Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

ZaZa Energy Corp (NASDAQ:ZAZA)

Q1 2014 Results Earnings Conference Call

May 14, 2014, 10:00 pm ET

Executives

Jay Morakis - Investor Relations, Managing Partner, JMR Worldwide

Todd Brooks - President, Chief Executive Officer, Treasurer, Executive Director

Kevin Schepel - Executive Vice President of Exploration & Production

Ian Fay - Chief Financial Officer

Analysts

Evan Jones - Jefferies

Doug Bocchino - Casimir Capital

Brian Kabot - Riverloft Capital

Robert Kecseg - Las Colinas Capital Market

Operator

Good day, ladies and gentlemen. Welcome to the first quarter 2014 ZaZa Energy earnings conference call. My name is Patricia and I will be your operator for today. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Jay Morakis, Investor Relations. Please proceed.

Jay Morakis - Investor Relations, Managing Partner, JMR Worldwide

Thank you, and thank you all for joining us today. Today's call is being webcast on our website zazaenergy.com and can be accessed in the Investor Relations section. With me this morning are Todd Brooks, President and Chief Executive Officer, Ian Fay, Chief Financial Officer and Kevin Schepel, Senior Vice President of Exploration & Production.

Before we begin, I would like to remind everyone that statements made on today's call and webcast may contain forward-looking statements as defined by the Securities and Exchange Commission. Forward-looking statements can be identified by words such as anticipates, intends, plans, seeks, believes, estimates, expects, forecasts and similar references to future periods.

Any statements made are subject to a number of assumptions, risks, and uncertainties, many of which are beyond the company's control and which may cause actual results to differ materially from those implied or expressed by those statements. For a list of risk factors, please refer to our 2013 10-K filed with the SEC.

At this time, I would like to turn the call over to ZaZa's President and Chief Executive Officer, Mr. Todd Brooks. Todd?

Todd Brooks

Thank you. Good morning, everyone, and thank you for joining us for ZaZa's first quarter 2014 conference call. With me today on the call are Kevin Schepel, our Chief Exploration Officer and Ian Fay, our Chief Financial Officer.

I will address three areas today on the call. First, forward progress in our joint ventures and the impact of that progress on our production volumes, second, ZaZa's ability to cover its commitments and the company's outlook for growth and third, my ongoing personal commitment to ZaZa's success.

On March 12, 2014, our JV partner elected into all of the remaining Phase 3 acreage in our JV. As I stated on our last call, the drill bit is turning to the right and ZaZa's production figures are climbing. Net production for the last full week of March increased to an average of 682 BOE per day and production for the full month of April increased to an average of 740 BOE per day with a one-day peak of 958 BOE on April 12. This peak is approaching ZaZa's all time production high of about 1,300 BOE per day realized back in April 2012 when the company still held production in France and was in two joint ventures with Hess. We expect to have several more East Texas JV wells online in the near future and we look forward to announcing updated production figures soon.

Recently and ongoing, we have elected into new acreage acquisitions inside our East Texas AMI alongside our JV partner. The joint venture continues to grow, with total net acreage of approximately 140,000 with about 35,000 being net net to ZaZa, in both cases, upon completion of previously elected assignments.

ZaZa also has accumulated new acreage positions North of its East Texas JV AMI. We now have an additional 5,000 net acres in Houston County and Southeastern Leon County in our core East Texas stacked pay focus area. As in our nearby East Texas JV, both acreage blocks target stacked pay and contain multiple horizontal standalone targets. We have already begun multiple bilateral discussions to vend these positions into a fourth JV and we are excited about the prospectivity of this forward movement. While it is early yet here, I expect this to be a 2H 2014 or 1Q 2015 event.

