Midstates Petroleum Company's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Mar.12.14 | About: Midstates Petroleum (MPO)

Midstates Petroleum Company Inc. (NYSE:MPO)

Q4 2013 Earnings Conference Call

March 12, 2014 10:00 AM ET

Executives

Danielle Burkhart – Vice President, Investor Relations

John Crum – Chairman, President and Chief Executive Officer

Nelson Haight – Senior Vice President and Chief Financial Officer

Curtis Newstrom – Senior Vice President – Business Development

Analysts

Neal D. Dingmann – SunTrust Robinson Humphrey

John Herlin – Société Générale

Brad D. Carpenter – Wells Fargo Securities LLC

Jeb E. Bachmann – Howard Weil, Inc.

Chad L. Mabry – MLV & Co. LLC

Kyle Rhodes – RBC Capital Markets LLC

Stephen P. Shepherd – Simmons & Co. International

Sean Sneeden – Oppenheimer & Co.

Gregg W. Brody – JPMorgan Securities LLC

Steven M. Karpel – Credit Suisse Securities (NYSE:USA) LLC

Operator

Good morning. My name is Connie and I will be your conference operator today. At this time, I would like to welcome everyone to the Midstates Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

I would like to turn the call over to your host Ms. Danielle Burkhart Vice President of Investor Relations. Please go ahead.

Danielle Burkhart

Good morning, everyone, and welcome to Midstates Petroleum’s fourth quarter 2013 earnings conference call. Joining me today is speakers on our call are John Crum, Chairman, President and Chief Executive Officer; and Nelson Haight, our newly appointed Senior Vice President and CFO, who previously served as the company’s Vice President and Chief Accounting Officer. John will begin today's call with a brief discussion about our Pine Prairie sales and related tangent to the credit facility. He will then review highlights with our year end reserve report and the fourth quarter and plans for the first quarter and full-year 2014.

Nelson will also follow with key financial highlights of the fourth quarter further information on our improving balance sheet position and provide guidance for the first quarter and full-year 2014. John will then wrap up with some closing comments. Before we begin, let’s get some of the administrative details out of the way with our Safe Harbor language.

This conference call may contain forward-looking information and statements regarding Midstates. Any statements included in this conference call, or in our press release that address activities, events or developments that Midstates expects, estimates or anticipates will or may occur in the future are forward-looking statements.

These include statements regarding reserve and production estimates, oil and natural gas prices, the closing an objectives of Pine Prairie disposition, the impact of derivative position, production expense estimate, cash flow estimate, future financial performance, plan capital expenditures and other matters that are discussed in the Midstates filings with the Securities and Exchange Commission.

These statements are based on current expectations and projections about our future events and involve known and unknown risks, uncertainties and other factors that may cause actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. Please refer to Midstates filings with the SEC and the 2013 Form 10-K that would be filed shortly, for a discussion of these risks. Also please note that any non-GAAP financial measures discussed in this call are defined and reconciled to the most directly comparable GAAP measure in the tables in the yesterday’s earnings release.

I will now turn the call over to John for his comments.

John A. Crum

Thanks, Danielle. Good morning everyone and thank you for joining us today. This morning I’m very pleased to share our progress towards the strategic repositioning of our company and on our improving balance sheet. In 2013, we continued with our transition with the Mid-Continent where we have proven we can provide more consistent results in our drilling programs.

We started with that transition in 2012 with our entry in the Mississippian Lime play and complemented with our expansion into the prolific Anadarko Basin in May 2013. This strategy has provided very positive results to date. As we have stated, we’re committed to improving our liquidity and more please to announce several actions that make solid progress on that improvement. The sale of our Pine Prairie asset were $170 million combined with the revise borrowing base supported solely by our growing Mid-Continent position, we’ll provide all necessary funding needs to at least year-end 2015.

We continued to work on additional options that will further enhance our financial flexibility. The sale includes only the developed and undeveloped acreage in the Pine Prairie area, which was producing approximate 2,000 barrels per day in January. The sale does not include our acreage and production of around 2400 barrels a day in the Dequincy area or our acreage associated with the Fleetwood 3D survey.

Meanwhile, the strong growth in production reserves in our Mid-Continent portfolio will allow us to retain virtually all of our revolver credit capacity even after removing all of our Gulf Coast assets. Nelson Haight will go into more detail related to our credit facility changes in his comments later. These are significant steps in our broader plan to improve financial flexibility and focus our people and our capital into the highest return projects.

We are growing the company primarily with our outstanding Mississippian position where production is up over 140% and reserves up 76% year-over-year. Our Anadarko acreage is showing very promising results in the Cleveland, and we are excited by some of the recent well results and on other formations, including the Cottage Grove, Marmaton and the Tonkawa. We believe that these properties provide a solid foundation that will allows us to continue to grow well into the future.

Turning to our 2013 reserve report, we ended the year with 127.8 million barrels, up 69% from the 75.5 million barrels we had in 2012. While we have Anadarko acquisition contributed 36.8 million barrels, we are extremely pleased with achieving over 500% organic reserve replacement through our drilling program alone.

