Goodrich Petroleum Corporation (GDP)

GDP 
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Goodrich Petroleum (GDP)

Q1 2013 Earnings Call

May 07, 2013 11:00 am ET

Executives

Walter G. Goodrich - Non-Independent Executive Vice Chairman, Chief Executive Officer, Member of Executive Committee and Member of Hedging Committee

Robert C. Turnham - President, Chief Operating Officer and Non-Independent Executive Director

Jan L. Schott - Chief Financial Officer and Senior Vice President

Analysts

Leo P. Mariani - RBC Capital Markets, LLC, Research Division

Michael Kelly - Global Hunter Securities, LLC, Research Division

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

Pearce W. Hammond - Simmons & Company International, Research Division

Joseph D. Allman - JP Morgan Chase & Co, Research Division

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

Michael S. Scialla - Stifel, Nicolaus & Co., Inc., Research Division

Dan McSpirit - BMO Capital Markets U.S.

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

David Snow

Chad Mabry

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2013 Goodrich Petroleum Corporation Earnings Conference Call. My name is Dave, I'll be your operator today. [Operator Instructions] As a reminder, the call is being recorded for replay purposes.

I'd now like to turn the call over to your host, Mr. Gil Goodrich, Vice Chairman and Chief Executive Officer. Please proceed, sir.

Walter G. Goodrich

Thank you, Dave. Good morning, everyone, and welcome to our first quarter 2013 earnings call. On the call with us this morning from the company is Pat Malloy, our Company's Chairman; Robert Turnham, President and Chief Operating Officer; Mark Ferchau, Executive Vice President, Engineering and Operations; and Jan Schott, Senior Vice President and Chief Financial Officer.

As is our standard practice, we'd like to remind everyone that comments we may make and answers we may give to questions during this teleconference call may be considered forward-looking statements, which includes risks and uncertainties, and we have detailed those for you in our SEC filings.

Our ongoing transitions story from our company's production and reserve were dominated by natural gas towards a more balanced portfolio is very much on track and the emerging Tuscaloosa Marine Shale play adds a component with tremendous upside potential. However, financial and operational performance for the first quarter of this year was negatively impacted by a number of items including: offset well completion impact on production volumes in both the Eagle Ford Shale and Haynesville Shale, where we have recently initiated our plan of completing previously drilled gas wells; a number of unusual financial and operational expenses incurred and paid out during the quarter; and the roll-off of our 2012 natural gas hedges, impacting revenue and cash flow when compared with the prior period. Rob and Jan will review these items with you and their impact in greater detail in just a moment.

Our balance sheet is in good and improving condition. Subsequent to the end of the first quarter, we initiated and successfully raised $110 million in gross cash proceeds through the issuance of a new perpetual non-convertible preferred stock. The issue of the preferred stock, which is non-dilutive to our common shareholders and callable only by the company, allowed us to pay down on our senior revolver, boost our liquidity and significantly enhance our financial flexibility going forward.

In addition, our senior bank group has increased the borrowing base on our senior credit facility to $225 million, which added to our current liquidity, pro forma to year end -- excuse me, to quarter end of approximately $190 million. Also subsequent to the end of the quarter, we added to our oil hedged position by adding 2,000 barrels of oil per day for the calendar year 2014, priced against WTI at approximately $92 per barrel.

In addition, we initiated the first portion of our natural gas hedging strategy by layering in an initial 10 million cubic feet of gas per day at NYMEX price of $4.18 per MMBtu for the period of October 2013 through December of 2014. We continue to watch both the crude oil and natural gas markets carefully, with plans to add to our position opportunistically over time to build an additional cash flow protection.

In the Eagle Ford Shale, our drilling team continues to turn in record performance with spud to total depth averaging approximately 10 days per well, a reduction of approximately 57% compared to our initial wells drilled in the play. The improved drill time performance is allowing us to not only increase the number of wells drilled per rig, but also to reduce overall completed well costs, and build on our inventory of wells drilled and ready for completion.

Our wells in the Eagle Ford Trend continue to perform very well. And after adjusting for offset well completions, shut-in time and short-term frac water interference, our wells continued to perform on curve with a normalized internal EUR projection of approximately 425,000 BOE.

Moving to the Tuscaloosa Marine Shale. While currently representing only 25% of our full year CapEx budget of $200 million, the TMS is certainly a focal point for us as we continue to move towards larger-scale development mode. We continue to be very encouraged by the results we have seen thus far and believe we are gaining valuable knowledge as we move along this path. Our enhanced knowledge is both in terms of improved drilling procedures, which has led to recently improved drilling cycle times, and optimized completion techniques, including the types and amounts of fluids used, as well as the amount of profit per stage. We are confident these learning curves already have and will continue to lead to improved drilling times, reduced well costs and more repeatable well performance.

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