Resolute Energy Corporation (REN)

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Resolute Energy (REN)

Q4 2012 Earnings Call

March 07, 2013 4:30 pm ET

Executives

Michael N. Stefanoudakis - Senior Vice President, General Counsel and Secretary

Nicholas J. Sutton - Chairman and Chief Executive Officer

Theodore Gazulis - Chief Financial Officer and Executive Vice President

Bret R. Siepman - Vice President of Geology & Geophysics

Paul Taylor

Analysts

Ronald E. Mills - Johnson Rice & Company, L.L.C., Research Division

John Freeman - Raymond James & Associates, Inc., Research Division

Jeffrey W. Robertson - Barclays Capital, Research Division

Noel A. Parks - Ladenburg Thalmann & Co. Inc., Research Division

Richard M. Tullis - Capital One Southcoast, Inc., Research Division

Ryan Oatman - SunTrust Robinson Humphrey, Inc., Research Division

Jason A. Wangler - Wunderlich Securities Inc., Research Division

Presentation

Operator

Good afternoon, and welcome to the Resolute Energy Fourth Quarter and Year End 2012 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Michael Stefanoudakis, General Counsel. Please go ahead.

Michael N. Stefanoudakis

Thanks, operator. Good afternoon, everyone. My name is Michael Stefanoudakis. I'm the Senior Vice President and General Counsel of Resolute. I'd like to read the forward-looking statement before turning the call over to Nick Sutton, our Chairman and CEO.

This investor conference call includes forward-looking statements within the meaning of the Safe Harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Words such as expect, estimate, project, budget, forecast, anticipate, intend, plan, may, will, could, should, poised, believes, predicts, potential, continue and similar expressions are intended to identify such forward-looking statements.

Forward-looking statements in this conference call may include matters that involve known and unknown risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to differ materially from results expressed or implied by this investor conference call. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this call.

At this time, I'd like to turn the call over to Nick Sutton, our Chairman and CEO.

Nicholas J. Sutton

Thank you, Michael. Good afternoon. As we have done in previous calls, I will provide you with a brief overview of the company and then an operations update. After that, Ted Gazulis, our company's Chief Financial Officer, will review our financial results, then we could take your questions.

As we covered most of the highlights in our press release, I intend to keep my comments brief and focus on providing some context and perspective to what we have achieved over the past 2 years and what it means for the future of Resolute.

First, I am very, very pleased to report that our fourth quarter production was 10,073 BOE per day, an increase of 22% over the same quarter last year. We exceeded our 15% production guidance for the full year 2012 by increasing production to 3.4 million BOE. And today, we are referring -- reaffirming our guidance of a 30% increase of production for the full year 2013 over 2012.

I would like to summarize our achievements during the fourth quarter and full year of 2012. As I just mentioned, we increased total company production in the fourth quarter by 22% over the prior year quarter and produced a total of 3.4 million BOE, exceeding our production guidance.

We continued to strengthen our foundation Aneth Field by drilling new wells, seeing ongoing and increasing response from our CO2 initiative in the Aneth Unit, continuing the water flood project in the Desert Creek IIC formation and completing 2 transactions that help monetize value and increase our operating flexibility.

We have 2 active drilling programs in our oil growth projects in North Dakota and Texas, both of which drove production increases. A 270% increase in production in Texas and a 289% increase in the Williston Basin. Combined, our drilling activities and our investments resulted in an increase of proved reserves to 78.8 million BOE at year end, that's 22% higher than the previous year. 79% of those reserve were classified as crude oil. If we include natural gas liquids, the liquids component rises to 90%.

A brief review of how we got here is in order. In 2011, our asset portfolio was dominated by Aneth Field, a classic giant oilfield with an estimated 1.5 billion equivalent barrels of oil in place. Aneth Field is a great asset. It spins off substantial free cash flow for reinvestment. The supplement and to reduce our dependence on Aneth, in 2011 through 2012, we worked to expand our operations in both the Permian Basin and the Bakken oil shale play of the Williston Basin, both of which are excellent places to reinvest the free cash flow generated by our legacy assets in Aneth Field and in Hilight Field.

In our call at this time last year, we forecasted that reinvestment in the Permian and Williston basins would reduce the waiting to Aneth Field for both our reserves and our production. A year later, I could say that we have done just that.

At year-end 2012, Aneth Field accounted for 75% of our total proved reserves, down from 86% at the end of 2011. Our production from Aneth declined to 64% of company-wide production in the fourth quarter from 73% in the same quarter last year. Obviously, on the exercise of our option, later this month, the shift in reserves and production will be even more dramatic. Although Aneth Field and Hilight Field are mature assets, they remain core to our business strategy. Last year, these legacy fields generated approximately $117 million of field level net income that was available for reinvestment both there and in our Permian and Bakken growth assets.

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