Our finding and development cost associated with the organic growth was a very competitive $13.59 per Boe. Reserve revisions totaled 20 million barrels with almost 90% of that figure associated with our Gulf Coast properties. Production performance versus actual cost experiences on our Louisiana drilling program as well as redirection of capital to the higher returning Mid-Continent portfolio necessitated a significant reduction in PUD reserves, which accounted for over 75% of that Gulf Coast revision.

The reserve write-down combined with the Pine Prairie sale resulted in a non-cash after-tax ceiling test impairment of $320 million. Even with those negatives, our all-in reserve replacement, including drilling, acquisitions and revisions, was 700% of 2013 production, $20.9 per Boe. At year-end 2013, our proved reserves had PV10 net present value of approximately $2.1 billion.

In the fourth quarter of 2013, we generated record adjusted EBITDA of $119 million driven by production growth and continuos sustainable operating cost reductions, with our operating cost improving and our drilling program focused on strong geologic prospects, we are currently forecasting continued EBITDA growth. The significant reductions in our per-unit operating cost were driven by the cost initiatives that we began early last year associated primarily with water handling and power infrastructure.

Drilling activity remained steady, with 37 wells spud completions brought online, with 10 active Mid-Continent rigs running at the end of the quarter. During the fourth quarter, our production averaged 31,187 Boes per day, up 10% quarter-on-quarter, with the Mississippian Lime properties delivering more than half of that volume. Full-year production averaged 23,926 barrels equivalent per day, up 139% from the 2012 level.

Today, we are increasing our full-year 2014 production guidance range by 500 barrels equivalent per day, to 33,500 to 36,500 Boes per day, with no increase in expected capital spending. For consistency, the production guidance does include the Pine Prairie assets for the entire year. We will update guidance, excluding Pine Prairie, after the deal closes.

Like many of the operators in the Mid-Continent, we have experienced significant weather-related and third-party downtime in January and February. In spite of those interruptions, we are confident that we can deliver on the revised upward annual guidance. We remain focused on the efficient execution of our drilling and development plans in the Mississippian Lime and the Anadarko Basin. We are not changing our first quarter production guidance of 30,000 to 31,000 barrels per day.

In the Mississippian Lime, production grew 22% from the third quarter and 144% year-over-year to 17,579 Boes per day, comprised of 36% oil and 21% natural gas liquids. This strong growth continues to demonstrate our ability to execute and highlights the quality of our acreage in Woods and Alfalfa County. We now have 139 Mississippian wells that have been on production for more than 30 days and have an average 30-day initial production rate of 545 Boes per day. The deliverability of our most recent wells brought online has been negatively impacted by weather; and the average rate also incorporates the results from about 30 open whole completions which were placed on initial production to test before fully stimulating and completing those wells.

We are currently reentering many of those wells and expect to see additional production associated with their full stimulation in the second quarter. The open hole tests have given us some new insights with regard to optimum completions and potential cost savings.

As I mentioned earlier, these successes have carried into our reserves, as well, with the Mississippian reserves increasing from 35.7 million barrels a year in 2012 to 65.9 million in 2013. The Mississippian provided us with over 34 million barrels of reserve adds, compared to 4.2 million barrels of production, giving us over 800% reserve replacement through the drill bit. At the year-end, the Mississippian Lime area accounted for 53% of our third-party evaluated total reserves. We continue to have five rigs drilling, primarily from pads on locations supported with our 3D seismic.

We invested $70 million, spudding 21 operated wells and bringing 24 new operated wells online during the fourth quarter. For the first quarter of 2014, we plan to spend approximately $80 million in the Mississippian, spudding 17 to 21 new wells and completing 24 to 28 in a combination of new wells and full stimulations of open whole completions.

We continue to looking monitor industry activity in Northern Oklahoma to better assist and determine the economic viability of different ventures in formations in an around their acreage. We’re also continuously looking at optimizing tax, test in different down whole lift assembly an incorporating best practices from ourselves in the industry to improve our operational successes.

We have been talking to you for several months about the programs you’re putting in place to lower unit operating costs, these included replacing these with generators with natural gas generators, as long as expanding an upgrade in the access to prior capacity from the grid and in upgrading ourselves water disposal systems.

We’re seeing material improvements in our operating costs through 2013 with lifting costs of Mississippian area dropping to 550 per Boe in the fourth quarter. I’m confident that these reductions are sustainable, it is early in the life of our Anadarko Basin operations having just taking full control in December 1, as we demonstrated with our Mississippian Line integration now that we have a 14 in place high grading our inventory and implementing improvements in our drilling, completion and production activity, we expect to show strong growth going forward.

Production in the fourth quarter for the Anadarko assets average 84 Boe, 54 Boe per day comprised of 47% oil and 21% natural gas liquids. We had five rigs running throughout the quarter and invested $59 million just spud 16 and complete 14 operated wells, nine of which targeted in Cleveland, two of the Cottage Grove, two in the Marmaton and one Tonkawa well.

