Resolute Energy Corporation (REN)

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Resolute Energy Corporation (REN)

Analyst Day

June 19, 2013 3:00 pm ET

Executives

Nicholas J. Sutton - Chairman and Chief Executive Officer

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

Jeff Roedell

Theodore Gazulis - Chief Financial Officer and Executive Vice President

Michael David Clouatre - Vice President of Reservoir Engineering

Douglas Dietrich

James M. Piccone - President and Director

William R. Alleman - Vice President of Land

Preston Evans

Analysts

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

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

Presentation

Nicholas J. Sutton

We might as well get started. I normally don't need a microphone, but since we're broadcasting this -- we have people on the line. In order to make sure they could hear, we are going to continue to use microphones. So, bear with us if we get too noisy. Just raise your hands and we'll dial it back. We have a couple of minutes I think before the 1:00 official start date. But, as an attempt to get going, we can waste a couple minutes. As well we should watch [indiscernible], but waste a couple minutes going over to forward-looking statement. Michael?

Michael N. Stefanoudakis

Everyone knows we will be making some forward-looking statements [indiscernible]

[Audio Gap]

Nicholas J. Sutton

We don't mean to sort of demean your intelligence. We know you all this stuff, but we have to go through this as matter of course. There's some information about the conference call that is part of this, and the replay will be available for some time. Also, the slides will be available on our website, which I think most of you know.

Let me start out by saying that I've got it easy here today. As you picked up from some of the other speakers, Ted, for example, as he went around the room. He made it clear to today is the day for all of you to meet more of our team, see the depth of the team, which include really, really good people, very experienced people. And so my job is really to be the emcee, to be the Johnny Carson, to be the bandleader, whatever we want to call it. And the real work here is going to be done by the unit managers and the tactical team. So, I'm going to give just a little bit of an overview, I think some of you have seen the slide. The base, it's fixed, our market cap. We're a small cap company, no doubt about that. But we have -- I think the key things I would look at here really involve some of the metrics on the value proposition. We have, SEC case reserves of 87 million barrels. And a takeaway from today is that, that's only the tip of the iceberg. We are familiar with the SEC rules. We all know that those rules, in many respects, as they apply to resource or unconventional plays, are in a state of flux and so we take a conservative approach to how we report our proved reserves. But, again, I think as we go through this today, you'll see that the inventory set, the opportunity set is much, much deeper than that. And not only do we have the opportunity inventory, but the economics associated with those are really very robust. So, that's the thing I would focus on, along with the fact that, as you know, we are an oil producer. You take oil and the NGLs, 11% is left for gas and so we refer to ourselves as an oil company. That's exactly what we are, and it's been about a choice since the beginning of the company when we sat around as a group of founders. Today, what is our strategy? Where are we going to do here? What are our competitive strengths? How do we see the external environment shaping up? We made the determination that were going to be an oil company. Our prior company was a natural gas company because at that time that was the place to be. We turned out to be right. In this round, being an oil company, I don't know whether we were lucky or smart. I don't much care. We turned out to be right. And so, again, from the very beginning we have been an oil company. We aren't one of natural gas companies that has been scrambling over the last, say 2 years, to transition or transform into a liquids-rich company. That's been where we have been since the very beginning.

A little bit of the history. We started in 2004. We acquired the Aneth Unit of the Aneth Field. That sometimes gets confusing because there's the Greater Aneth Field and the Aneth Unit. We acquired the Aneth Unit in 2004, right at the end of the year. And then we started working on Chevron, which was the major owner and the operator of the other 2 units in the Aneth Field, the McElmo Creek Unit and the Ratherford Unit. We were successful in acquiring those in 2006. Sometimes you may want to have some stories, we can tell you some stories about that process. It's quite interesting. But, anyway, then we went on and as we -- after those 2 transactions, we were exclusively in the Aneth Field. We decided that we needed a little bit more diversification, and so our next step was the Hilight Field in the Powder River Basin. We did that in 2008. In 2010, early in the year, we did a transaction that brought us into the Bakken. When we did our IPO in 2009, people said, well, what's next? So we think we need to have one more leg under the stool. Today, where are you go to do be? I mean, logically, if you're an oil company, you're going to look at the Bakken, you're going to look at the Permian, and there, maybe a couple other places. But the first opportunity that we felt fit us turned out to be Bakken, and so we did that in 2010. We expanded it with a farm-out from Marathon that year, and then in 2011 we saw an opportunity to really get into the Permian. As Doug Detrick [ph] mentioned earlier, he came on in 2011. We opened our office in 2012. We now have 30 employees there. That's really our focus, and now that we've got that other leg under the stool, it's time to kick one of them away. And, as all of you are aware, we're in a process that could lead to the divestiture of our Bakken assets.

So, that's kind of the history of the company, how we got to where we are. We call ourselves regionally diversified. We are -- we'll put a big question mark around the Bakken. But, again, we're in southeast Utah, we're in the Northern Rockies and we're in the Permian Basin. A little bit about the proved reserves, a year ago, 2 years ago, Aneth would have been the vast majority, including works in the other areas. But the Permian is making great inroads. We're expanding our Permian presence in a significant way, and as we move through our drilling programs and our capital programs in the Permian, I think you're going to see those ratios change significantly. And you look at the capital expenditures, obviously, the vast majority of capital go to the 2 big areas, the Aneth area and Permian.

