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Escalera Resources Co. (NASDAQ:DBLE)

Q1 2014 Earnings Conference Call

May 15, 2014 11:00 am ET

Executives

Charlie Chambers - Chairman & CEO

Adam Fenster - CFO

Analysts

Joel Musante - Euro Pacific

Bill Ritchie - Moloney Securities

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Escalera Resources First Quarter Financial and Operations Results Conference Call. At this time, all participants are in a listen-only mode. Later, there will be an opportunity for questions and comments. Instructions will be given at that time. As a reminder, this call is being recorded.

I would now like to hand the conference call over to your host for today, Charlie Chambers, Chairman & CEO of Escalera Resources. Charlie, please go ahead.

Charlie Chambers

Thank you, Terry. Good morning, everyone. I would like to welcome you to our first earnings call for first quarter 2014 financial results, and give you a brief update on the current activity at Escalera Resources. Joining me today is our new Chief Financial Officer, Adam Fenster. He will begin by providing an overview of our Q1 financial results. And afterwards, I will provide you an update on our drilling and exploration projects.

But first let me just say, you may have noticed in a basically a down market this week and certainly this morning that our stock's held its own. We're basically flat this morning in the face of the few energy companies that's holding our position which I think is an indication of what we're going to talk about this morning.

So with that, I will turn this over to Adam.

Adam Fenster

Thank you, Charlie, and good morning, everyone. Before we continue, I'd like to point out that all statements made during this conference call that are not statements of historical fact constitute forward-looking statements and are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

Actual results could vary materially from those contained in any forward-looking statements. The factors that could cause the actual results to differ materially from those in the forward-looking statements are described in our filings with the SEC, which include our reports on Forms 10-K and 10-Q, as well as in our press releases.

For the first quarter of 2014, we realized 2% increase in revenue from the sale of oil and gas as compared to the same period in 2013. Our first quarter revenue increased to $9.6 million in 2014 from $9.4 million in 2013. This was a result of an increase of 11% in our net realized natural gas prices offset in part by a decrease of 8% in our production volumes. On an Mcfe basis, we realized a net average price of $4.34 in 2014 as compared to $3.92 in 2013.

Our Q1 2014 production volume was 2.2 Bcfe as compared with 2.4 Bcfe in 2013. On a sequential quarterly basis, our Q1 2014 production volume was flat versus Q4 of 2013.

Our first quarter 2014 net loss was $5.3 million as compared to a loss of $6.1 million for the same period in 2013. For the quarter, we reported clean earnings of $3.5 million, which represents a 3% increase over the prior year. For a definition of clean earnings and a reconciliation of GAAP net loss to clean earnings please refer to this morning's press release.

With that, I will turn the call back over to Charlie to provide an update on our drilling and exploration activities.

Charlie Chambers

Thank you, Adam, for that update. The company recruited me base on my experience with gas acquisitions. And just to be real clear, we are natural gas company and we will continue to be. And so I had experience with Rosetta Resources and prior to that with Calpine. So my career basically has been to acquire, develop and initiate growth in natural gas properties and production throughout North America. And today, we are actively seeking acquisition opportunities and the relating financing to support that.

As far as providing operational updates, during the first quarter, our concern, I would like to begin with our Atlantic Rim acreage where drilling activities are primarily occurring in the Spyglass Hill unit.

In 2013, we participated in 27 wells in this unit and while we haven’t seen an increase in production from these well or resources, the operator in the Spyglass unit has previously announced plans to improve dewatering systems and add additional injection wells on 2014. So we expect to see an increase in production from this well very soon.

Warren has also previously announced 48 wells to be drilled in 2014 at the Spyglass Hill unit which will satisfy the units drilling requirements through 2015.

So based on our discussions with Warren, we are going to be participating in all 48 wells and are expecting our working interest to range from 10% to 20% depending upon the specific leases drilled. We understand that drilling is planned to begin this quarter.

As far as our undeveloped acreage is concerned, we are seeing some very positive activity in and around some of our significant lease holdings.

Updating what has been happening in our Huntington Valley acreage in Elko County, Nevada, Noble Energy has formed a federal exploratory unit, which is named the Desert Moon Unit, which includes 3,900 net and 20,000 gross acres of ours. Noble has identified three test well sites, all of which are planned to be drilled this year. And they are currently awaiting site approval of the unit from the BLM.

And in the Washakie Basin some of our Niobrara acreage in Carbon County, Wyoming, three Niobrara horizontal wells are planned to be drilled this summer by GRMR Oil and Gas, which is an affiliate of East Resources, and as you may know, seismic has been previously shot.

Also, we have over 40,000 net acres in the Washakie Basin, an activity focusing on the Niobrara formation continues to increase to the south of us. Southwestern Energy Company recently announced this acquisition of over 300,000 net acres from Shell in Quicksilver in Northwest Colorado with a focus on the Niobrara formation. Southwestern expects to be drilling their wells in June.

So we continue to monitor lease and drilling activity in and around our Niobrara acreage to determine the best use of our acreage.

And finally, I just like to reiterate how excited I am to be at Escalera. We have significant initiatives moving forward that we will provide value to the this company and would be announcing in the near future.

With that, I am going to turn it back to questions and answers please.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). We start with our first question from Joel Musante, Euro Pacific.

Joel Musante - Euro Pacific

Good morning guys.

Charlie Chambers

Good morning, Joe.

Joel Musante - Euro Pacific

With your background in the gas markets and it looks like you're really going to pushing the international gas market, and I just wanted to see if you can talk about some of the projects you're looking at in that arena?