We continue to drill our low-risk Cleveland Sands inventory with three to four of our rigs, allowing us to generate cash flow with our more proven inventory. We’re also drilling with one to two rigs in the Marmaton and Tonkawa Cottage Grove formations, to help us understand the potential upside of these different intervals on our acreage.

We now have 23 Cleveland wells that have been on production for more than 30 days, and have an average 30-day peak production rate of 375 Boes per day. As was the case in the Mississippian Lime, recent well performance has been hampered by weather issues and downtime, but we remain very pleased with the performance of our Cleveland wells. We have a small sample of Cottage Grove, Marmaton and Tonkawa wells have been on production for more than 30 days, and are encouraged with the results thus far.

Within the Cottage Grove formation we have a well that came on production in late November with an average 30-day peak rate of 654 Boes per day. But it’s still producing it 550 Boes per day. In the Marmaton two wells produced an average 30-day peak rate of over 400 barrels per day.

Finally, the new Tonkawa completion came on just last week in an initial rate of well over 1,000 Boes per day. For the first quarter we’ve planned to spend approximately $45 million of completing wells and drilling 13 to 16 new wells comprised of eight to ten Cleveland, two to four Marmaton, two to four Cottage Grove along with one or two Tonkawa wells.

Moving onto the Gulf Coast, as previously discussed we entered into an agreement to sell our Pine Prairie assets. We are still considering strategic rationalization for Dequincy properties as well. New well we’ll focus on base production optimization with limited capital to minimize declines. We’ll continue to evaluate our recompletion and drilling opportunities and to allow these projects to complete for future capital.

In the fourth quarter, we experienced strong results for the two rig completions in the Dequincy area, they came online at peak 30-day rates are 707 Boes per day and 393 Boes per day respectively.

Overall production of the fourth quarter for the Gulf Coast assets averaged 51 Boes per day, 54 Boes per day, comprised of 66% oil, 15% natural gas liquids. We do not expect to have any rigs active in the Gulf Coast during the first quarter of 2014.

In summary, I’m very pleased with our fourth quarter results and proud of the job our people have done to transition to the Mid-Continent and to continue growing our business, our ongoing focuses on operational execution that will allow us to continue to profitability growth production and EBITDA.

Before I turn call over to Nelson Haight our new CFO I would like to give him a proper introduction. As most of you know, Tom Mitchell, who's served very capably as CFO for the last several years, has decided to move to another company. We thank him for his service to Midstates and wish him all the best in his new role.

Tom recruited Nelson Haight to Midstates in late 2011 as Vice President and Controller. Nelson, was instrumental in helping to take our Company public, building our accounting organization, and integrating our two Mid-Continent acquisitions.

Last year, he was promoted to Vice President and Chief Accounting Officer. His exceptional capabilities provided us with an easy decision when Tom left in January. Nelson?

Nelson Haight

Thanks John, for the kind words. I am pleased to be a part of the senior management team here at Midstates and look forward to ongoing communication with our shareholders, debt holders and analysts. I hope to meet many of you in person over the coming months.

Let me we begin with the steps we have taken to strengthen the company’s overall financial position and further address funding plans for the balance of 2014 and through 2015. As John discussed, we recently signed a sale agreement with the Pine Prairie portion of our Gulf Coast properties for $170 million, before customary post-closing adjustments.

The transaction equates to a price of roughly $80,000 per flowing Boe and based upon our projected 2014 net cash flow for these assets, should improve our leverage ratio this year. We are on target and fully expect to close the transaction and receive the proceeds in early May, all of which will be used immediately pay down a portion of our credit facility.

Concurrent with negotiating that agreement, we worked closely with our lead commercial banks and received their commitment for a revolving credit facility that will carve out all of our Gulf Coast assets and have an initial borrowing base of $475 million. And you will recall our current borrowing base was $500 million and includes the Gulf Coast assets.

The $475 million borrowing base under our new commitment was made possible by the strong growth in production and reserves that we achieved in our Mid-Continent properties last year. Our next regular redetermination date is October 1, 2014. We also arranged a separate $125 million temporary bridge facility that will be secured by those carved out Gulf Coast assets.

This facility was put into place in the event we experienced a significant delay in closing the sale and would provide for any funding needs until closing. We have no intention of using this facility, and it will effectively terminate on the close of the Pine Prairie sale.

The combination of net proceeds from the asset sale and our $475 million credit facility, together with expected future cash flows that are supported by our hedging program provide us with the financial resources, we need to execute our planned capital budget and service our debt through at least the end of 2015. Although we do not plan to provide adjusted EBITDA guidance on an ongoing basis, we thought it might be helpful to give you an idea of our expectations for 2014 that take into consideration our production and cost guidance after excluding Pine Prairie.

I will go into more detail on our 2014 cost guidance shortly, but assuming the increased 2014 production range we announced yesterday of 33,500 to 36,500 Boe per day, adjusting it for the sale of Pine Prairie in early May, and utilizing an average WTI price of $95 per barrel and Henry hub pricing of $4.19 per MCF, both subject to our hedges and regional differentials, we see adjusted EBITDA in the range of $500 million in 2014. That figure is up over 50% from our 2013 full-year adjusted EBITDA of $330 million.