That said, we must also be prepared for success in our large East Texas joint venture. ZaZa will need to keep up with our better capitalized partner, should it accelerate the drilling pace in late 2014 or early 2015, as we are expecting them to do. We are in discussions with multiple financial sponsors who are interested in financial transactions at both the parent and asset levels. We also continue to receive inbound calls from partners who would like to vend their way into transactions with ZaZa both in East Texas and in South Texas. As we consider proposals and indicative term sheets,

I am committed to preserving as much upside as possible for our shareholders as we increase our production and prove up this exciting East Texas area. The important thing to note is that we have additional financial options available, aside from equity issuance to achieve additional liquidity. I am focused on cost of capital and as ZaZa's single largest shareholder, I am extremely sensitive to dilution.

Now I would like to talk about covering commitments and growing the company. Firstly, it is important for our investors to understand the company's ability to cover its commitments, interest expense, G&A and CapEx generally. And then secondly, to look at our ability to grow the company through the deployment of high rate of return capital through the drill bit based on our acreage assets and our operations.

We have approximately $11.5 million of carry left with our East Texas JV partner and this number is post-completion and hook up of a horizontal development well that is now in the completion process. Additionally, we have $10.7 million of cash in our treasury as of March 31. We are projecting run rate net revenue of $6 million over the next nine months, and this is a very conservative number that does not reflect new wells or some wells that are being reworked and optimized.

With our cash on hand, our carry, our incoming revenue, the quality of our assets and our commercial wherewithal, we have the ability not only to cover our baseline commitments, we have a unique opportunity to grow ZaZa in a very exciting and potentially explosive manner and I am confident in our ability to do this. We have world-class rock in the fracture of Buda and Eaglebine plays with additional multiple high rate of return standalone development targets as upside and we are participating alongside a world-class operational partner. We have a streamlined G&A structure which we are continuing to be ever more hawkish about, all in furtherance of being an organization with world-class operations, while being a low-cost provider.

When I co-founded this company in 2009, I didn't take a salary for years while we were private. As we rebuild ZaZa post-test, I will now continue to support my company in the same way. In furtherance of my commitment to shareholders and to the cash G&A reduction of this company, I have elected to take a $1 salary for the next two years. Under the terms approved by the compensation committee, my remaining short-term and long-term incentive compensation for this two year period will consist solely of equity grants or other equity related compensation. Furthermore, and importantly for all shareholders, the vesting of this compensation will be tied primarily to the company's achievement of further production and reserves growth. The compensation committee expects to complete definitive documents and effect these changes prior to the end of the second quarter.

In addition to this equity only compensation commitment, I would like to state that over the past year and a half I have entered into a series of stock transactions purchasing over 1.75 million shares of ZaZa stock for about $1.8 million of my personal money, well above the current share price. I do not consider myself an unsophisticated investor and I believe that at the time made each of these share purchases, all at a higher value than today, represented a compelling share purchase. In addition, I have made investments of my shares in people. To that end, I have given away 1.7 million of my personal shares to ZaZa employees and team members to reward smart work, hard effort and to keep morale and spirits high. These 1.7 million shares were personal shares, not company related shares. So these grants were non-dilutive to other shareholders.

I have also executed documents to swap my $15.8 million of my subordinated notes for preferred stock and common stock, at a price per share of common stock higher than the one today. My commitment and my checkbook are with ZaZa. If the company and shareholders do well moving forward, we will all do well together.

I will now hand a call over to Kevin to talk about some of the exciting and new immediate offset data emerging from our East Texas area. Kevin?

Kevin Schepel

Thanks, Todd, and good morning to everyone on the call. First, I would like to talk a little bit about East Texas. ZaZa focus area in East Texas offers a broad range of well types and reservoir completion providing multiple stacked pay opportunities in both vertical and horizontal development. Now over the past 12 months, ZaZa had been focused on a proof of concept methodology of appraisal drilling and selected testing or what we call product confirmation, which provides information needed for identifying producing horizons and evaluating optimal completion design for each target interval. The methodologies used in this process have been state-of-the-art and the information gathered will be critical to optimizing drilling and development as we move forward as a company in East Texas.

