Bill Barrett Corporation (NYSE:BBG)
Annual Shareholder Meeting Conference Call
May 10, 2013 10:30 am ET
Jim W. Mogg – Chairman of the Board
R. Scot Woodall – President and Chief Executive Officer
Robert W. Howard – Chief Financial Officer, Treasurer
Francis B. Barron – Executive Vice President-General Counsel, Secretary
Jim W. Mogg
Good morning, ladies and gentlemen, and welcome to the 2013 Annual Meeting with shareholders of Bill Barrett Corporation. I am Jim Mogg, Chairman of the Board of your company. One of things I wanted to say before I get into the formal comments is one of the benefits of being Chairmen of the Board is on Friday you do not have to wear a tie. That is for the benefit of some of my other Directors as I said. Having said that, I would like to call the order of the meeting. In addition to those of you here in Denver, I also welcome those participating on the webcast of the meeting and our presentation following the meeting.
Before I go any further, let me introduce several of the Company’s officials who are here today. I ask each individual to stand and be recognized as your name is called. First, our members of the Board of Directors who are here today besides myself are Carin Barth, Co-founder and President at LB Capital, Inc., a private capital company; Kevin Meyers, past Senior Vice President of Exploration and Production, Americas of ConocoPhillips and President of ConocoPhillips Canada; Bill Owens, former Governor of Colorado and Chair of our nominating and Corporate Governance Committee; Ed Segner, a professor in the practice of engineering management in Department of Civil and Environmental Engineering at Rice University and the Chair of our Results and EHS Committee; Randy Stein, Tax and Business Consultant who is Chair of our Audit Committee; and Mike Wiley, retired Chief Executive Officer of Baker Hughes Incorporated, who is Chair of our Compensation Committee.
I will also like to introduce Scot Woodall, Chief Executive Officer and President of the company and congratulate Scott on his appointment to these positions last month. The Board also looks forward to working with him. Scott will join the Board following this shareholder meeting. Scott will provide a company presentation after I complete the business portion of the shareholders meeting.
Also here today is Bob Howard, our Chief Financial Officer. Bob will provide a financial overview during our company presentation following the shareholders meeting. Other officers of the company are here today and will be available to answer questions following the company presentation. I would also like to recognize (inaudible) our independent auditors. Would you? Thank you.
In addition, representatives of our outside legal firms are present. I will now proceed with the business portion of the meeting. In accordance with the Provisions of Delaware Law and the Company’s bylaws, the company has appointed Tiffany Skiles of Computershare, our transfer agent to serve as the inspector of election at this meeting. Ms. Skiles would you please stand and be recognized. Thank you.
As noticed in the notice and proxy statement previously furnished to you, the record date for voting at the meeting was the close of business on March 11, 2013 and 48,830,410 shares were outstanding as of that date and entitled to vote. A list of shareholders on the record date is available for your review on the table near the entrance. 42,922,173 shares held by holders of record are now represented at this meeting either in person or by proxy. Based upon 87.9% of the total shares of the company being represented, we declare that we now have a quorum for this meeting. So let’s move to the voting.
We will provide a company overview and be available for discussion in questions in a few moments. First, however, we need to return to the formal items of business to be addressed at today’s meeting. Modest race for discussion that do not relate to these agenda items will be differed into the informal portion of these proceedings at which time company representatives will be a available for discussion. Each of the following proposals is described in the proxy statements into each of the shareholders in connection with this meeting. The proxy statement also sets forth the required vote to approve each of the proposals.
The first proposal probably bought before the meeting is the election of the directors. The company has an advanced notice bylaw provision. Accordingly, all nominations are closed. The nominating and Corporate Governance Committee of the Board of Directors has nominated the following for election as directors; Carin Barth, Kevin Meyers, Ed Segner.
We will now proceed with the election of directors as set forth in the proxy statement. Does anyone have any questions concerning this proposal? All right, seeing that are there any shareholders who desire to vote in person on this matter? Okay, thank you. We will move to proposal number two.
As described in the proxy statement The Dodd-Frank Wall Street Reform and Consumer Protection Act requires that we provide our shareholders with the opportunity to vote to approve on a non-binding advisory basis, the compensation of our named executive offices as disclosed in our proxy statement. This vote was advisory and there’s not binding on the company. Our Board of Directors or the Compensation Committee of the Board of Directors to the extent there is a vote against our named executive officer compensation has disclosed in the proxy statement. The compensation committee will evaluate whether any actions are necessary to address our shareholders concerns. We will now vote on the reservation concerning the approval of our named executive officer compensation contained in our proxy statement. Does anyone have any questions concerning this proposal? All right, hearing none. Are there any shareholders who desire to vote in person on this matter? All right, seeing none. Thank you.