We are on track to reach our targeted leverage ratio of 3.5 times adjusted EBITDA by the end of 2014. We will continue to consider options for our remaining Gulf Coast producing properties and also look at various options, such as joint ventures and farm outs on our other assets, that could further enhance liquidity. However, we will assess these options on their standalone merits, as our revised credit facility, together with the expected proceeds from the Pine Prairie sale, remove any requirement to raise additional debt or equity in the foreseeable future.

Reviewing our financials, adjusted EBITDA for the fourth quarter of 2013 was roughly $119 million, a new record high, up 17% from the third quarter. The rise in adjusted EBITDA was the result of 10% organic growth in volumes, along with lower cash operating costs. Adjusted net income for the fourth quarter was $5 million, or $0.08 per share. This excludes the impact of unrealized gains and losses on derivatives, acquisition and transaction costs, and a non-cash oil and gas property impairment charge, along with the related tax impact.

Our recorded GAAP net loss of $344 million before preferred dividends compares with a net loss of $23.6 million in the third quarter. Production in the fourth quarter rose 10% or 31,187 Boe per day from 28,464 Boe per day in the prior quarter. 56% of the fourth quarter volumes came from our Mississippian Lime properties, 0.7% from our Anadarko Basin assets, and 17% in the Gulf Coast area. The product breakdown was what we anticipated. Although weather continues to be a challenge in our Mid-Continent area, we expect our first quarter production to be in the range of 30,000 to 31,000 Boe per day.

As John discussed, we have increased our full-year 2014 production guidance by 500 Boe per day, while maintaining our capital guidance, which reflects the greater growth we expect to achieve from reallocating capital to our Mid-Continent properties, where we have had increasing success.

The regional breakdowns, as well as expected realization differentials, including transportation, are all reflected in the updated guidance summary posted on our website.

During the fourth quarter, we did not add any new oil or NGL hedges, but we did hedge some additional natural gas volumes. A summary of our current hedge positions was included in the release and is posted on our website, along with all the guidance I am providing today. I might remind you of our hedging strategy, which is to be as aggressive as possible to protect our operating cash flow, in order to fund our development programs going forward.

I'll now review our fourth quarter expenses and provide guidance for 2014. Keep in mind that our 2014 guidance, for now, includes Pine Prairie. We will update 2014 guidance, excluding Pine Prairie, after the transaction closes.

Total cash and operating expenses, which includes LOE production taxes and cash G&A, but excludes acquisition and transaction costs, decreased 14% in the fourth quarter, to $14.61 per Boe from $16.98 per Boe in the third quarter. This reduction was driven by continuing cost efficiencies and strong production growth.

Our lease operating and work over expenses fell 15%, to $7.04 per Boe, which was near the bottom of our expectations of $7.00 to $7.50 per Boe. In addition to the benefit of higher volumes during this quarter, this improvement was driven by cost savings from the investments John mentioned earlier.

For the first quarter, we expect our LOE and work over expenses to be in the range of $7.50 to $8.00 per Boe, which some additional costs incurred due to weather issues. For the full-year 2014, we anticipate LOE and work over expenses to be in the range of $7.25 to $7.75 per Boe. Gathering and transportation expenses associated with our gas processing arrangement in the Mississippian Lime totaled $2.9 million, in line with our third quarter cost of $2.6 million.

For the first quarter and full-year 2014, we expect those costs to continue to range between $2.5 million and $3 million per quarter. Severance and ad valorem taxes were 4% of sales revenue before derivatives, lower than the 6% to 7% rate we guided to for the quarter. This reflects an increasing percentage of our production coming from the Mid-Continent area, where the effective severance tax rates are lower. For the first quarter and the full-year 2014, we are reducing our guidance to 5% to 6% of revenue.

Fourth quarter general and administrative expenses of $13 million, which included $800,000 of non-cash compensation expense. On a Boe basis, our fourth quarter G&A of $4.55 per Boe was 14% lower than the third quarter's rate of $5.31 per Boe. We expect G&A in the first quarter of 2014 to be in the range of $11 million to $13 million, with about 10% to 15% being non-cash.

For the full-year 2014, we anticipate G&A to range from $46 million to $52 million. Our DD&A rate in the quarter of roughly $28 per Boe was near the bottom of our guidance of $28 to $30 per Boe. For the first quarter and full-year of 2014, we expect a range of $25 to $27 million per Boe.

As John previously mentioned, and in connection with the downward reserve revisions in the Gulf Coast area, the Company recognized a non-cash after-tax full-cost ceiling impairment on oil and gas properties of $320 million during the fourth quarter. Total interest expense incurred in the fourth quarter was $37.4 million, of which we capitalized $7.7 million. We expect to capitalize about $4 million to $6 million per quarter in 2014.

The tax rate utilized for the quarter was about 29%, which was lower than what we booked in earlier quarters, last year. For the first quarter and full year 2014, we would assume a rate between 37% and 40% all of which would be non-cash. During the fourth quarter, excluding capitalized interest, we invested approximately $134 million in capital expenditures, with $69 million in our Mississippian properties, $58 million in the Anadarko Basin property and the balance of $7 million in the Gulf Coast.