Now as we approach development, the time and money spent on the appraisal process should prove to be well worthwhile. We have recently participated in five wells in East Texas consisting of three vertical product confirmation wells, each with their own objectives, completion methods and production goals and then two horizontal proof of concept wells targeting two different zones. Now as a result of these wells, ZaZa believes that the Northern one third of its Walker and Madison County evaluation area has been derisked for the development of Lower Cretaceous and the Eagle Ford is regionally perspective over the entire ZaZa area and derisked in the lower 50% of the block.

Now the JV continues to move forward as planned and we are very excited about what we are seeing. We look forward to announcing updated production results in the near future as new wells are coming on. We are also very excited about finally drilling what ZaZa considers to be its first development well and we will have more to come on that well as it progresses.

Now there have been several research reports published in the Eastern Extension of the Eagle Ford play in the past few months. Most of those reports are made up of publicly released investor material and Railroad Commission reported drilling production data. As a result, much of it is focused on the companies that reported in those reports. Now industry research in the Lower Cretaceous has been very limited and specifically focused on the A&D activity in Madison and Houston County.

ZaZa's technical staff has been studying the Eagle Ford shale in the Lower Cretaceous in the Brazos Basin since early 2010. With the drilling of the recent wells, we now have access to some of the most detailed rock properties, advanced petrophysics, mechanical rock properties, fluid characterization. We have three Eagle Ford cores, two Lower Cretaceous cores. We have got about 150 rotary sidewall cores, extensive clay mineralogy and geochemistry and a series of selective tests on the Eagle Ford in the Lower Cretaceous.

The technical program has been very exciting and we have rapidly progressed up the learning curve through the selective drilling and testing of the Eagle Ford in the Lower Cretaceous. We now know that the lower Eagle Ford has produced in Southern Madison since the mid-80s and the zone is routinely included the Lower Cretaceous vertical commingled wells.

Also, the Buda line and the Goodland and the Edwards completed an all prolific vertical wells producing from the Buda Rose. We are also going through some postproduction engineering book backs and we confirm that the oil rate increases and the water rate decreases over time due to the lack or the absence of a strong aquifer recharge system in the area. Now this is very important but it is very common in carbonate reservoirs.

We recognized early that both the organic lower Eagle Ford and the highly fractured Buda provide a hydrocarbon rich horizontal target for future expansion and full scale development. We also feel we have a solid and repeatable drilling and well bore design program for horizontal Eagle Ford, Buda and Goodland development and our work on mechanical rock properties and effective stress is fully integrated into the horizontal completion design.

Let's talk a little bit about our South Texas JV. In South Texas, as I mentioned in fourth quarter 2013 and then again in first quarter 2014, ZaZa and Sabine drilled two significant horizontal Eagle Ford wells, the Langley 1H, and the Machicek 1H. The Langley had a peak rate of 260 barrels of oil per day and 2.4 million cubic feet a day and the Machicek had a peak rate of 324 barrels of oil a day and 2.5 million. That was reported on March 21, 2014. Both of the wells have now stabilized and the combined production rate is 442 barrels of oil per day and 4.5 million cubic feet of gas and that was as of March 31, 2014. We are very pleased with the acreage position in this area, although from a technical perspective, we believe the optimal placements of the laterals have not yet been defined and there is significant room for improvement in the completion design and implementation.

Now as we previously discussed, this is an 8,000 acre JV with three distinct Eagle Ford horizontal targets and if the acreage is developed on 100 acre spacing, we expect about 80 locations. Our type curves for this area indicate 500,000 to 750,000 barrels EUR per well and, as a reminder, this area is adjacent to and surrounded by the recent Devon GeoSouthern acquisition and just West of the recent Devon Welhausen A 2H well, which they recently released 24 hour IP there was 1,767 BOE per day.