Proposal number three. As described in the proxy statement, the audit committee has appointed the firm of Deloitte & Touche LLP as our independent registered public accounting firm to examine and audit our financial statements for the year ending December 31, 2013. Services provided to us by Deloitte & Touche during 2012 are described in our proxy statement. Representatives of D&T are present at this Annual Meeting and will be given the opportunity to make a statement if he or she desires to do so, and will also be available to respond to appropriate questions.
Although ratification by the shareholders does not required by law, the Board has determined that is desirable to seek shareholder ratification of this appointment in light of the critical role played by the independent auditors in maintaining the integrity of financial controls and reporting, Notwithstanding in selection, the audit committee in its discretion may appoint new independent registered public account at us at any time during the year if the audit committee believes such a change would be in the best interests of our shareholders and our company. If the shareholders do not ratify the appointment of D&T, the audit committee may reconsider its selection.
We will now proceed with the ratification of the auditors. Does anyone have any questions concerning this proposal? All right see I don’t know there are any shareholders who desire to vote in person on this matter? Okay, so based on the fact that no one voted at the meeting, (inaudible) has informed me that the votes on the matters before this meeting have been tabulated. The Director standing for reelection each were re-elected by a vote of more than 96% in favor. The advisory vote on executive compensation was approved by a vote of more than 92%. And the selection of D&T as independent registered public accounting firm has been ratified by a vote of more than 99% in favor. As there’s no other formal business to be addressed at this meeting, I will now declare this annual meeting of shareholders formally adjourned and all matters before it closed.
We invite everyone to stay for an overview of the company by our Chief Executive Officer, Scot Woodall and our Chief Financial Officer, Bob Howard.
Now I will turn things over to Scot.
R. Scot Woodall
Hi, thank you Jim. And for those of you guys who are on the webcast if you would want to follow along, we do have some slides that go with the presentation. If you go to billbarrett.com and look over on the left corner there, there’s a tab which you click on that says annual meeting slides and you’ll be able to follow with the along with the presentation. At ASCO I’d also refer you to the last page of the presentation we had a cautionary forward-looking statements about the material.
We’ll start with a company overview and listed on the side is some of the key important facts about the company. I’ll highlight just a few of those. First off we noticed that we have proved reserves of more than 1 Tcf comprised now 29% oil, 59% proved developed. Risked resources are nearly 3 Tcf. We have over 4000 un-drilled locations in our portfolio and more than 3,000 of those are in our oil basins. Our production is listed here from first quarter of 2013 and highlight the now the strategy 23% oil production company.
We’re going to turn our attention and talk a little bit about our strategy. I think our strategy is very clear and it's very focused. We're fully strategy with strategy that 2013 I think it's important to talk a little bit about the strategy that company has had over the last couple of years. Over the last couple of years, our company has been about repositioning our sales in the basins that would bring more commodity balance to our portfolio. Today, I'm happy to report that I believe that has happened, and I think we've accomplished that. And so as you look at our strategy in 2013 it’s all about execution, it's all about focus, it's all about creating shareholder value, and its start about exercising capital discipline.
So talk a little bit about the company’s strength. In my opinion the company’s strengths are its people and its portfolio. Our people have always delivered top two operation results and we’ve been active in basins such as our executive example to West Tavaputs and we're going to continues drilling rig operations. We always delivered top tier performance in terms of fining and development costs in these operating expenses and capital discipline. I have the same expectation of our operations organization in our new portfolio at our oil basins.
I think our regional focus gives us a huge competitive advantage, when you think about understanding the geology, applying the correct technology and the other business aspects of marketing, permitting, and all the other things have drive our internal way to return. If you look at our portfolio today its large, it’s focused, it is mostly held by existing production which means that we got very few lease commitments or drilling obligations that enable us to make their decisions about capital deployment they come internal rate of return and now on some other factor affecting our business. As we go through our joint inventory here into few minutes, you see would I think expect to expand in our core basis. We talk a little bit more about the portfolio on this slide, and there is lot of information on this slide. So let’s start over on the pie chart from the left.
