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Double Eagle Petroleum Company (NASDAQ:DBLE)

Q2 2013 Earnings Call

August 8, 2013 11:00 AM ET

Executives

Richard Dole – Chairman, CEO and President

Ashley Jenkins – VP and CFO

Kurtis Hooley – EVP and COO

Analysts

William Kidston – North & Webster

Evan Richard – Sidoti & Company

Operator

Welcome to the Second Quarter Financial and Operating Results Conference Call. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to hand the conference over to your host for today, Richard Dole, Chairman, CEO and President of Double Eagle. Richard, please go ahead.

Richard Dole

Thank you. Good morning. Thanks for joining us today. We will discuss the financial results for the second quarter, provide a brief update on the current activities at Double Eagle. Joining me today is Kurtis Hooley, Chief Operating Officer; and Ashley Jenkins, Chief Financial Officer.

In our Niobrara appraisal well and Catalina, we continue to work on the well to learn more about the formation and refining our production capabilities. In this quarter, we’re able to isolate the perforations that were producing the water and plan to squeeze that zone in order to see how the other zones will produce.

On the M&A side of the business, I’m excited to announce that we have engaged Petrie partners in an effort to fuel further strategy of finding good companies to acquire or combine our assets and operation’s with. Scott Baxter, one of our board members and longtime consultant to the company has joined the Petrie team. Unfortunately, as a result, Scott would be leaving our board effective September 30, but he would remain as a key member of our M&A team via Petrie. Had to provide additional details, discussion; I’ll turn it over to Ashley and Kurtis.

Ashley Jenkins

Thanks, Dick. Before we continue, I would like to remind everyone that all statements made during our conference call that are not statements of historical fact constitute forward-looking statements and are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Our actual results could vary materially from those contained in the forward-looking statements. The factors that could cause the actual results to differ materially from those in the forward-looking statements are described in our filings with the SEC which include our Forms 10-K and 10-Q, as well as in our press releases.

Our second quarter 2013 net loss after dividends was $570,000 compared to a net loss of approximately $5 million last year. Our net loss of both periods includes the non-cash change in fair value on our natural gas hedges, which was an approximate swing of $8 million from the second quarter of 2012 to Q2 2013. Our clean earnings, which is defined in our press release is in term of $3 million, first income of $3.7 million in the prior year. This decline is primarily related to higher production cost and taxes.

Please take a look at our press release for a reconciliation of clean earnings to GAAP net income. We see an increase in stock pricing and as a result our realized price is up about 18%. However, this is offset by a 12% decline in our production primarily in the Catalina Unit. The decline in Catalina is partially offset by a higher working interest purchased from Anadarko in Q4 of 2012. Production at Catalina continued to be down during the second quarter due to the compressive failure and an injection issues we talked about at Q1. We’ve been focused on recovering production and we’re starting to see results early in the third quarter.

Kurtis, you want to give an update on our operations?

Kurtis Hooley

Yes, sure. Thanks Ashley. Good morning everyone.

In the Atlantic Rim, we are back online with our compressors and starting to see recovery of volumes that we lost in Q4 of last year and Q1 of this year. The wells are dewatering well and I anticipate the rest of the U.S. production now to Catalina continue to increase from its current rate.

We also began our work over program August 1, after the wildlife stipulations were lifted in Catalina. And we are fracing in the higher (inaudible) pole in certain of our wells which should help increase production. In Spyglass Hill unit, Warren Resources is drilling 25cbm wells this year in which we have 10.5% working interest in. Now production in Spyglass Hill have fallen off with the transition from Anadarko to Warren as operator and we were working with them to try and get production backup. We continue to see steady results out of our Pinedale, as QEP completes the drilling of the (inaudible) Unit.

Upon the completion of this you know, we will not have any additional drilling capital requirements in this area as the next drilling units that we moved into which is Unit A, we have the overwrite and in Unit C work carried.