For the first quarter of 2014, we expect to invest $125 million to $135 million for the full year 2014, we have an initial capital budget of $500 million to $550 million, the regional breakdown for the first quarter and for the full year, is available in our updated guidance summary posted to our website. On December 31, we had $401 million drawn on our revolver and $33 million of cash. As of March 11, we still have $401 million drawn on our revolver and our cash balance totaled $13 million.

In concluding my prepared remarks, let me again express my excitement about becoming part of the senior team here at Midstates and my confidence in our ability to grow value for our stakeholders.

With that I will now turn the call back over to John.

John A. Crum

Thanks, Nelson. As you heard today we had a very busy fourth quarter and an equally active first quarter as well underway, as evidenced by our growing production and decreasing cost. Our decision last year, to deemphasize the Gulf Coast and focus our resources on the less costly and more predictable Mid-continent properties is proving to be the right move. The sale of Pine Prairie and our amended revolver structure will now provide us with the financial flexibility to execute on our 2014 and 2015 plans without further need for capital raises.

We will continue to look for opportunities to strengthen our balance sheet, but feel comfortable that we have the time to do so when it is right. Our growing adjusted EBITDA which as Nelson indicated is expected to top $500 million this year, is a testament to our team’s ability to quickly build scale with growing production and lower costs. I am confident that we have the right team and the right portfolio to continue to build that scale. We look forward to further demonstrating that you over the coming months.

And with that Danielle, we are now ready to take questions.

Danielle Burkhart

Thanks, John. Participants, please limit your questions to one initial question and one follow-on question. Connie, we are ready to take questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Neal Dingmann with SunTrust.

Neal D. Dingmann – SunTrust Robinson Humphrey

Good morning guys, great news today. John can you talk a little bit about your open hole pilot program in the Mississippian point you have – you certainly had some success there. I was wondering and trying to get an idea of what the rate there and incorporate that into other rates and just kind to give thoughts on the activity of that going forward?

John A. Crum

Yes, Neal. We felt like we needed to experiment a little bit when we are working with the Mississippian Lime. We feel like a lot of the process that had happened there were just basically to take costs from other kind of resource plays. So what we found is that in the area we are in which happens to be I think we were just fortunate enough to end up with some of the best rock in all of the Mississippian, we find that we've got some areas where we have very good permeability and maybe from natural fracturing and certainly some from just the rock itself.

So we wanted to test what we would be able to do with open hole completions, so we have some kind of a marker on how that compares with full stimulations. So we did do a number of wells, actually a large number of wells there to get a feel for that and so I guess we had a whole range of experiences there, all the way from pretty poor performance, which clearly says, we need to get out and stimulate those individual wells to some very good performance out of some areas where we had natural permeability and porosity.

So I think what we have learned is that number one, we are hoping that between that and the 3D seismic we have, we can pick some areas that probably should not be stimulated any further because they just bring on more water, and we picked out some areas that we clearly know we are going to be stimulating. For the first half of this year as you should expect us to stimulate virtually every well as we will be concentrating in an area that we know pretty well now in the heart of our acreage position.

Neal D. Dingmann – SunTrust Robinson Humphrey

Can I have just one follow-up John, could you comment a little bit on Cottage Grove and the Anadarko Basin? You thought is that you obviously held result there your thoughts on the follow-up there and the activity for the rest of the year? Thank you.

John A. Crum

Yes, we are actually pretty excited about the Cottage Grove. Our team is really just getting their arms around that. I told you about that one – where we actually have had several that we liked pretty well. We have had some questionable results on a couple too, but we think we now understand the reason for that. And so a combination of just working the rocks a little harder is going to help us pick the right locations for future Cottage Grove opportunities. We've got a lot of acreage that is potential for that in Oklahoma, so we're looking forward to just working that a little harder.

Operator

Your next question comes from the line of John Herlin with Société Générale.

John Herlin – Société Générale

Yes. Hi, can you hear me?

John A. Crum

Yes, say that in France, John.

John Herlin – Société Générale

Not a chance. Anyway, with Louisiana, are you going to open a data room, look for partners in terms of Fleetwood and Quincy?

John A. Crum

Yes, John, we’re already in that process and we’ve had ongoing discussions with several different parties on both of those areas, and that process will continue. Greg Hubert is kind of leading the Fleetwood, finding the right partner and putting an opportunity together, and Curtis is handling the Dequincy operation.

John Herlin – Société Générale

Are you looking for a heads-up thing to promote or?

John A. Crum

Now, we are always looking for promote.

John Herlin – Société Générale

Okay, all right. Getting back to the Mississippi, on the seismic you will be able to see kind of the better porosity and permeabilities on that you feel pretty good about that?

John A. Crum

Well, the guys would tell us that we can see some. Primarily we can see structures and we can see fractures and we can see that kind of thing, which certainly helps us. As far as seeing just the more porous intervals within a given area, that’s a little more difficult to do. But we’ve had great results of using that 3D and it has helped us identify why some of our earnings wells were really good. We are doing additional processing on those seismic volumes to kind of refine our interpretations.