Company overview. I mean, I can let you read it, I kind of walked through it. For those of you who are on the phone, we're on Page 6. The takeaway from Aneth -- and Jeff is going to go into a lot more detail -- is it is an incredible asset. It continues to grow in its production profile. And mostly, right now, we're focusing on expanding CO2 [indiscernible], but there are a lot of other things that we're doing there as well. So it is an asset that spins off free cash flow, stable production and we don't play the decline curve. We have an incline. Now, how many big oil fields, 1.5 billion barrels of oil in place originally, how many of those have an expanding or an increasing production profile? I would suggest not many. The Powder River Basin is area we like. It also spins off extra cash flow. And one of the things that brought us to that area, originally, was the old cliché about good things happening in good neighborhoods. Nothing good ever happens in a bad neighborhood and we were in a good neighborhood. And so, by having a presence, an operating presence, we have the ability to really examine the rocks, we have people focused on the area. And there are some great plays that emerging in the Powder River Basin, and we're targeting the Turner, the Mowry the Minnelusa.

Moving to Permian. As you know, we made some significant acquisitions at the end of this last year. We began drilling on the acquired properties early this year. We assumed operations of most of the acquired properties at the beginning of April. And we're real excited about the fact that we're going to be spudding our first horizontal well on our Permian properties, really, within the next couple of weeks. It could be this month.

We have -- we'll show a dramatic increase in production between 2012 and 2013. Now most of that is going to be the result of the acquisitions. But I the way I put is, I don't care where I get my growth from, whether it's by the drill bit or by acquiring. Some years, it's going to be more about the drill bit and some years it's going to be more by the acquisition. This year, we're going to record roughly a 50% increase in production over the last year. And that's heavily influenced by the acquisitions that we've done. We also are involved in some drilling, and we're involved in an area which is very active. And we think we're going to see not only results internally for 2013, but our activities as well as the activities of other companies in the area. I think we're going to set up some really, really exciting opportunities in 2014 and beyond.

Just a rundown of our agenda today. It's pretty straightforward. I mean, we've discussed -- started, sort of quick overview but turn it over to Jeff to do the Aneth Field. We'll do a quick break and then Doug is going to step up and walk you through what we're doing in the Permian Basin, followed by Preston in the Northern Rockies and we hope you're all able to join us for dinner and some relaxation after this.

A reminder of our guidance. And I think -- I don't want to get lost and the numbers but guidance is still there. I mean, we have an adjusted guidance that's been out for a while. We anticipate a 50% increase in production, as I just mentioned, but also we're working hard on our unit metrics. So we expect to see a decline in our LOE per BOE, a slight increase in our G&A as we staffed up to handle some of the activities that we've got on our plans. The production from those activities will eventually close that G&A metric down. But, right now, because we are staffing up in anticipation of -- as part of the early stages of some of this aggressive activity, we will see a slight degradation of G&A metric. Our tax metric is going to improve. That's partly just by the expansion of our Permian Basin production relative to the rest of the company.

With that, I'd like to turn it over to Jeff, who's going to talk about -- oh, yes. I was hoping -- something to give you. But, okay, introduction. I've covered a little bit of this. Fields like the Aneth very rare, in my opinion. We've got excellent current economics, stable production. We'll walk you through what those economics are. In large, OOIP, original oil in place, presents significant opportunity. And the way I look at it -- take a look at 1 million barrel field, and you increase your recovery efficiency by 10%, you've got 100,000 barrels. Don't get me wrong. I'd love to have a whole closetful of million-barrel fields. When compared to what you get with the 10% increase on a 1.5 billion barrel field, I mean it just -- everything gets warped. And so, with that huge OOIP, you've got significant rewards for anything you can do to the increase recovery efficiencies.

Now, you all know, we're very active in CO2 in this area, the CO2 tertiary projects. You guys know this stuff as well as anybody. CO2 projects can deliver significant incremental reserves. And, again, you measure it against 1.5 billion barrels in place, those recoveries amount to millions and millions of barrels. And this field -- another thing that makes it unique. We're 25 miles from the largest naturally occurring CO2 resource in the country. It's the McElmo Dome. We'll walk you through a little bit about our contracts with Kinder Morgan, which operates the Dome. We have a good long-term secure supply of CO2, and we own and operate the pipe that comes from the McElmo Dome to this field. Again, that's very, very unique. We can enhance production with modest capital expenditure. And if we look at our maintenance CapEx -- that's kind of a buzzword these days -- well, we can maintain this field in a flat production profile for years and years and years with very little spending. So, again, very unique.

Now, Steve Mooney [ph] stood up and introduced himself, mentioned how we had been increasing production through our Aneth Field CO2 flood [ph]. You see -- this is the field production, and in barrels per day from 2009 to where we are presently and where we think this is going to go. So, again, I challenge people to come up with examples of very large oil fields that spin up free cash flow while having an increasing production profile. Very unique, in our opinion.

And now, I'm going to turn it over to Jeff.

Jeff Roedell

So is this working?

Nicholas J. Sutton

It is.

Jeff Roedell

So, again, I'm Jeff Roedell, the Business Unit Manager for the 4 Corners area, which are in [ph] the Greater Aneth Field. And as Nick mentioned -- I mean, if you are going to design your oil company from ground zero, you'd be hard pressed to start with a better foundation than the Aneth complex. As he already mentioned, 1.5 billion barrels of oil in place, over 43,000 gross acres, I mean, it's truly a giant oil field. It's produced, right now, with about 720 -- just less than 720 wells. Most of which are produced -- slightly more than 1/2, producers. A majority of those are live wells. Although there are pretty good spattering of electric submersible pumps, and we're getting higher production levels from those wells and a few flowing wells. And then just slightly 1/2 of the wells are injectors, support the water and CO2 flux.

Read the rest of this transcript for free on seekingalpha.com