So thanks and we look forward to providing ongoing technical and operational updates as we move into the next phase of full field development and company growth. Now I would like to turn it over to Ian for some of the financial highlights.

Ian Fay

Thank you, Kevin. Good morning, everyone. For the first quarter, we reported oil and gas revenues of $3 million, which is up slightly over last year's first quarter. Of this total, our East Texas properties produced $2.6 million. This was offset by the divestment of our non-core assets in South Texas for $2.3 million. Operating expenses of $6.4 million were down $2.2 million, primarily due to a $700,000 decline in general and administrative expenses and a $4.1 million gain associated with asset divestitures in the first quarter of 2014. These all were partially offset by $1.6 million non-cash impairment charge on certain oil and gas properties, a $600,000 increase in lease operating expenses as a result of additional assets in East Texas and $300,000 increase in depreciation, depletion, amortization and accretion due to higher production volumes and per barrel operating expenses.

There were a number of moving parts in our other income line which are detailed in our Form 10-Q but I wanted to provide a few quick comments on this line item. We had a loss on extinguishment of debt in the 2014 first quarter of $2 million versus $15.1 million last year. The 2014 first quarter results related to a prepayment of our senior secured notes which were paid down from $26.8 million to $15 million during the quarter. The loss of the 2013 first quarter related to an amendment to the senior secured notes that triggered debt extinguishment accounting. Net interest expense for both periods was $3.6 million. We recorded gains in fair value of warrants associated with the senior secured notes of $4.5 million and $11.2 million for the 2014 and 2013 first quarters, respectively. Finally, we recorded an income tax benefit of $1.2 million and $4.7 million for the same 2014 and 2013 periods. Altogether, this resulted in a net loss for the 2014 first quarter of $1.4 million versus a net loss of $2.9 million in last year's comparable period.

I would be happy to address the income statement during the Q&A portion of the call but I would like now to focus my remarks on our balance sheet and capital plans. As of March 31, 2014 we had $10.7 million of cash. We expect to receive approximately $6 million of net production revenues during the remaining nine months of this year. Our estimated remaining obligation in 2014 for interest payments and G&A is approximately $14.4 million comprised of approximately $7.7 million for G&A expenses and approximately $6.7 million for interest payments. Currently, we have a remaining carry balance of approximately $11.5 million in our Eaglebine East Texas JV, which we expect to last until the third quarter of this year.

As Todd stated earlier, in order to cover discretionary cash calls after the utilization of the carry, the company has been in discussions with multiple financial sponsors. ZaZa has multiple options and we are weighing these options with current cost of capital versus future cost of capital in mind. The goal of our evaluation process is to preserve as much future upside for our shareholders as possible while still maintaining our ability to be opportunistic as our JV's move into development phase. For details of the wells associated with our carry commitments, please refer to our Form 10-Q.

Note, that in accordance with U.S. GAAP, the majority of these carry dollars are now and will not be recorded on our balance sheet. As a result, our PP&E balance will not reflect most of our 2014 capital expenditures.

Few other discussion items regarding our balance sheet. Total debt, as of March 31, 2014, was $89.5 million of which $13.5 million is classified as current, as compared to a total debt of $98.4 million as of December 31, 2013, of which $10.2 million was considered current. The prior numbers do reflect discounts. The Q1 2014 total is comprised of the following undiscounted debt, $15 million of senior secured notes, $40 million of convertible senior notes and $47.3 million of senior subordinated notes.

In summary, we have significant potential for value creation in both East and South Texas and we have operating partners by our side that we believe positions ZaZa for success, growth and value creation. We have been working aggressively to restructure and unencumber our balance sheet and over the coming months, we expect to enter into one or more financial transactions that will provide us with the flexibility we need to cover our future capital needs while providing financial flexibility as well to increase our capital access should the need arise and/or for opportunistic acreage acquisitions. I am happy to address any questions and look forward to speaking with you as these developments materialize.