The pie chart from the left represent the production of the company and it shows you a pie chart for 2008. And if you look back at 2008 this company was a 95% natural gas company. If you look at the pie chart there below you can see in 2013, we expect to exit the year as 70% oil company, significant change. If you look at the middle bars on slide that you see here, you’re looking at the growth of the company in terms of Proved Oil Reserves as well as in terms of oil production. I think impressive growth rates there.
And then if you look to the pie chart on the right, it talks about this 3,000 undrilled oil location, which basin they are in and obvious this is the future growth of the company. Staying with our portfolio for one more minute here, here is our proved reserves, our risk resources in our undrilled locations by each of the basins that we operate in. You can jump down to the total there the bottom right and that was 1 Tcf of proved reserves, Bcfe of risked resources and that’s without an undrilled location. Clearly in today’s commodity price environment we’re going to be focused on undrilled locations in the DJ Basin and Uinta Oil Play.
So we will talk a little bit of our accomplishments in 2012 as done large successes and I think that there are many. First off I believe our new portfolio is starting to deliver. If you look at our oil production growth 2012over 2011 was up 80%. Our proved reserves 2012 over 2011 up 66% and obviously those 3000 un-drilled locations in the oil window. And then we think our unit oil basin, I think it’s starting to deliver. We’re starting to gain with operating efficiencies that I alluded to as one of our company’s strength.
Our drilling days are down 15%, 2012 over 2011, our total well costs are down 20%, 2012, 2011 and also our lease operating expenses are down about a third. We have a key acreage in each of these two plays in 2012. We are able to exercise and put forward a management and do an asset sale that closed in Q4 of 2012 for $335 million and a price of nearly eight times cash flow is that we received in terms of proceeds, and we use those proceeds to pay down debt. We did all these things while protecting our balance sheet, maintaining some financial strengths and our liquidity as well. I believe we accomplished a lot in 2012.
So as we turned to 2013, we’ll talk a little about capital guidance. Our capital guidance for 2013 is $475 million to $525 million. It’s 100% allocated into our oil basins. The pie chart in the right will show you that allocation, which you can see nearly half of the capital is going into the Uinta Oil Play and 40% plus is going into the DJ Basin Play. Now what you get for that capital is an oil production growth of more than 50%.
So jumping to the properties of a little bit, clearly what highlighting Uinta Oil in the DJ Basin assets. We’ll talk about these two key core assets here and I’m going to hit around few of those highlights. Starting first with the year-over-year production exit rate the DJ Basin, 250%, Uinta Oil Play was up 90%. We added 17,000 acres in the Uinta Oil Play and nearly 43,000 acres in the DJ Basin Play. Our location inventory Uinta Oil Play now stands at 1,700 and the DJ Basin of 1,100. As we go into the detail of these two basins you will see that, I think both location inventories are set to expand in 2013.
This slide illustrates our quarter-over-quarter production growth that you see for these two basins, pretty impressive numbers with the Uinta Oil growing at a quarter-to-quarter rate of 80% in the DJ Basin at 175%.
So going to a little more detail we’ll start first with the DJ basin. We have 75,000 acres in the DJ basin as perspective for Niobrara development. Our focus in 2013 will be on the 40,000 acres in what we call the Northeast Wattenberg area. We're going to run between two, four rings in the Northeast Wattenberg area in 2013.
Now I want to go into a little more detail about the Northeast Wattenberg area. We think that our Northeast Wattenberg area, we’ve mapped about any geologic attribute that you can math across our acreage and we sign the Niobrara B2B perspective for development. This cross-section that you see here is trying to illustrate that fact. This cross-section starts from the middle of the core Wattenberg field. The things are through our acreage and goes out to the Northeast. You see the Niobrara “B” bench is fully developed and looks perspective as well as you can see those development potential in a Niobrara “C” and also in the Codell formation.
So neither we’ve established that the geology is consistent across our acreage. Let's talk a little bit about some of the earlier results. On the western portion of our Northeast Wattenberg acreage, we drove four three-well pads. Listed here is the average of those 12 wells, 30 day IP in the 400 barrels of oil equivalent per day. Also listed on the slide of four of our early tests on the eastern portion of the acreage, you see all four of a single well pad results are also over 400 barrels of oil equivalent per day. We are very encouraged by these preliminary results.