Operator

Your next question comes from the line of Brad Carpenter with Wells Fargo.

John A. Crum

Good morning, Brad.

Brad D. Carpenter – Wells Fargo Securities LLC

Hi, good morning and congrats on the PSA. John, I’m just curious looking at your Mid-Con assets and portfolio management and a bigger picture, are you guys still looking at potentially going down the JV route for some of your Anadarko or Miss Lime properties? Just hoping you could lay out some expectations for us on those?

John A. Crum

Yes, Brad, I think we’ve told you guys all along that had we have the perfect situation we probably wouldn't have made as big acquisitions as we have made there and take on that much debt. So we would look favorably on joint venture on some of the Mid-Continent assets. But, that said we feel like we’ve got to the point where we don't have any real pressure to do that. So, the right opportunity came along with the right partner. We would still to be very interested in doing something that way.

Brad D. Carpenter – Wells Fargo Securities LLC

Okay, great. Thank you. And then, on the Anadarko specifically, I know some of your peers are looking into new completion techniques, and John you had some prepared remarks, I believe those were pertaining to the [indiscernible] But, are you guys looking into any new completion techniques in the Anadarko, such as closer proved spacing or any longer laterals?

John A. Crum

We’re trying to maximize laterals. We have on our individual wells, we’re pretty much limited by section size in Oklahoma and gradually working on what we could do in the Texas side. On completion I think just generally you’ll see us gradually moving the number of individual stimulations out to a number over 20 as time goes along. I don't know that we’re prepared to kind of move up to those very significant numbers that you’ve seen out of some of the other operators we’ll be watching very closely and if we feel like they are on to something we’ll be happy to copy.

Operator

Your next question comes from the line of [indiscernible].

John A. Crum

Good morning, Ron.

Unidentified Analyst

Good morning John. On the Miss Lime you touched very briefly on obviously you’ve got great success on your core development, but you talked about other zones. Any additional color there in terms of gesture or in different numbers of the Miss Lime and what your plans are to test that this year?

John A. Crum

Yes, I guess first of all we’re obviously watching what some of the other operators are doing. We’ve made this our focus this year, last year and this year to actually get the cash flow up. So, we’re kind of sticking to our knitting and making sure we’re having good wells that don't leave us a lot of time for doing what I would call closer to expiration.

That said, we do have people looking at all of those intervals and as a general rule, we would expect potential gesture on the west side of our acreage probably not the whole way across it, and on the Woodford we still haven’t gotten ourselves to the plant where we are ready to drill a well, but we certainly have – of course with Woodford oil in the kind of the heart of our play.

So, the other thing we’re doing and really concentrating on more is on trying to establish what we can get out of the Miss itself. So, as you know most of our wells have been in what we would call that first porosity interval within the massive Mississippian. And so watching other operators and seeing talk about the second and third Miss, we will be doing some work in that, and then we are pretty heavily into thinking about downspacing aspects of this play and indeed, some of the work we did with the open holes was to kind of set up that kind of a thought process.

So we actually have some multilateral underway as we speak, which would end up with spacing more in the range of 660 feet between wells. And that will be a good – I guess a good data point for us understanding with the downspacing potential on our acreage is.

Unidentified Analyst

Great. And then on just one more on the Anadarko Basin, obviously The focus remains on the Cleveland and I assume it's a similar discussion in terms of, focused on growing the production and cash flow as you look to evaluate the other zones. But in terms of relative economics on the numbers that you have provided from the Cottage Grove and the Tonkawa and the Marmaton to-date, how would you – how would you full shrink those when you look at those kind of results versus cost and what you think the secondary target might be after the Cleveland?

John A. Crum

Well, I don't know that we have decided among those three, but one of those three we would say is our secondary target. I've got to say the guys in Tulsa have been writing a lot about what they think they can do with the Cottage Grove. But the Tonkawa is kind of fooling us a little bit. We got one well that came on in what guys October of last year, produced 100% water for something like six or eight weeks, and make me tell – here I was telling just relax it will come around and sure enough it has come around and it has continued to increase in making about 180 barrels a day today.

So we think we are a long way from understanding that Tonkawa play and certainly the Marmaton is coming on strong with other operators in there. And so we’ve had some good results and again some questionable, so we just have more to learn. Remember, most of this acquisition we made was paid for with Cleveland, so as far as we’re concerned, some real improvement in any one of those formations can really change that into an incredible acquisition.

Operator

Your next question comes from the line of Jeb Bachmann with Howard Weil.

Jeb E. Bachmann – Howard Weil, Inc.

Good morning, guys. Just a question on the 2,400 barrels a day in Louisiana. John, just looking at the metrics from the Pine Prairie deal, just wondering obviously you guys pin a number on those 2,400 barrels, so just wondering considering it is horizontal maybe a little more – a little higher risk. Are you expecting may be a little bit less versus the Pine Prairie or are you still looking for somewhere in that range, value wise?