Charlie Chambers

Well, I could tell you some of that, Joe. As you and I have discussed independently before we've got significant undeveloped acreage. And most of our acreages held by production which means that as prices improved, economics improve, we plan to initiate capital spending to support that. So I guess the premise of that is we are somewhat of a contrarian in this gas market and we are being aggressive in the gas market. We think its excellent time to normally develop our own organic reserves but to purchase gas reserves in areas where we have expertise and a lot of capability and knowledge. So we will continue that initiative. That's what I have done historically, of recent times with Rosetta and Calpine, and we build significant gas portfolios with both those companies. We can continue to look for ways for Escalera to assume that same role.

Operator

Our next question comes from Bill Ritchie with Moloney Securities.

Charlie Chambers

Good morning, Bill.

Bill Ritchie - Moloney Securities

Good morning, Charlie. First of all, I would like to welcome you and your new board members and so forth to the company. As a long time shareholder and investment professional I certainly look forward to your initiatives.

Charlie Chambers

Thank you.

Bill Ritchie - Moloney Securities

Your first announced was in regard to Albania and I was wondering if there is any way you could provide additional color to what it is you are doing there? It's a little far flung from what the shareholders Double Eagle have been used to in the past. So I would love to hear what you have to say about that and any other international operations that you might be able to speak about. So with that, I will let you go ahead there.

Charlie Chambers

Thanks, Bill. It's actually a great question. Just to start off, again, we are a domestic natural gas company and that's our primary focus and will continue to be. Prior to joining Escalera April 1, I had worked on significant initiatives internationally including Albania and Turkey and some other areas. And this company will be opportunistic. And so that if there are ways for us to pursue opportunities elsewhere, we will certainly look at those. We don’t expect and we certainly won't take on initiatives that provide risk to this company or debt to this balance sheet or any of that sort of thing. We are looking at project financing opportunities in Albania and elsewhere, and we will not commit this company to any political, environmental, economic or any type of risks.

Specifically, the Albanian project is very interesting. As you may know, there is a tremendous initiative in companies west of Azerbaijan to Turkey, Greece, Romania into Italy that are dependent on Russia for their gas supply. And there has been a huge pipeline propose that's actually begun construction call to TANAP pipeline, T-A-N-A-P, that goes from Baku in Azerbaijan all the way to Italy that provides an alternative gas supply to all these countries, as an alternative to Russia and Iran.

Currently, most of these take two-thirds of their gas from Russia. And everybody seen the news with the Ukraine, Crimea and all the issues that are taking place over there and are desperate to find alternatives to a gas supplier which almost all of these countries import natural gas. So we're going to take a look at it. We're going to see how this plays out.

Again, we're not going to put this company at risk, but we are going to be opportunistic. And if something presents itself that makes sense in Albania or any of those other countries that is supported by this gas initiative and these pipelines that are being constructed and approved today, then we'll take a look at it.

Operator

(Operator Instructions). Our next question comes from Tom Sedar (inaudible).

Unidentified Analyst

Good morning. Very good presentation. I have follow-up question on Albania. You mentioned that you'll be relying on project financing. So I'd suggest more developmental drilling activity than wildcatting. Is that a correct assumption on my part or could you give a little flavor as to the risk profile that you see in Albania?

Charlie Chambers

Tom, thank you. We have got a MoU signed in Albania to look at a facility that which processes natural gas and liquids. And we're in current discussions with Shell who has got a major discovery in Albania they've announced offsetting on our site that's been approved just right outside of Tirana, Albania, just in (inaudible) a little bit. And they've discovered natural gas and oil.

There are very refineries in the area. ExxonMobil has a large one is Greece south of this Albania location. And if there is a way for us to capture those products coming from Shell or this TANAP pipeline that is being built, constructed right through the area where we have a site, then we'll take a look at it.

This company will not be drillings wells in that part of the world; where we will domestically, but we're not going to spend capital whether its development or exploratory in those countries. We will partner with significant companies such as ExxonMobil and Shell and some other major companies that we're talking with today, and where we can provide expertise and ability to take gas and oil products and create value, then, those properties and initiatives we will pursue.

Operator

All right, at this time, we have no questions waiting.

Charlie Chambers

Okay, well, no other questions. Thank you everyone for --

Operator

Let me stop you for just a moment. I apologize for the interruption. We have another question with Bill Ritchie with Moloney Securities.

Bill Ritchie - Moloney Securities

Thank you, Charlie. Just a quick question regard to the individual who heads up your Albanian operation there. I'm not sure about his pronunciation, Icsel, is it?

Charlie Chambers

Yes, Eric. Dr. Eric Icsel.

Bill Ritchie - Moloney Securities

Yes, sir. I was wondering if you would be able to expand upon his background and how he fits in.

Charlie Chambers

You bet. First of all, he is T-sip[ph] graduated from University of Texas, he's an engineer. He was born in Turkey, but he's an American citizen. He actually lives in The Woodlands in Houston, Texas and office is in our Houston office, actually our new Executive Headquarters in Houston. And he's got a tremendous background politically and economically and within the energy arena in Europe. And very critical, I've actually been working with him for a year and half and made nine trips to Turkey and Albania and parts over there to explore these possibilities. And lo and behold, the platform of Escalera presented itself and it seemed to be a good area to potentially build something over there with all the caveats I mentioned before. But Eric's background, he speaks I think five languages including Turkish. And he's been very beneficial in our trips over there with introductions politically.

Also, I mentioned one of our new board members Neil Bush who has travel with me and Eric two times to Turkey and other areas in that region to advance some of these initiatives. And if we're fortunate to have some of these things come forward, Eric will be a big part of making those happen.

Operator

All right, at this time, we have no questions waiting.

Charlie Chambers

Okay, thank you all. Thanks everyone and appreciate the time you spent. We'll be in touch soon.

Operator

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

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