In 2012, we expect to drill 65 wells in this area primarily targeting the Niobrara D bench. We have updated our plants to include a little more pad drilling. We are going to do drilling on some pads on eight wells perception at 80 acre concept. We will also drill a few testing in Niobrara C. We will drill a few testing in Codell formation as well as we are going to draw at least one of the lateral in the play. With nearly 1,100 locations, the way we came up our 1,100 locations is putting about 4 wells perception on a majority of our acreage. You can see it down-spacing work and that was Niobrara D bench only. You can see the Codell work, Niobrara C work or a future down-spacing, where you can see how our location inventory is set to expand.
Move over to the Uinta oil play, we’ve been more active in the Uinta oil play for several years. It’s more mature in terms of the company value. We have over 150,000 acres in the play. Most of our acres are in the original core part of the basin was over to the west side and what we call Blacktail Ridge, Lake Canyon. Over the last 18 months, we’ve added acreage positions in the South Altamont area and then also in the East Bluebell area. Our plan for 2013 includes running two to five rigs in this play.
This slide illustrates some of the benefits of having the run rate program into play. Just on the left side of the slide, you can see that each of the days that we’re going to active [Appalachian] basin, our days drilling has been reduced. A transport owe to the right when we take those reduction in drilling days coupled with the completion efficiencies, you can see that we have lowered our total well cost by nearly $1 million 2012 versus 2011, very pleased with the results of the team so far to date and obviously all of these things continue to add to our internal rate of return.
I want to remind everybody that the base development is in the Uinta Oil Play. We drilled 160 acre space well targeting the 3,000 or 4,000 foot column perspective interval there in the lower Green River and Upper Wasatch formations. Then we drill that vertically and then we fact the well in eight or nine stages, and when we do that we think that we are recovering about 8% to 9% of the original oil in place. We're going to test down-spacing in 2013 on 80 acre spacing, and we have two pilots that commence drilling earlier this year, and we’ll provide results later in the year. So again you can see the down-spacing work have that 1,700 locations of inventory in the Uinta Oil Play is set to expand.
Then I'll talk briefly about an emerging play that's going on in Rocky Mountain in the Powder River basin. We accumulated nearly 69,000 acres net in the play. In 2012, we drove five wells in the play targeting the Sussex, the Shannon, and the Frontier NOLs. We are very encouraged by those preliminary results that you see listed here on the left side of the slide. And in 2013, we will drill another five wells following the successes that we had in 2012.
And with that, I'll turn it over to Bob for the financial overview.
Robert W. Howard
Thank you, Scott. So far we are excited about our asset base and results we expect to get from our properties. I will take a few minutes just to review our financial position and the resources we have to execute our development program.
This slide illustrates a few of the key financial objectives increase the value of the company. We are investing our capital and increase the cash flow to discipline operations to increase our oil production. Our financial resources are in line with our business objectives to maintain a balance sheet that effectively forms the activities and increased the value of our assets and we are very deliberate about our debt levels, and above maintaining variability under our credit facility. We build a strong balance sheet is vital to maximizing shareholder value, and we have a long-term growth and maintain our debt/EBITDAX, rates that levels are do not exceed 2.5 times EBITDAX. We have a active H program to reduce our risk exposure and the changes in our commodity prices.
This slide illustrates the revenue differential between oil and natural gas on an energy equivalent basis, which demonstrates very significant reason as to why we have expanded our oil development program. Based on energy content, those wells to be approximately six times the price of natural gas, the six to one ratio represented by the relative scale on this chart, but this chart shows recent oil prices have been much higher than the energy equivalent gas price. Even though oil development operations can be more expensive than gas operations, the increased revenue from oil production can generate significantly better margins.
The green line shows oil prices over the last couple of years and the current strip have generally created between $90 and $100 per barrel. Gas prices rebounded from the store closed over a year ago, which still created a levels that nearly about 5% of oil prices which is about one third of the price of our oil and energy equivalent basis. This continuing differential makes a very compelling reason for us to have prior resources to increase our oil assets.
We end the balance sheet with substantial liquidity to effectively, efficiently execute our business plan. We’re [building] bank line of credit is $825 million, which was recently firm borrowing base determination, based on the December 31 proved reserves.
Key financial growth for this year, our debt balance was at the end of the year will not exceed to $1.2 billion level that we had at the beginning of the year. Scott mentioned we’re trying to monetize a portion of our assets to fund the capital expenditures that exceed cash flow in this year. The asset sale that we closed in the fourth quarter of 2012 is a great example of flexibility that we have to clear complete transactions, to manage our asset portfolio. The proceeds from the sale will apply to pay out balance on our line of credit at the end of the year which are funded part of our 2012 capital expenditure program. We are confident that in 2013 we will be able to transact additional asset sales to evaluations to help fund our activity for this year.