John A. Crum

Yes, we would be – we would be looking for something in that value range. But we do have to recognize the wells are more expensive to drill. There is a little more risk associated with it, and certainly we don't have the number of spuds that we would have had in Pine Prairie.

Jeb E. Bachmann – Howard Weil, Inc.

Okay. And then can you just remind us on the Tonkawa, with the product mixes with one of those wells?

John A. Crum

Somebody is going to have to help me with that one. We may have to get back with you there. Let me get with you on the Tonkawa itself.

Jeb E. Bachmann – Howard Weil, Inc.

Okay great….

John A. Crum

After this call.

Jeb E. Bachmann – Howard Weil, Inc.

Thanks John.

Nelson Haight

Hey, just one more thing job, somebody some you note the latest Tonkawa is making 900 barrels of oil and 1.5 million meters of gas. That does not breakout the NGLs, but that’s obviously an early on that fast as I was about. Next question.

Operator

Okay. Your next question comes from the line of [indiscernible].

Unidentified Analyst

Hi good morning, thanks for taking my question. I was wondering on the Mississippian Lime could you talk about what you – the reserve are baking in for spud wells there?

John A. Crum

I guess we are still working with – I'm going to turn this over to Curtis to handle that.

Curtis Newstrom

Yes, in the report that regenerated a year end we have the area broken down into the core areas and then some outlying areas and generally speaking it very similar to what we carried last year the bulk of the spuds there are going to be in the 400 to 250 MMboe range in our reserve report on a gross basis. And then of course it varies as you get outside the core that that's a good rule of thumb because that's where the majority of our spuds are.

Unidentified Analyst

Okay great and then just one more question. In the press release you are highlighted you feel pretty comfortable about all of your funding needs will be met through the end of 2015 and perhaps beyond. So I was wondering, what is the implication there on capital spending levels for 2015 relative to 2014? How should we think about that?

John A. Crum

Obviously it is a little early for setting capital, but I think you can assume that we’ve assume similar capital spending for 2015, when we do our modeling.

Operator

Your next question comes from the line of Chad Mabry with MLV & Company.

John A. Crum

Hi, Chad.

Chad L. Mabry – MLV & Co. LLC

Thanks, good morning. Follow-up on the open hole pilot program, you alluded to some tensile low cost savings there. How would that compare to kind of $3.5 million that you’re modeling right now?

Nelson Haight

To be perfectly straight, when we go back and complete the well after having tested it as an open hole, we probably add $200 million or $300 million for the cost because obviously we are entering the well twice. But, on the wells that we don’t complete obviously we are saving the cost of a frac job, which is typically in that $1.2 million to $1.5 million.

Chad L. Mabry – MLV & Co. LLC

Okay, that’s helpful. And I guess the follow-up if I could on just kind of looking through your updated acreage numbers looks like you have lost a few thousand acres there in [indiscernible]. Is it fair to assume that this is kind of more fringe expiration acreage to your core position?

John A. Crum

But I told lot of people is you can assume that we were not going to loose any acreage we like. So, anything you see disappearing we’ve kind of make the decision that doesn’t really fit with your plans going forward.

Operator

Your next question comes from the line of Kyle Rhodes with RBC.

John A. Crum

Hello, Kyle

Kyle Rhodes – RBC Capital Markets LLC

Hi, John. Just wanted, if you can maybe quantify the 30 wells kind of in your open hole pilot program how many those you are going to back and complete?

John A. Crum

I think we’ve done a schedule 23 of them – 21 of them right now.

Kyle Rhodes – RBC Capital Markets LLC

Okay, great. And then just one housekeeping item for me, what was the year of pre- reserves associated with Pine Prairie?

John A. Crum

Several people have asked us that and we are really not comfortable given out the numbers on individuals, because we are still in the middle of the marketing operations. But I will tell you that our 10-K is going to tell you that some reserves for Louisiana are now $23 million barrels with the net present value of just under $500 million on crude basis only.

I want to may add a comment there, obviously as we talked about we took a significant write-down on reserves in Louisiana. And what I will say is not likely believe those reserves disappeared we think there is still there. And this is a matter of getting the economics right to go after.

Operator

Your next question comes from the line of Stephen Shepherd of Simmons & Company.

Stephen P. Shepherd – Simmons & Co. International

Yes, in your presentation you all talk about having about 700 locations left in the Anadarko Basin. I was just wondering if you could give a location comfort what you have left in the mix right now.

John A. Crum

Maybe help me here. Probably still in the range of 400, but the issue for us, the issue for us now is how much in filling we can do as wall as how many of the areas can we actually take to four wells per seconds instead of just three wells per second. Yes, so that’s raises a story.

Stephen P. Shepherd – Simmons & Co. International

Okay, and my follow-up, can you disclose what your current net production is in the Anadarko and Mississippian Lime regions?

John A. Crum

Well, let say. The numbers yesterday for the Company as a whole was 30,950 of which about 4,000 and that was in the Gulf Coast. So there we go. Somebody is handing me the notes here as we go. So we are at 20,269.

Operator

Your next question comes from the line of Sean Sneeden with Oppenheimer.

John A. Crum

Good morning, Sean.

