Jones Energy, Inc. (JONE)

JONE 
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Jones Energy, Inc. (JONE)

Q2 2013 Earnings Call

September 4, 2013 10:00 a.m. ET

Executives

Robert Brooks – EVP & CFO

Jonny Jones - Chairman and CEO

Mike McConnell – President

Eric Niccum – EVP and COO

Todd Wehner – SVP & Chief Accounting Officer

Analysts

Joseph Allman - JP Morgan

Jeff Robertson - Barclays Capital

Brad Carpenter - Wells Fargo

Biju Perincheril - Jefferies & Company

Richard Tullis - Capital One Southcoast

Neal Dingmann - SunTrust Robinson Humphrey

Presentation

Operator

Ladies and gentlemen thank you for standing by. Welcome to the Jones Energy 2013 Second Quarter Earnings Conference Call. The company’s news release announcing its second quarter results was circulated yesterday and is also available on its website at www.jonesenergy.com. During the presentation, all participants will be in listen only mode. (Operator Instructions) As a reminder, this call is being recorded. An audio replay of this call will be available through 9 AM Eastern Time December 4, 2013 by dialling 877-344-7529 for callers in the US, or for 412-317-0088 for international callers and entering conference code 10033052. An archive of this call will also be made available on the Jones Energy website at www.jonesenergy.com.

I would now like to turn the call over to Robert Brooks, Jones Energy’s Executive Vice President and Chief Financial Officer. Please go ahead sir.

Robert Brooks

Thank you and good morning everyone. Participating with me this morning are Jonny Jones, Chairman and CEO; Mike McConnell, President; Eric Niccum , Executive Vice President and Chief Operating Officer and Todd Wehner, Senior Vice President and Chief Accounting Officer. After our formal remarks, we will open the call for questions.

Let me remind everyone that today’s conference call contains forward looking statements. These statements, including those describing management’s beliefs, goals, expectations, forecasts and assumptions are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The company’s actual results may differ from these forward looking statements for a variety of reasons, many of which are beyond the company’s control. Additional information concerning certain risks and uncertainties relating to the company’s business prospects and results are available in the company’s filings with the SEC. During the call, management will refer to certain non-GAAP financial measures. Reconciliations to these measures are provided in the full second quarter 2013 earnings release and quarterly report on Form 10-Q filed yesterday.

I would now like to turn the call over to Jonny Jones, Chairman and CEO.

Jonny Jones

Thanks Bob. Good morning everyone and thank you for joining us today to discuss our second quarter 2013 results. This is Jones Energy’s inaugural earnings call as a public company. But I think it’s worth reminding everyone that Jones is a 25-year old company that has been focused in the Mid-Continent since its founding. Our operating team drilled one of the first horizontal wells in the Anadarko basin 17 years ago and has drilled over 400 horizontal wells since that time.

By way of background, the company seeks areas where it can be one of the best operators and generate high well level returns and over the past 25 years the company has drilled over 580 wells in 12 different zones, nine of them horizontal all within the Mid-Continent. Today we are focused on drilling in the oil and liquids rich Cleveland formation in the Anadarko basin and the liquids rich fairway of the Woodford formation in the Arkoma basin. Combined with our low drilling and completion costs, this allows us to generate solid returns.

In the Anadarko, we have over 1500 identified drilling locations and in the Woodford we have over 900 drilling locations providing over 20 years of drilling inventory at our current drilling pace. Over 80% of our acreage is held by production, so we are not under any pressure to drill the whole acreage. The plays we are currently drilling are highly delineated. In the Cleveland, for instance, there are over 3600 vertical penetrations and more than 1500 horizontal wells and in the Woodford, there are over 1300 horizontal wells. As a result, we have a good understanding of our likely drilling results and contain much of our time working to reduce our costs to drill and complete wells. Low-costs are the single biggest driver of our return and we are constantly striving to reduce drilling time and drilling and completion costs.

The second quarter of 2013 has seen significant growth for Jones coming on the heels of our Chalker acquisition in December of 2012. We increased our total production to 16,725 barrels of oil equivalent per day which is up 5% from the first quarter of 2013 and up 37% from the second quarter of 2012. In addition, we increased oil production to 4,540 barrels per day, up 31% from the first quarter of 2013 and up 147% from the second quarter of 2012 due mainly to our drilling which is focused in the liquids rich area of Cleveland. We ended the quarter with six rigs running in Cleveland and we’ve added one Woodford rig since then. Our next Woodford rig will arrive in the middle of this month. We expect to exit 2013 with 10 rigs running, eight in the Cleveland and two in the Woodford.

During the quarter we spud a total of 19 operating Cleveland wells and completed 16 of them. We continue to see excellent results from these wells. In fact, the IP30 rate for the 23 Cleveland wells completed in the first half of 2013 was 505 barrels of oil equivalent per day which exceeds our forecast made at the time of the Chalker acquisition and is at the high-end of our expectations. In addition, we achieved our first ever spud – our fastest ever spud of TD time and highest average rate of penetration for a Cleveland well at 14.6 days and 873 feet per day respectively. Our drilling and completion costs for these wells remained in line with our $3.1 million AFE and our team continues to look for further cost reduction opportunities.

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