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

Executives

Christopher D. Heath - Director of Corporate Finance and Investor Relations

Kase Lukman Lawal - Founder, Executive Chairman, Chief Executive Officer and Director of CAMAC Energy Holdings Limited

Earl W. McNiel - Chief Financial Officer and Senior Vice President

Babatunde Omidele - Senior Vice President of Exploration & Production

Analysts

Pavel Molchanov - Raymond James & Associates, Inc., Research Division

Yi Chen - Aegis Capital Corporation, Research Division

CAMAC Energy (CAK) Q2 2014 Earnings Call August 12, 2014 11:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the Q2 2014 CAMAC Energy Earnings Conference Call. My name is Jamie, and I'll be your operator for today. As a reminder, today's call is being recorded for replay purposes.

At this time for opening remarks and introductions, I'd like to turn the conference call over to Chris Heath, Director of Corporate Finance and Investor Relations. Please proceed, sir.

Christopher D. Heath

Thank you, Jamie. Welcome to the 2014 Second Quarter Earnings Conference Call for CAMAC Energy. This call is being webcast, and a copy of the financial statements and news release associated with it, can be downloaded from the Investors section of our website at camacenergy.com. A replay will be available later today, and I will be available after the call for any follow-up questions you may have.

Our speakers today are Dr. Kase Lawal, Chairman and CEO; and Mr. Earl McNiel, Senior Vice President and CFO. Available for the Q&A session, we also have Segun Omidele, Senior Vice President of Exploration and Production.

Moving forward to our legal notice. This conference call will include forward-looking statements. The risks associated with forward-looking statements have been outlined in the earnings release and in the company's SEC filings, and we incorporate those by reference for this call.

I will now turn the conference over to Dr. Kase Lawal, Chairman and CEO.

Kase Lukman Lawal

Thank you, Chris. We are very pleased with CAMAC Energy's performance in the second quarter, particularly with progress made towards bringing on production of the 2 high-impact development wells in the Oyo Field, Oyo #7 and Oyo #8. Both of these wells have now been successfully drilled and are in the process of being completed horizontally. Both wells will come online soon. This represents a significant step forward for the project.

These wells in the Oyo Field will be connected to the FPSO, where oil is loaded on to tankers for shipping around the world. Production from these wells will make 2015 the most profitable year in our company's history, and will generate significant revenues, earnings and cash flow.

In addition to Oyo #7 and Oyo #8 commencing production soon, we also plan to drill our fourth exploration well next year, targeting the highly prolific Miocene formation in OML 120 and 121, as well as the additional development well in the Oyo Field.

Cash flows from Oyo #7 and Oyo #8 helped fund future exploration efforts. The success of any one of our Miocene exploration prospects exponentially increase the size of our reserves and resources, and enable us to continue our growth. Our outstanding safety and environmental track record offshore Nigeria also continues. We look forward to applying this experience to our further exploration and development efforts in Ghana, Kenya and Gambia.

In Ghana, we continue to work with the leading worldwide independent petroleum consulting firm, to determine within 9 months, economic viability of developing the 3 previously discovered oilfields. We are reviewing the existing 3D seismic and well logs, and look forward to announcing the results of this evaluation. If any of these 3 fields are determined to be commercially viable, we could be drilling in Ghana next year.

Another near-term catalyst is a progress we are making in Kenya. Prospects are currently being matured in both our onshore and offshore blocks. From our onshore blocks in Kenya, we have completed a gravity and magnetic survey, completed an environmental social impact assessment study, and are now preparing to shoot 2D seismic.

Our offshore blocks in Kenya are currently processing the 2D seismic data that were acquired in March. Preliminary indications are extremely positive, and we look forward to sharing these results. Plans are then to acquire the 3D seismic were the most promising area of our offshore blocks in Kenya.

In Gambia, we are currently processing the 2D seismic while keeping a close eye on the FAN-1 well being drilled off of Senegal, has spudded on April 17, just north of our 2 Blocks in Gambia. After we process the 2D seismic, we intended to conduct a regional geological study, followed by a 3D seismic study.

Our Chief Financial Officer, Earl McNiel, will now discuss the company's financial results. Please go ahead, Earl.

Earl W. McNiel

Thank you, Kase. For the second quarter, CAMAC Energy reported a net loss of $11.9 million or $0.01 per basic and diluted share. Revenues were $14.9 million or $110.40 per barrel, and average production was 1,600 barrels of oil per day, net of royalties. Our balance sheet remains strong, with positive working capital, including approximately $40 million of cash. Our capital program is centered around drilling, completing and hooking up the Oyo-7 and Oyo-8 wells. We look forward to the increased production and substantial free cash flow that these 2 wells will generate.

As production commences from these new wells, we will look at implementing a risk management program to mitigate oil and gas price uncertainty to protect our profit margins, and allow us to have predictable cash flows to drive our continued growth. The company's institutional ownership is improving and we are anticipating additional equity research analysts to initiate coverage soon.