Sean Sneeden – Oppenheimer & Co.

Hi, good morning. Thanks for taking the question. Nelson, for you I guess, can you talk about – on your pro forma asset base, how do you guys think about cash neutrality? Does this Pine Prairie sale move that out at all or is that more of a 2016 event for instance?

Nelson Haight

Right, so Sean you are referring to just the self funding.

Sean Sneeden – Oppenheimer & Co.

Right.

Nelson Haight

Yes, the Pine Prairie – it does move it out into 2016 a little bit, but it is a – that the value we receive there it’s favorable versus the leverage ratio that we have today which is EBITDA versus total debt. So we kind of pulled that cash flow forward and we also and we also save ourselves the capital spending that would be associated with keeping that asset in that production or growth mode.

Sean Sneeden – Oppenheimer & Co.

Okay, that’s helpful. And then maybe you John, does this increased liquidity change your view at all M&A? For instance would you be looking at full-time deals within your kind of core areas in the Mid-Con at all?

John A. Crum

Well, we are always watching to see if a good opportunity comes along and the ideal situation would of course be in a place that we are already working. So it does give us a little bit of flexibility, but I will tell you we feel like we've our boat loaded right now and we’re going to be continuing to focus on what we’re doing right now, it’s working pretty well and we’d like to keep that moving.

Operator

Your next question comes from the line of Gregg Brody with JP Morgan.

John A. Crum

Good morning, Gregg.

Gregg W. Brody – JPMorgan Securities LLC

Good morning guys. Just coming back to your comments about having enough liquidity to go through 2015, it sounds like if you think you’ve additional Gulf Coast assets and revolver in place. Can you talk to us about 2015, how you get there and how you make it through there is it additional borrowing base sales, and then our asset sales or just your cash flow, we’ll get to the point where you are good?

John A. Crum

The models we’re working with does assume us a small amount of additional sales that does no borrowing base growth in that assumption.

Gregg W. Brody – JPMorgan Securities LLC

And if you were – if your borrowing business not growing, excuse me, if you didn't sell the Gulf Coast assets the remainders, would you be able to add that actually borrowing this, and you list out that how much that would be?

John A. Crum

I don't have a sense of how much that would be, but yes we would be able to add it back.

Gregg W. Brody – JPMorgan Securities LLC

And then just last question for you, tell about the actual EBITDA on the assets you sold?

John A. Crum

I don’t have that with us, but again we’re in the middle of our marketing operation.

Nelson Haight

I can hit to that. The backward looking multiple which would be trailing one, the EBITDA was in the $65 million range, but if you take the forward expected EBITDA for 2014, that’s were it becomes a benefit to the leverage ratio for this year because it’s declining at a pretty good pace of our production level from 2013.

John A. Crum

Yes, we haven’t spend any money out there since March of last year, and as most of you know we got to spend money to keep these things as long as the standard production rates.

Operator

Your next question comes from the line of Steven Karpel with Credit Suisse.

John A. Crum

Good morning.

Steven M. Karpel – Credit Suisse Securities (USA) LLC

Good morning. You’ve talked a bunch about the Cottage Grove, looked at your acreage position, can you comment where you see the most potential on the Cottage Grove?

John A. Crum

Yes, we’re obviously working on it the hardest in Oklahoma that’s actually the only place we drilled a well right now, our Texas position were pretty much concentrating on the Cleveland and with some Marmaton.

Steven M. Karpel – Credit Suisse Securities (USA) LLC

Yes, I guess in fact where in Oklahoma.

John A. Crum

Okay, Ellis County [indiscernible].

Steven M. Karpel – Credit Suisse Securities (USA) LLC

Both, okay, I was curious. And you mentioned about the production – I didn’t follow all the numbers you were saying what current production was, maybe give us a little scan on towards, is it 27,000?

John A. Crum

Yes, production for the company was 30,900. The Mississippian produced 1,820 and the Anadarko 8,700.

Steven M. Karpel – Credit Suisse Securities (USA) LLC

So, the 27 was without Louisiana.

John A. Crum

Yes, somebody asked for just Anadarko and Mississippi. Yes, you know guys I think we mentioned earlier, I want to make sure you did get that. We have had extraordinary amount of tough weather in Oklahoma and Panhandle the Texas this year. And it certainly has affected our volumes for this first quarter, but it feels like we’re coming back pretty well now.

We got behind on frac jobs. Many companies, everybody got behind, so obviously then the frac companies, I mean trying to catch up everybody’s portfolio one. So there is a variety of things that are affecting our first quarter production. But as you can tell by that number, we’re coming back now, we feel pretty good about where we are at.

Operator

Thank you. I would now like to turn the call over to John for closing remarks.

John A. Crum

Okay. If that's the last of the questions, thank you for being with us. We feel very good about where we have ended up. After these exercises, we have just told you about and we’re pretty excited about our 2014 and where we can take this company. If you have any further questions, please feel free to get a hold of Danielle and we’ll handle at that time. Thank you.

Operator

Thank you ladies and gentlemen for participating. This does conclude today’s conference call. You may now disconnect.

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