I am now going to turn the call back over to the operator to open the call for Q&A. Operator?

Question-and-Answer Session

Operator

(Operator Instructions). Your first question will come from the line of Evan Jones from Jefferies. Please proceed.

Evan Jones - Jefferies

Good morning, guys. I just had a question, this 5,000 acres that you guys have got in Houston in Leon County. What was the motivation behind that? You talk about preserving capital and yet you go out and make a land acquisition that quite honestly you don't have the capital to ever drill. What's your plan there? Is this a near-term JV? What was the thinking behind this?

Todd Brooks

I will hand the question over to Kevin to partially answer which fits right in line with our proof of concept business model. But regarding the acquisition cost and whether or not we have the capital to do so, we never discussed how much the acquisition cost us. It was a very good acquisition and on a price per acre basis, extremely attractive and that's all I would say about this. Due the competitive reasons, I am not going to talk about exactly where it is.

So Kevin, maybe discuss the proof of concept business model as well as the stacked pay in all the interest, quite frankly.

Kevin Schepel

Yes. Even, obviously just an on-off position, we continually have a growth strategy for the company and Tom and I are working in area, about a 24 county area in East Texas moving South and North and it's really the extension of mainly the Lower Cretaceous in the Eagle Ford and we have done extensive mapping. You can probably look at, I don't know, three or four submittals a month of acreage that actually comes on the market. So part of this process is obviously a growth strategy and it's very similar to what we are looking at right now with our existing JV. We are looking at developing mainly the Buda and the lower portion of the Cretaceous, which becomes oil as you move to North. So that has been pretty exciting, and it is an active effort for us.

Evan Jones - Jefferies

Okay. Great. Just going over, Todd, this exchange, you guys want to reduce your fixed costs and I understand you are exchanging some of those sub notes for obviously stock and preferred, but at the end of the day with the amount of preferred you are issuing, your fixed costs actually go up. You pay about $3.7 million, $3.8 million a year on interest on the sub notes, but you will be paying close to $5 million a year for the preferred dividends. How does that, I mean, why increase fixed costs, essentially where you guys are right now?

Todd Brooks

Sure. That's in the context of the advice from our banker, NOV, who knows the market, who is a market maker in this perpetual preferred product and actually I will hand the call over to Ian to give you some background on that.

Ian Fay

Yes. Hi, Evan. So the question of cost is actually a little bit more beneficial than I think you have outlined. This entire transaction will not be affected until we extinguish the senior secured. So we will be essentially delevering the company by $15 million and take that now 10% coupon off the book. So where we come out, even if it's affected for the $38 million of preferred at 13%, net net pro forma is by reducing our overall burden on interest or dividends by about $500,000. So it's, in fact, a little bit more of beneficial than you had led on. But I think also to just expand on Todd's comment, we had filed an S-1, as you all know, to potentially float a baby bond in the beginning of the year and NOV has advised, understanding the capital structure, the retail market was what we were targeting for that baby bond and having $47 million of subordinated notes outstanding, from a capital structure standpoint was not attractive to that constituency. At the same time, we wanted to unlever or delever the book but wanted to do so being mindful to the marketplace. So there was a lot of discussion and thinking around that move.

Evan Jones - Jefferies

Understood, and then lastly, you guys have, third or fourth quarter in a row that we have obviously been talking about the JV with EOG and quite honestly plenty of value obviously is locked up in that. Is there any time frame on when we might get a result out of any well they are drilling? You know the market here, it's hard to make a determination of your company because we have no idea how that's going at all. There is now clarity into that. Can you give us any time frame on when we might see some well results from them?

Todd Brooks

Well, as Kevin mentioned, we are excited that we finally drilled what ZaZa considers to be our first development well and we look forward to coming out with some updated production numbers in the very near future in East Texas. So that's what I can tell you. And that development well is in the completion process. So that's about the amount of guidance that I can give you.

