pickering & Co.
Joe Allman – JP Morgan
Leo Mariani – RBC Capital Markets
Ron Mills – Johnson Rice & Company
John Healy – Forest Investment Management
Joe Magner – Tristone Capital Inc.
Richard Tullis – Capital One Southcoast, Inc.
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Thank you very much. Good morning everyone and welcome to our full year and fourth quarter 2008 earnings call. I’d like to begin this morning by introducing the Goodrich Management team members here with us beginning with Pat Malloy, our Chairman of the Board; Rob Turnham, our President and Chief Operating Officer; David Looney, Executive Vice President and Chief Financial Officer; and Mark Ferchau, Executive Vice President Engineering and Operations.
We issued an earnings release yesterday evening after the close. If you have not received a copy of that and you would like to, you can access one on our Web site at www.goodrichpetroleum.com or feel free to call my Personal Assistant, Becky DeLatin [ph], at 713-780-9494. She will be happy to fax or email you a copy.
As is our practice we would like to remind everyone that comments we may make and answers we may give during this teleconference may be considered forward-looking statements, which involve risks and uncertainties and we have detailed those for you in our SEC filings.
These are certainly challenging times for all E&P companies but the actions taken, progress made and results achieved during 2008 have not only positioned us to weather the current economic storms but to continue to grow our company and create additional value for our shareholders in 2009. In 2008 and on a full-year basis, we achieved net production volume growth in excess of 50%, nearly doubled our oil and gas revenue, and achieved growth in proved reserves using a longer term price outlook of approximately $7.50 per Mcfe of approximately 30% over the prior year. Once again we delivered attractive growth reserve replacement ratios both prior to and after price related revisions.
During 2008, we achieved a number of critical objectives including significantly increasing the level of our drilling activity and the size and the scope of our capital program dramatically strengthened our balance sheet and expanded our net acreage position in Haynesville Shale play to approximately 63,000 net acres. Net production in the fourth quarter grew somewhat less than we had projected due to a number of circumstances which Rob will review with you in detail in a few minutes. However, the slide production mix was entirely related to the timing of new wells coming online during the quarter and our strategy, plans, and growth projections remain on track. Our liquidity remained strong with approximately $148 million in cash and short-term investments as of December 31, 2008. When combined with our anticipated cash flow, untapped senior revolver and strength of our balance sheet will continue to allow us an aggressive development program, and we are all in pace with our planned capital expenditures of $300 million.
We maintain an excellent 2009 hedge position with 16 million cubic feet of gas per day or approximately 22 Bcf hedged at a blended average fuel price of $8.61 per MMbtu, which represents approximately two thirds of our projected 2009 production. In addition, we have also hedged the basis differential on these 16 million cubic feet of gas per day locking in a basis differential between NYMEX pricing and our closest field benchmark NGPL TXOK pricing at approximately $0.47 per MMbtu which provides us protection against further basis expansion in East Texas.
Operationally, we continue to make excellent progress with our strategy. We have now announced results on our first two Haynesville horizontal wells and the Bethany Longstreet field of southern Caddo and northern DeSoto Parishes with initial potentials or IPs in excess of 10 million cubic feet of gas per day and we are equally pleased with the early initial mass performance of both of these wells. We have two additional wells in the Bethany Longstreet field which have reached total debt and are scheduled to be fraced and completed in March and three additional wells are currently being drilled. Our current plans call for three non-operated rigs to remain active drilling horizontal Haynesville shale wells in the field for the balance of this year with a total of 17 or approximately seven to eight net Bethany Longstreet Haynesville horizontal wells drilled this calendar year.
Moving further to the north in Caddo Parish, we have now drilled two non-operated wells in the Longwood field where we have tested the initial well our Percy Sharp 7H-1 and anticipate completing the second the Bohnert 28H-1 early next month. While it is early in the well’s production performance and the initial potential on this Sharp 7H-1 was less than we have seen in Bethany Longstreet, we are pleased and encouraged by the well’s early performance and based upon the well’s performance to date, we currently project the well’s estimated ultimate recovery or EUR will be at the low end of our previously estimated range of 4.5 to 8.5 Bcf per horizontal Haynesville well. This is just one data point, it does confirm our belief that there will be variability across the play and suggest that porosity and permeability are more significant drivers than thickness as the Sharp area has slightly lower porosity and perm yet approximately 283 to Shale thickness, and will likely perform differently over time versus higher perm and porosity areas.
Yet further to the north and Caddo Parish in the Caddo Pine Island area we have participated in three additional non-operated Haynesville horizontals. These wells are currently waiting on completion of the pipeline and two of the three wells are expected to be fraced and completed during the second quarter. However our initial well the Hall 9H-1 has been completed and thus far exhibited disappointing flow back performance with an initial potential of approximately 2.5 million cubic feet of gas per day. While it is still early in the well’s flow back it is worth noting that our Caddo Pine Island acreage represents approximately 2900 net acres or approximately 4.5% of our total 63,000 net acres perspective for the Haynesville Shale.
Moving west into East Texas, on our 100% on and approximately 39,000 acre block in the Minden and Beckville fields of Panola and Rusk counties we are currently drilling on our initial two operator Haynesville horizontal shale wells, the Lutheran Church 5H and the J.K. Williams 7H. After some initial drilling problems and delays in the shallow portion of the hole, the Lutheran Church 5H has now reached a kickoff length and had tightening [ph] set at 10,600 feet and the J.K. Williams 7H is drilling in the shallow vertical portion of the hole. Also in the Minden and Beckville area and during the second quarter of 2008 a direct offset operator successfully drilled and completed a Cotton Valley horizontal well in the Taylor sand series which is a different target and strategy from our two previous Cotton Valley sand horizontal attempts in the area. The offset well has performed extremely well over a nine-month period and we have recently completed our initial look alike Taylor sand horizontal well, the G.T. Waldrop 3H. Rob will give you more details in a moment but we are very pleased with the initial flow back performance and we expect the well will continue to improve as we recover a greater percentage of the induced frac water. Following on this success, we currently have five Cotton Valley Taylor sand horizontals planned in the Minden Beckville area in 2009.