The Meridian Resource Corp. (TMR) Q3 2009 Earnings Call November 9, 2009 3:00 PM ET
Paul Ching - Chairman & Chief Executive Officer
Lloyd DeLano - Senior Vice President &Chief Accounting Officer
Steve Ives - Vice President of Finance.
Lance Weaver - Director of Investor Relations
Robert Cheeseman - Unidentified Company
Tom Holland - Chesapeake Energy
Thomas Derricks - Unidentified Company
Good day, ladies and gentlemen and welcome to the third quarter Meridian Resource earnings conference call. My name is George and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session toward the end of this conference. (Operator Instructions)
I would now like to turn the presentation over to our host for today’s call, the Director of Investor Relations Lance Weaver, you may proceed, sir.
Thank you, operator. Good afternoon everyone and thank you for joining us today. I’d like to welcome you to our call to discuss Meridian Resources’ earnings and operations for the third quarter of 2009.
My name is Lance Weaver, Director of Investor Relations here at Meridian Resources. I’m joined this afternoon by Paul Ching, our Chairman and CEO; Lloyd DeLano, our Chief Accounting Officer; and Steve Ives, our Vice President of Finance.
The agenda for this afternoon’s call is that after I wrap with some of these administrative points, Paul will discuss the financial and operational results for the quarter as well as our outlook for the future. Following that, we’ll turn the call back to you for questions. Keep in mind that if you have any additional questions or like to discuss these results in more detail, please give me a call. My phone is on the earnings press release.
During this call, we will be discussing some non-GAAP measures. A reconciliation of those non-GAAP to GAAP measures is contained in this morning’s earnings press release. In addition to reviewing historical results this afternoon, we will be making some forward-looking statements. Please refer to Meridian’s Safe Harbor language contained within our press releases and SEC filings for a discussion of the risk and factors that could impact our future performance.
With that, I will now turn the call over to Paul.
Thank you, Lance. We continue to appreciate all of your interest in our company. I’m pleased to talk about our results today given the challenges that we continue to face. I will cover the topics that I think are important for the shareholders at the end we have an opportunity for you to ask questions.
First of all let me talk about the companywide production level and then provide some detail about our individual top fields. As was reported this morning, production volumes for the third quarter of this year totaled 3 Bcf equivalent or 33 million cubic feet per day. Compared to 3.1 Bcf or 33 million cubic feet for equivalent per day for the third quarter of ‘08. I must note that production in the third quarter of last year was affected by Hurricane Gustav.
Production is down in the third quarter from the second quarter of ‘09 where we had a level of 38 million cubic feet per day. Although we have been able to maintain a relatively even level of production for the past several quarters we are now experiencing a gradual decline in our daily production levels, as a result of the reduction in capital spending over the past two quarters. Currently production is running between 31 million and 32 million cubic feet per day.
Now I’d like to provide you some details on our top five fields. Weeks Island, we averaged about 1,000 barrels of oil per day in first quarter of this year, 1500 barrels of oil per day in the second quarter of this year and in the third quarter we averaged about 1600 barrels per day. Please note this is net production and net gross production. Production from this field currently represents about 30% of our daily production, in the field represents about 15% of our reserves.
We continue to be pleased with the results from our weeks Island operation. At Ramos, we averaged in the first quarter of this year about 8.7 million cubic feet equivalent per day. In the second quarter, we were somewhat lower due to some natural declines and were around 8.3 million cubic feet per day. In this third quarter, we’ve averaged 8.2 million cubic feet equivalent per day. Production from this field currently represents about 25% of our daily production and about 30% of our reserve base.
In the past couple of quarters, we have been working hard to setup several chiller units, so that we can strip out our own liquids from our gas flow there and that is just come on stream. Accomplishing this will help us and improve the gross cash flow from the field by approximately $200,000 a month, given today’s commodity prices.
In the East Texas Austin Chalk area during the first quarter we averaged 6.1 million cubic feet equivalent per day. In the second quarter, we were up slightly to about 6.3 million cubic feet equivalent per day. However, in the third quarter, our average dropped down to about 3.5 million cubic feet equivalent per day.
The main reason is that we didn’t bring out any new wells during the end of the second through the third quarter. Remember, that we bought the BBX A-39 well on early in the second quarter. As you know that well came on at a very, very higher rates, those wells come on at very high rates in Austin Chalk, hyperbolic decline set then and we’re now seeing that and we’re about 50% of overall production was. Productions from this field currently represent about 10% of our daily production, and then currently about 20% of our reserve base.
In the Black Sea, Marcellus field, production during the first quarter of this year averaged about 5.6 million cubic feet equivalent per day. In a second quarter, we saw some decline Carolina 4.9 million cubic feet per day and in the third quarter we were similarly down about 4.5 million cubic feet equivalent per day, and this is basically natural decline. Productions in this field currently represent about 14% of our daily production and currently about 12% of our reserves.