Evan Jones - Jefferies

Understood. Thanks, guys.

Operator

Your next question will come from the line of Doug Bocchino from Casimir Capital. Please proceed.

Doug Bocchino - Casimir Capital

Hi, guys. A quick question. I have been hearing some things about a well that was drilled in Madison County. It looks like, from what I have heard, it has a 30 day IP of about 50,000 barrels. Do you guys know anything about it? And if it is anywhere near your acreage?

Todd Brooks

Kevin?

Kevin Schepel

Yes, I can go ahead and comment on that. Yes, it's a very significant well. The well is actually located about less than a mile from our boundary. And this is publicly material that you obviously brought out. The well is a lateral. It's a horizontal. And yes, it's very, very close to our acreage and we are pretty excited about the results and we look forward to integrating that data into our development program as we move forward. But yes, it's very, very close and it's probably hit the streets about a week ago. And I think you are very close on the rates, actually the 55,000 is oil alone. They actually had, for the first 37 days, I think it produced over 5 million a day in gas and about 1,700 barrel a day. So it's pretty significant.

Doug Bocchino - Casimir Capital

Okay. Great. Thanks, guys.

Operator

Your next question will come from the line of Brian Kabot from Riverloft Capital. Please proceed.

Brian Kabot - Riverloft Capital

Hi, guys. I just wanted to drill down a little bit on Ian's remarks on the financial update. Talking a lot about working with some financial institutions on some different options and then going back to Todd's remarks on not wanting to do anything dilutive to the shareholders. Can you elaborate on number one, what types of institutions you are talking to? Number two, what types of products you guys are discussing?

Ian Fay

Well, thanks for the question, Brian. The overarching theme here is that we have identified several different capital providers or capital provision mechanisms, both through discussions with private equity and in looking to the public markets, and as a result the message that we want to make very clear to the investment community is that we have got options that we know we can put in to place timely to accommodate pace increases in our JVs and the structures range from, as you know some of the capital markets different outcomes to asset level type investments into the company. But the purpose of the exercise was to make sure that we had canvassed the outstanding investment community to understand how we can be flexible and increase, both the financial and industry groups that are interested in our acreage to make sure that we can be flexible no matter the outcome in terms of the production landscape.

Todd Brooks

And I will just add to that. The deal types and proposals vary pretty widely in scope, size and structure.

Brian Kabot - Riverloft Capital

Great. Very helpful. I appreciate it.

Operator

Your next question will come from the line of Robert Kecseg from Las Colinas Capital Market. Please proceed.

Robert Kecseg - Las Colinas Capital Market

Hi, guys. Can you hear me okay?

Todd Brooks

We can.

Robert Kecseg - Las Colinas Capital Market

Okay, good. I wanted to ask you about the original Stingray that opened up this whole area for you with this joint venture partner. Was there anything, I don't think I remember anything being reported about their result. Has there been anything reworked on that? Can you speak to it a little bit?

Ian Fay

Robert, that particular well was actually plugged back and we actually drilled it out to the Lower Cretaceous and it is currently completed in Lower Cretaceous. So in terms of the actual lateral, there is no way to really get back into that wellbore. Now we do have a well close to that that does have some opportunity for remedial work and we are evaluating that at present. But that's very, very close. Matter of fact, the true grit was a direct offset of the Stingray and was the obligation well.

Kevin Schepel

And that was our first proof of concept well. If you remember, that that was an earning well and the data that we gathered from that well actually enabled us to move forward and then our current JV partner.

Robert Kecseg - Las Colinas Capital Market

All right. Also, I was recently looking at Contango's presentation in Madison County. They had a number of wells, I think that was probably done by Crimson before the acquisition but they had named these (inaudible) they were in Madison, Buda. An you tell us very much about that, since that would give something that you could about more that might relate to some of our assets?

