Resolute Energy Corporation (REN)

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Resolute Energy (REN)

Q2 2013 Earnings Call

August 05, 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

James A. Tuell - Chief Accounting Officer and Vice President

Analysts

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

Phillip Jungwirth - BMO Capital Markets U.S.

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

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

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

John C. Nelson - Citigroup Inc, Research Division

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

James Spicer - Wells Fargo Securities, LLC, Research Division

Presentation

Operator

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

Michael N. Stefanoudakis

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 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 on this call. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this call. A listing of the material risk factors faced by Resolute appears in our Form 10-K and is updated periodically in our form 10-Qs and our other public filings.

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

Nicholas J. Sutton

Thank you, Michael, and thanks to all of you who have joined us on the call today. I'm going to provide a brief overview of recent results and then our operations updates. Then after that, Ted Gazulis will review our financial results and we then will take your questions.

In my opinion, the high points of the quarter are increased production, lower lease operate expenses, drilling our first horizontal well in the Midland Basin, ongoing enhancement activities in greater Aneth Field and preparation for our first Turner horizontal well in the Powder River Basin.

Total company production in the second quarter reached a record 13,107 BOE per day, which was 39% higher than the same quarter last year. Contributing to the production increase was incremental production associated with our Permian Basin acquisitions and our drilling program in the Permian.

At the beginning of the quarter, we acquired operations of our Gardendale properties and we commenced the 2 well -- 2-rig drilling program, drilling 10 wells, of which 4 were completed by the end of the quarter. The other 6 wells were at various stages of completion or flowback. Our plan for the year is to drill a total of 20 vertical and 3 horizontal wells on our Midland Basin acreage.

Production from the Aneth Field for the second quarter was 6,247 BOE per day, an increase of 210 BOE per day from the year-ago quarter and a decrease of 401 BOE per day from the first quarter of this year. The sequential decline reflects the sale of certain properties to the Navajo Nation Oil and Gas Company and the continued shut-in of the gas line, as previously reported in our first quarter earnings announcement.

An integrity test performed on that line raised questions about the pipe, such that the operator decides to take a pipe off-line, at least for the time being. In the meantime, we are working on an alternative, but at this time we can offer no assurance as to when we might be able to sell gas from the Aneth Field. Production from our Wyoming and North Dakota properties was in line with our expectations after we get effect to our sale of the New Home Bakken properties that was announced previously.

As you know, last quarter's lease operating expense was anomalously high, primarily due to workover expense in Aneth Field. This quarter, we achieved a reduction in lease operating expense with second quarter LOE at $21.45 per BOE, which represents a sequential decline of 11% from the first quarter.

Gross margin was 71.3% in the second quarter, as compared to 68% in the first quarter of the year, despite revenue per BOE being 1% lower. From an operational standpoint, to me, our highlight is the fact that our first Midland Basin horizontal well, the Midkiff 1818H, reached total depth on July 31. The liner has been set and the rig released to move on to our second horizontal well, the Pearl Jam 2417H, which is expected to spud later this week.

The Midkiff 1818H is scheduled for completion to start on August 26. I don't mean to let the horizontal program overshadow our vertical well program in the Midland Basin, but we intend to drill 20 wells this year. The drilling has proceeded on schedule. And after a slight delay, the completion activity has ahead of steam. The 6 wells were in various stages of completion at year end, along with the new drill should contribute nicely to third and fourth quarter production.

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