Our total volume field, we averaged 3.9 million cubic feet equivalent per day in the first quarter of this year. In the second quarter, we were down to about 3.5 million cubic feet equivalent per day due to a couple of wells were down for field work, but in the third quarter we again averaged about 3.9 million cubic feet of equivalent per day and a productions in this field represents about 12% of our daily production and about 11% of our reserve base.
So you see these five fields contribute to about 90% plus to our production and represent about 88% of our reserve base. In addition, we’ve spent some capital this year in our Louisiana fields for P&A work that was required to meet certain lease and state obligations.
Now I’m going to move to our income statement. Oil and gas revenues, which included our hedging activity for the third quarter, totaled $22 million and we still have good hedges in place for 2009 that are helping our net pricing for oil and gas. The floor is on our fourth quarter gas hedges were about $7.75 per Mcf and on oil we’re in the neighborhood of $70 to $80.
Now we’re really in addition to our production, we’re really pleased with the work we’ve been able to do within our lease operating expenses. In our second quarter of ‘09 our lease operating expenses were $3.6 million and that compares to $5.9 million for the second quarter of ‘08 about 39% drop from last year.
The differences time early, we saw the decreases in our labor cost, our saltwater disposal fees, fuel and compression charges, platform and facility charges, lower insurance costs and other efficiencies, which we keep strive for as we operate our fields in a more cost effective manner.
Lease operating expenses have comedown by $1 million compared to the second quarter of ‘09 and this drop in our cost further reflects our commitment to reducing fuel costs as we announced earlier in this year. If you exclude some unusual onetime charges, our lease expenses have decreased from about 5.1 million in the fourth quarter of 2008 to $4.9 in the first quarter of ‘09, $4.5 million in the second quarter of ‘09 and now down to $3.6 million in our third quarter. So if you look at the first nine months of 2008, our lease operating expenses were, our first nine months of 2009 our costs are $12.9 million that’s down 33% compared to the same period in ‘08.
Our G&A costs for the third quarter were $4.5 million compared to $5.5 million in the third quarter of 2008. Our G&A was up compared to the second quarter of this year. The increase in G&A between second the second and third quarter was primarily due to about $800,000 of legal, and consulting fees associated with the forbearance agreement that we negotiated with our senior debt creditors.
If you exclude the impact of these fees, our G&A would have been around $3.7 million for the third quarter, or an 18% drop between the two quarters, the total company’s G&A both capitalized and non-capitalized has moved from about $8 million in quarter four, 2008 to $5.9 million in the first quarter of ‘09, $4.3 million in the second quarter, and an adjusted $3.7 million in quarter three 2009.
So, if you look at the first nine months of this year, we’ve spent total G&A of $14.7 million, and which is down 48% compared to the same period last year. Of course most of these declining results were due in large part to the roughly 60% reduction in staff that has taken place in the first and second quarter of this year, but also to other, so the efficiencies that we’ve done here in the corporate office.
Interest expense was a third quarter was $2.9 million compared to $1.4 million for the third quarter of 2008. The increase in interest expense and that includes both interest and forbearance fees, is due to the forbearance fees and higher interest rates due to our senior credit facility that we had to put in place with the forbearance agreement. These are in place of course due to that credit facility.
Our discretionary cash flow for the third quarter was $8 million, and that compares to $20 million for the third quarter of 2008. The variance between the two periods is due mostly to the big ramp in prices and costs associated with the forbearance agreements and costs associated with the two rigs under day work contract. Of course these costs are partially offset by the cost saving that we generated in, in our lease operating expenses from G&A.
We’re down about 800,000 from the second quarter primarily because of those higher interest expenses having to do with our forbearance agreement with our senior credit facility group. So when you bring all of that together, we had a net loss in the third quarter of about $768,000 or about $0.01 per share as compared to a net income of $700,000 or 1 cent per share for third quarter of 2008.
Of course that variance between those two periods is due to lower commodity prices costs associated with our agreements and our rate contracts, and which are offset by partly by lower lease operating costs, or depletion and depreciation expenses and lower G&A expenses.
Now, concerning the status of our progress on the requirements of the forbearance agreement, we signed the forbearance agreement win the banks on shield the banks on September 3, of this year, our first milestone which have for a definitive agreement are sale of assets are a merger in place by September 30. We do not meet this deadline, but we were able to obtain an extension through November 15, 2009.
We continue to work to consummate some potential resolution or transaction to our challenge. There is no guarantees that we can resolve the result our liquidity challenge but to do so. I cannot go into any detail on where we are in our discussions, but these extensions are needed, and I really thank the banks for working with us so we can have more time to execute one off the three requirement that is have been laid out in the agreement.
Namely, something in the sale of assets, a merger or a capital infusion, but I’ll remind you as to what I said at our last conference call and that was that selling with assets does not really resolve our problems. I thank you also with your consider as I conclude this before we open up for question that that Meridian has never missed an interest payment.
We are currently paying down principle, and or overall debt has been reduced. Our current outstanding balance to the Bank Group has been lower by $5.5 million and now outstands at $89.5 million, subsequently the borrowing base efficiency as been reduce to the current level of $29.5 million and we are paying $1 billion a month in principle.