Kevin Schepel

Well, obviously the Buda formation is a significant reservoir there and we are very excited about it. Just a little history there, the Buda has been producing for quite a long time, but most of it is in vertical completions and horizontal completions remain the open hole and the real big effort there was looking at longer laterals and simulated completions in the Buda. It is fractured. It's definitely hydrocarbon bearing and it is the zone that, as we discussed earlier, on the (inaudible) well that was drilled. That is the zone that is targeted. So it's certainly when we considered, as I mentioned earlier, the Northern half or at least a third of our acreage being derisked. A lot of that is contained in the upper portion that Cretaceous in the Buda. There is a lot of activity in the Buda or across the trend.

Robert Kecseg - Las Colinas Capital Market

And then maybe another way to kind of allow you to elaborate on what second place with your 140,000 acre joint venture. Can you speak to the different targets? Since there are so many targets bearing around the property, around the salt play, have there been analysis done to know that most of those will be productive in various places or some of those are not going to be very productive? In other words, maybe you could speak to the different targets and what you have learned and a generalization rather than a specific well?

Kevin Schepel

Well, obviously the hydrocarbon system over the acreage is very prolific and there is probably 2,000 feet of hydrocarbon column height in the Lower Cretaceous alone and there is multiple horizons, but obviously the Buda is the one you just mentioned. It's basically right below the Eagle Ford seal. It is very fractured and of course a lot of the hydrocarbon migrates to the upper portion of that reservoir. Beneath there you have the Georgetown, also productive to the North. You have the Goodland and the Edwards section and then below that you have the Glen Rose and there is multiple zones in the Glen Rose that are productive as wells. So it's a very, very thick hydrocarbon system. I guess the key you were trying to get out here in the presentation, some of the things I mentioned, part of this appraisal process and selective testing we are doing, which is this product confirmation is that we are looking at each one of those individual zones and looking at what is best completion strategy, whether it will be vertical commingled development or horizontal development in each one of those intervals. That's really what the last 12 months of our effort has been focused on and just with the data we have now, we are moving forward to developing those different targets.

Todd Brooks

Using the word developing, it's important to note that we are moving forward with the development of the Buda and Eaglebine and we are still analyzing and appraising and very encouraged by several of the other zones and as Kevin mentioned, zones within zones. So we are now moving into development of a couple of the zones while we continue appraisal of others in order to then move into potential development later, most likely horizontally but, as Kevin mentioned, vertical commingled development is also still an option and an attractive one, given the economics.

Robert Kecseg - Las Colinas Capital Market

I was going to say, maybe the thing that's frustrating people is the more scientific approach that your partner is taking on this whereas many of the other operators that people are reading about are really moving faster towards development and completing wells. And in your case, it seems like the approach is looking at this in a longer term big picture to get as much return and as much results as possible, but doing less fanfare in the front side and completing wells with big IPs is really no the process right now. Is that fair to say?

Todd Brooks

If you look at our partner's well results in the Eagle Ford versus it's peers, we attribute that to a lot of the early work that they did there. We think its well worth it. We agree with the appraisal approach and again it's important to note that we are now moving forward with development.

Robert Kecseg - Las Colinas Capital Market

Right and Ian, on the financial side, the baby bond idea, the ATM concept, is that somewhat impaired from stock price since we are in this early period of appraisal and the stock has a hard time understanding where to appraise the company at. Is that an impediment to doing that kind of financing, therefore you are doing some other institutional prospects?

Ian Fay

Good question, Robert. The idea and the view of management all along has been to be prepared and that S-1 was filed, as you know, the capital markets opportunities for issuance open and close and timing is everything and right now we are not going to be moving forward with that baby bond. As it relates the ATM again, the ATM was conceived as a component of a broader capital market entry point. We are extremely, as Todd mentioned, all of us sensitive to dilution. So certainly at this stock price, the ATM is not attractive. However we are, as we have mentioned in this call, very excited about the prospects and the momentum we have got with our JV partners and we have the opportunity to the ATM to the extent that we get a lot of appreciation in the stock price to use that as a tool to the extent we believe it's appropriate and attractive at the time in furtherance of our growth plans. So obviously we are mindful of that and want to maintain that flexibility.