We are increasingly focused on our recent one develop plant positions and the best way to derive value from these assets. And right now we expect to be right on budget with our capital spending program for 2013 and that should have all the new wells we’re participating with online and producing by year end.

Richard Dole

Thank you, Hooley. With that, I’ll open up the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from William Kidston with North & Webster.

William Kidston – North & Webster

Gentlemen, just good morning gentlemen, just few questions, the usual. One is your credit facility redetermination and what are your expectations on that?

Ashley Jenkins

Our next credit facility borrowing based redetermination is October 1 and with prices continuing – for the most part hold, we don’t expect to have any issues with our borrowing base but of course we won’t know until we get to that point.

William Kidston – North & Webster

So, you are thinking the borrowing base is going to maintain at the current level?

Ashley Jenkins

Correct.

William Kidston – North & Webster

On the M&A front, glad to see that you guys announced relationship with Petrie Partners, can you elaborate on that? Are you also considering a sale of the company along with potential merger candidates?

Richard Dole

We’ve been looking for merger candidates on our own and with Petrie Partners getting involved, I think we’re going to have a different level of opportunities to look at any time you move into a broader market like this. You’re likely to get offers that would look like the sale of cash sale. We haven’t had any. So, we’re not and we’re not entertaining them. But it doesn’t mean, we won’t get them.

So, yes, we’re also looking at the valuation of all of our assets. We believe, the company believes that our net assets are significantly more valuable than the market cap of the company and given that for a lot reasons, we’re now looking at all of our assets and trying to determine individual values. We’ve been through, about the six months program on evaluating all of our lease acreage and the activity in the areas around the lease, the potential values either for form-in or joint venture or maybe even sales.

So, we’re very proactive now and trying to focus on realizing some of the values we have in the assets that don’t seem to be valued in the marketplace.

William Kidston – North & Webster

Perfect, thanks for your time guys.

Richard Dole

You’re welcome.

Operator

(Operator Instructions) At this time, we have no questions waiting.

Our next question comes from Evan Richard at Sidoti Company.

Evan Richard – Sidoti & Company

Hey guys, just wondering if you could give a little more color on the challenges in Catalina?

Kurtis Hooley

As far as you go forward, challenges –

Evan Richard – Sidoti & Company

Yes. Everything back up to speed.

Kurtis Hooley

Yes, sure. So, when we brought on the wells last year, they came on very strong, we’re very happy with the results in our new drilling program. And then we lost compression and basically what that challenge was, this is a mechanical failure of the motor and getting hard consultants and budget is out there. The fluid levels came up in the well. So, we did have to pump off the fluid wells to get them back to where they were and it took – it has taken as six months or so just because of the pressure, the downhaul pressure and the side of the column. So, that’s why we’re fairly confident. We see them respond very well over that period.

Fortunately, our field is designed that we can move water and gas throughout three of our parts so that help, limit the amount of impact and have, but it did have an impact. So, all of our compressors are online and running well. All of our water injections pump has been worked over and replaced there were pumps that’s coming on.

And we’re looking forward to some – this decreased cost in the field as we renegotiate some of our contracts. So, we’re confident obviously Mother Nature can throw us a blip or mechanical can happen really. We do maintenance and we schedule all that. So, but right now, it looks like it’s all running well and running. Excuse me.

Richard Dole

Like that, something to occur as Kurtis emphasized something that he said. But our two major fields are two of the lowest cost producing field in the United States. And we’ve worked real hard and we’re working real hard on Catalina unit and we have found some fairly substantial cost savings by renegotiating some of the leases in contracts we have on equipment. So, we think the margins are going to hold if not get better and we belief that we ought to be back to late 2000 producing volumes once we get the water off of the formation.

Evan Richard – Sidoti & Company

All right. That was my only question. Thanks, Dick.

Richard Dole

You bet. Okay. Well, I appreciate everybody attending today and hope you have a good weekend coming up. Thank you for attending.

Operator

Ladies and gentlemen, this concludes our conference. Thank you for joining us today.

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