Goodrich Petroleum Corporation (GDP)

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Goodrich Petroleum Corp. (GDP)

Q1 2009 Earnings Call

May 07, 2009 10:00 A.M. ET

Executives

Walter G. Gil Goodrich - Vice Chairman and Chief Executive Officer

Robert C. Turnham, Jr. - President and Chief Operating Officer

David R. Looney - Executive Vice President and Chief Financial Officer

Analysts

Joseph Magner - Tristone Capital Inc.

Richard Tullis - Capital One Southcoast, Inc.

Ronald Mills - Johnson Rice & Company

Ellen Hannan - Weeden & Company

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Q1 2009 Goodrich Petroleum Earnings Conference Call. My name is Lisa and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (Operator Instructions).

I would now like to turn the presentation over to your host for today's conference Mr. Gil Goodrich, Vice Chairman and CEO of Goodrich Petroleum. Please proceed, sir.

Walter G. Gil Goodrich

Good morning, everyone and welcome to our first quarter 2009 earnings call. I'll begin with introducing the Goodrich Petroleum team members here with me this morning, Robert 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 put out a release after the close yesterday afternoon detailing our operations and first quarter earnings. If you have not received a copy of that and would like one, you may access it on our company website at www.goodrichpetroleum.com or call my personal assistant, Becky DeLatin (ph), at 713-780-9494. She will be more than happy to fax or email you a copy.

As is our practice we would like to remind every one that comments we may make and answers we may give during this teleconference could be considered forward-looking statements, which involve risks and uncertainties and we have detailed those for you in our SEC filings.

I'd like to begin this morning with a few highlights from the first quarter's operations and recent activities. During the quarter our operations team again delivered strong sequential growth and net production volumes, which grew by 7.5% sequentially over the fourth quarter of last year to approximately 76 million cubic feet of natural gas equivalents per day.

During the quarter we significantly ramped up our horizontal drilling activities, conducting drilling operations on 15 horizontal wells of which 12 were Hayneville Shale's horizontal wells.

In addition, we further expanded our Haynesville Shale drilling inventory in Northwest Louisiana, adding approximately 40 net horizontal locations with the acquisition of approximately 3,400 net acres which we believe to be extremely well located and highly prospective for the Haynesville. This acquisition also increases our net Haynesville Shale acreage position by approximately 5% to 66,500 net acres.

Finally, due to continued deterioration in natural gas, current and past months and the ongoing uncertainty on the remaining near-term outlook we believe it is prudent to further reduce our planned 2009 capital expenditures and ensure we preserve significant liquidity going into 2010.

Thus we have announced $70 million CapEx reduction for 2009 and a revised full year budget of $230 million.

With continued robust drilling activity during the first quarter where we conducted drilling operations on 24 wells and began the quarter with six operated rigs under contract and five non-operated rigs working. Capital expenses for the first quarter were approximately $87 million.

As we'll be reducing both our operated and non-operated rig count under the revised CapEx budget full year 2009's capital expenditures will be significantly front-end loaded.

As we announced on Tuesday we have closed a restated credit agreement with our bank group which reaffirmed our borrowing base of $175 million. With approximately $78 million in cash and short-term deposits on hand at the end of the quarter and our revised 2009 capital plan, we believe we will be positioned to enter 2010 with no borrowings under our credit facility, and plenty of flexibility to execute our strategy under a number of potential economic conditions and scenarios.

As I've said at the outset with sequential quarterly growth of 7.5% we are off to an excellent start to achieving another year of double-digit production volume growth. However, with revised capital expenditure plan announced yesterday we are also revising our full year production growth forecast downward to annual growth of approximately 15% to 25% as compared to full year of 2008.

The value and benefit of our 2009 natural gas hedge position is very evident in our quarterly results. We recorded a gain in the quarter on our entire hedge position of $37 million of which approximately 21 million were cash settlements we received during the quarter.

The hedging cash settlements or realized gains lead to another quarter of very strong cash flow with EBITDAX reaching $31 million.

In addition, the forward-looking benefit or value of our hedge position as of March 31 was approximately $71 million giving us a forecasted full year 2009 benefit from our hedges of approximately $92 million.

While we are currently unhedged in 2010, we are closely monitoring the 2010 natural gas drip which closed yesterday at $6.15 per MMbtu. As well taking note of the steep decline in natural gas directed rig count, which has fallen from it's October 2008 peak of 1,620 active rigs to last week's Smith Bidd's estimate of 743 active rigs, which represents the idling of 877 gas directed rigs or a 54% decrease from the peak.

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