In addition, we have been paying down in the CIT loan for the Triton rig has been reduced by $2.5 million this year to a current year $6.3 million. We continue to work toward some type of resolution to our liquidity challenge. Meanwhile we also continue to focus on operating and running our business in the leanest manner possible and to keep production as high as reasonably possible.
In summary I am really proud of the group here that we have been able to keep our production levels to a very small decline and we have been able to lower and have a substantial impact on these operating costs without jeopardizing health safety of the environment.
We have lowered the G&A costs significantly and we have entered into and worked with the banks and thank you to the banks for balance agreement is in place as allowing us to bring some resolution. We have a descent hedges for 2009. So, right now our challenge is to deal with the borrowing efficiency in our liquidity. I really appreciate your continued support and I think now I am going to open up the calls for questions for those of you on the line. Thank you very much.
Your first question comes from Robert Cheeseman - Unidentified Company.
Robert Cheeseman - Unidentified Company
I have three questions for you one what would be the interest rates we would be paying if we were in a normalized situation and did and did not have for balance agreement? Two are there anymore efficiencies that can be cut out of Meridian and many current state that were in and three with an improving outlook for the economy, is there any possibility quote with the new management team and you guys obviously working as diligently as you advocated and the reduction that the bank would allow you to do any drilling whatsoever?
I will let Lloyd DeLano here answer the first question about the interest rate that were currently paying versus what we were paying before we went into default.
I think we are paying right now about 7.5% that’s assuming that we use alternative bank delay which they rate plus are about expect 5 so then another 2% on top of that for the default rate and currently if we were not in default rate, we would have I think LIBOR is around 0.5%, and we pay about 2.5% over that, we’re about 3%.
So, yes, this causing at more money Robert. You asked are there anymore efficiencies that can be garnered out of the organization. There’s no further major efficiencies. We continue to look at our staffing levels in the field and we have one thing that’s out there and that is we have more office space that we need, but unfortunately Houston as compared to 18 months ago has a collect of office space.
Lloyd as a team employees they are going outside group we’re trying to sublease part of our lease which could save us some substantial funds, but that’s going slow because we had a number of people interested, but it seems like we don’t play when those over for a various reasons are just such a quite on the market, that’s the main efficiency.
Yes the economy is improving we have seen improving improved commodity prices, and are now watching gas prices drift the other way. So I’m not sure exactly what’s going to happen. I think that as, if we really can resolve our liquidity problem, we will go back to drilling. So we’ve not been sitting idle. We do have a complete list of prioritized projects that we would go to all the way from re-completions all the way to new drills, but as of this moment we do not have the authority or the ability to generate enough cash to go do that at this time.
Robert Cheeseman - Unidentified Company
Well, I guess I’ll just wish you luck in bringing this store a rapid conclusion, with some kind of transaction.
Robert, we continue to appreciate you wishing us luck. We’re trying to do more than just rely on luck.
Robert Cheeseman - Unidentified Company
Well it seems to me with your cash flow and the inventory that you have, and being an old hand in the corporate finance arena, there would someone or somebody out there would there certainly like to utilize you as a platform. I don’t know how, you negotiate a strategic deal for the shareholders, but you’ve certainly have the assets in place, and your debt is not add on risk relative to the rest of the world.
Agree we continue to try and build on that. Thank you.
Your next question comes from Tom Holland - Chesapeake Energy.
Tom Holland - Chesapeake Energy
Paul, can you give us any color on the future of re-completions that Weeks Island.
Tom, the color is, that we have a number of re-completions that we could do there. It just costs money and we’re not currently in a position with our cash to be able to do that. We had prioritized what those are, and those of course make up what we think is an attractive part radiant to others, but we’re not able to do anything there. Of course, it is a majority of the assets there are oil, and which is good, but so far, we haven’t been able to generate the excess cash to be able to do that.
We’re in the process of paying down debt to our bank groups. So, that’s one of the areas though that have, that will and has made us attractive to people to look us.
Your final question comes from Thomas Derricks.
Thomas Derricks - Unidentified Company
My question has to do with the New York Stock Exchange listing, can you give us some background on how that’s going.
We have been in continual discussions on a very frequent basis with the New York Stock Exchange, and those discussions I believe are going to be fruitful at sometime, but we continue to have those discussions and we are working with them, and as we announced in our 8-K, we did fix our board with three non-independent directors voluntarily residing and we have one last issue which is the sub dollar. We continue to work with them, and I believe that at the end of the day, we should be awarded something out.
At this time, we are showing no further questions. Paul Ching you may proceed.
Okay. We’d just like to thank everyone. Thank you for the questions and like I say, we thank all of those that have been helping us, and the banks staying with us and the staffs that are still here working with us to maintain a viable company as best we can. So we appreciate that and we are doing everything we can to maintain this company in a very viable light.
With that, I’m going to signoff and say thank you and have a good day, everyone.
Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.
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