This slide illustrates a very well-spaced management maturities and our long-term debt instruments. The full significantly lease financing isn’t drive 2016 with our $250 million 9.875% senior notes. All of those notes become callable in July of this year and we are expanding our options to call those notes to reduce our interest expense. Since our last meeting, we completed $100 million lease financing for our compressor equipment at a very favorable interest rate of 3.5%.
Our bank credit facility matures in October 2016. At the end of the first quarter, we have $25 million outstanding on our credit facility. This gives you $774 million of availability after considering an outstanding letter of credit. Then of course business we look at our extending our credit facility in the 2014, early 2015 timeframe.
The slide shows three of our key credit metrics compared to group of exploration and production companies that are comparably rated to our company. Our debt levels increased to last two or three years reflecting an increased focus on early development. We continue to compare favorably in the speculating peer group. At the end of first quarter, our debt-to-EBITDA was at 2.6% which is slightly above our long term target of 2.5 times.
This time forecast for remainder of this year and in 2014, we do expect that our credit metrics will increase in the short-term but that credit metrics compare favorably to the companies in this peer group. As these last three slides have illustrated, our financial structure is well positioned to financial our capital expenditure program and provide a financial flexibility for ongoing operations.
Hedging continues to be a key financial strategy to reduce our exposure to volatile commodity prices and reduce the potential impact from lower prices. We have an ongoing practice of hedging 50% to 70% of our production from next 12 months to 18 months on a rolling basis.
We (inaudible) hedges in production period, we hedge specifically to match our – for hedge position to match our production and the delivery points to avoid pricing differences. For the remainder of 2013, we’re well ahead of approximately 70% of expected production, hedged both our oil and natural gas hedge and effective tax of $7.85 per Mcfe and we have a good start to 2014 hedges with 38 Bcfe hedge at an average price of $7.25 per Mcfe. We will continue to look for other opportunities throughout the year to add to our positions in advance in 2014.
Key performance objectives have been specifically identified as I mentioned our 2014 operational performance for company's compensation programs, including the company goals of safety, increasing oil production, competitive proved developed funding and development costs, and minimizing lease operating expenses or favorable specific or certain business activities.
If we have improve in these measures, we will have an increase in shareholder value through expanding our asset base in the cash flow generating ability while maintaining a safe and responsible operating environment. We are very dedicated to meeting or exceeding our goals for this year. Additional metrics for the current year, our long-term goal is focused on improving cash flow and adding oil and gas reserves to stimulate long-term value creation.
To finish up the financial review, let me remind that we have a very high quality asset base and this gives us the flexibility to maximize value creation from our property investments. We have a strong balance sheet that would position to support the active development of our property base including our current focus on oil properties. Our activity is very competitive cash margins and increasing oil production which is expected to further increase our equivalent sales prices, which when combined with our dedication to reducing cost to further improve operating results. We have properties to improve the balance with our commodity mix and increase shareholder value as a result of our high quality oil properties.
In summary, our business objectives are well balanced we can supported by our financial resources.
Thank your for your time. I’m going to turn it back over Scott to wrap-up the presentation with some concluding comments.
R. Scot Woodall
So just to say a couple of words on wrapping up, if we go back to the strategy of 2013 and really is all about execution, that’s the message that we deliver to our staff, that’s the message that we deliver to our shareholders, is that we’re going to be focused, we’re going to be disciplined, we’re going to execute in our two key oil plays and will then demonstrate top tier operating performance.
Thank you for your time. With that we’ll open it up for any questions, if there is any questions for the management team. Okay, so now how do we queue Francis the webcast.
Francis B. Barron
We don’t have an operator on the call.
R. Scot Woodall
Okay. No webcast. Hi, its up to you guys, any questions? That’s it.
(Inaudible) you achieved a 90% flow through capacity, without the compressor station, I wonder if you could get more details on how you can get 90% when the compressor station is in oil produce?
R. Scot Woodall
Sure for those of you may have not heard that question he’s asking how do we recover our production after the Dry Canyon fire to levels of about 90%. And what we’re able to do that if we have other compressor stations in the field, we have none mainly as on to of the chart quickly to and after doing some [rewarding] or some of the production we were able to utilize surplus capacity at that compressor station that enabled us to flow our gas.
Are there any other questions? All right, seeing none, I appreciate you guys for the time. Thank you.
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