Robert Kecseg - Las Colinas Capital Market

And then, as far as financing goes, is there any prospect that the smaller JV will develop any quicker so that that might be able to be monetized to help you with the big well?

Todd Brooks

The answer is, we remain opportunistic. The smaller JV is interesting. It has taken an interesting, I guess, turn or forward movement with the announcement of the Sabine-Forest merger. So we are working with Sabine now to discuss forward movement within that JV. So more to come here in the very near future there.

Robert Kecseg - Las Colinas Capital Market

Okay. Great. Thanks, guys.

Operator

(Operator Instructions). We have a follow-up question from the line of to Doug Bocchino from Casimir Capital. Please proceed.

Doug Bocchino - Casimir Capital

Hi, Kevin. You mentioned something about some research reports. Can you elaborate a lot little more on this?

Kevin Schepel

Yes, sure. As I mentioned and if you follow the market, obviously research reports are generated usually from material from existing wells reported to the Railroad Commission and investor material that's presented. I think it is Halcon, there is a number of companies, Johnson Rice just came out with a research report and I really will just probably comment on that a little bit because obviously a lot of that is West of our acreage and there has been a few issues that have come up on clay, on the extent of the play and then GORs. We obviously have been doing a lot of our own internal research. We have a lot of play mineralogy and from the data we have, the cores of the Eagle Ford and the breakout of the mineralogy is almost identical to what's coming out of the research reports. From the results of our wells, I would say that nothing we have is really about 5,000 GORs. So there is not, GOR is basically gas oil ratio. Obviously as you go into the higher gas, some people turn the acreage as less valuable, but that's really not an issue we are at and you have got to remember, these research reports are really concentrated around the areas of the company that are actually being covered in the report. So the fact that a lot of companies don't have acreage we are at. I think the most important thing that we need to delineate in this is for instance, Grimes County which separates us from what's going on in Brazos County is the center, the axis of the base, the paleo-Brazos basin. It's the deepest portion of the basin. It's the highest clay content. And as you moved to the East on our acreage, that side of the basin actually starts moving up and it's a mirror image of what's happening on the Western portion of the basin. It's just a little bit deeper. So as a result, our energy is a little bit higher. We have a little higher GOR but nothing in the range of what's been reported in a lot of research reports. So we have got a lot of information and we welcome anybody calling to and we could probably share some of that information. There has not been a lot of coverage in the lower Eagle Ford over in the Madison in Walker area. But we have got a lot of information that ties in directly with those research reports that have been coming out. So I think that's kind of what I was referring to is just you have got to remember that those are focusing on the drilling activity in the companies that are actually covered in the reports.

Todd Brooks

And it actually moves up more rapidly as you move to the East from the center of Grimes as it does toward when you move to the West. It's a little bit more of a gradual movement.

Kevin Schepel

That's actually right.

Todd Brooks

And as you course you move the presence of the Woodbine Delta system over the acreage as you move to the East, just as you do as you on the Western flank as you move up the Brazos, say where Halcon is doing most of their drilling.

Doug Bocchino - Casimir Capital

Okay. Great. Thanks, Kevin.

Operator

All right. Ladies and gentlemen, we have no more questions in the queue. I would now turn the call back over to Mr. Todd Brooks for any closing remarks.

Todd Brooks

I would just like to say thank you. Thank you all for your time and for joining us today and we look forward to future operational results releases and to future calls. Thank you. Have a nice day.

Operator

Ladies and gentlemen, that will conclude today's conference. Thank you for your participation. You may now disconnect. Have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: ZaZa Energy's (ZAZA) CEO Todd Brooks On Q1 2014 Results - Earnings Call Transcript
This Transcript
All Transcripts