I will now turn the call back over to Kase for closing remarks.

Kase Lukman Lawal

Thank you, Earl. Just a few points of emphasis in closing. First, we are very pleased with the strong performance of our operations and technical teams this quarter. And we expect the initial production results of Oyo #7 and Oyo #8 to significantly strengthen our organization.

[indiscernible] very strong in his views that the long-term outlook for the company remains secure, especially if we adhere to and execute on our strategic plan. I will now turn the call over to the operator for question and answers. Please open the lines for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Pavel Molchanov from Raymond James.

Pavel Molchanov - Raymond James & Associates, Inc., Research Division

I wanted to start off by asking -- this is probably not the most enjoyable topic, but of course, West Africa, is facing a public health crisis and I wanted to ask whether any of your operations have had any disruptions? And whether any of the health authorities have given you any instruction on movement of personnel or anything like that in Ghana or Nigeria?

Kase Lukman Lawal

Thank you, Pavel. And thank you for a continued interest from your organization/institution. We continue to monitor the situation, and I believe, that the information that's available to all of us, including yourself, is that the situation in those countries are not as concerning as the 3 countries that were known that have contracted the situation. We are doing our best to advise our staff and employees over there, both on the field and the various offices, to continue to adhere very strictly to the health ministry's guidelines and to take precautions as necessary, and to continue to work personal hygiene. I think those are the responsible ways that we can convey and communicate with our staff over there. In terms of the government themselves, in the 2 countries you mentioned, Ghana is not an issue because there's never been a case that has been announced. I believe Nigeria was announced because there was an individual that came into their country from Liberia and contracted this. We understand that, that is being contained. Everyone that has been in contact with that individual, based on all the public information that we've read, has been actually separated and been -- they've actually been contained and they've been isolated from the public completely. So we continue to advise our staff over there. We'll continue to do that and continue to keep them informed and advise them accordingly, in terms of what they should be doing for personal hygiene.

Pavel Molchanov - Raymond James & Associates, Inc., Research Division

Okay, I appreciate that. And then let me ask about the capital spending program. You spent $22 million in the first half of the year. What's the -- your expectation or target for spending in the second half? And any initial thoughts on the budget for next year?

Earl W. McNiel

Yes, our program for the balance of this year revolves around completing the #7 and #8 wells and bringing those onstream and there's some subsea work involved in doing that. And in the second half of the year, I think the capital requirement to do that is right around $100 million. We're currently formulating our plans for next year. We're not prepared to give that type of guidance out at this point. But operationally, we plan to bring on at least one more development well and begin drilling high-impact exploration wells in Nigeria.

Pavel Molchanov - Raymond James & Associates, Inc., Research Division

And just to clarify the $100 million, that's for this year as a whole? Or just the second half?

Earl W. McNiel

That's for second half, right.

Operator

Our next question comes from Yi Chen from Aegis Capital.

Yi Chen - Aegis Capital Corporation, Research Division

Could you update us on your current expectation as the time frame for production for both Oyo-8 and Oyo-7 and the relative production volume every year for each of them?

Babatunde Omidele

Yes, we're currently working on bringing in both wells, the Oyo-7 and Oyo 8, on to production by the end of this year. And in terms of production level, we're still -- we are also expecting to have the 2 wells put in 7,000 barrels each, which would make a total of 14,000 barrels per day at the end of the year.

Yi Chen - Aegis Capital Corporation, Research Division

Second question is, at what production volume do you expect the company to be profitable or cash flow neutral?

Earl W. McNiel

Well, we estimate that it takes about 2,000 barrels per day to cover our field level operating expenses and our free cash flow -- at today's oil prices with North Sea Brent in excess of $100 per barrel, we generate about close to $80 per barrel of free cash flow for every barrel above that 2,000-barrel-a-day operating cash flow breakeven rate. Now we do have -- there's our corporate G&A and some exploration expenses to cover, but at the field level, our operating costs are largely fixed, it's the cost of operating the FPSO, so as we approach that 14,000 barrels per day, that Segun just mentioned, we start to generate substantial free cash flow.

Operator

Our next question comes from Anthony Gullo [ph], who is a private investor.

Unknown Shareholder

My question is, given the proximity of our wells to a major oil company drilling being prepared, has there in fact been any overtures from some of the major companies, in terms of partnering? And have we made any initiative?

Kase Lukman Lawal

That's a very good question. In terms of our strategic objective, that has always been something that we look at and we look forward to. We always want to share risk. And as we continue to look at drilling our high-impact exploration well, we have actually narrowed that to 2 in terms of institution that are going to assist us in this farm out process, and we should be completing that process within the next couple of weeks or so. I think they're in the agreement state right now. So for us, we're always -- we've always had the objective of contacting and informing the larger institutions, that our neighbors, both to the West, East, North and South, in terms of the opportunity that we see in our high-impact Miocene project. Notwithstanding, we have done substantially more work. We have actually achieved substantial results in terms of the geological work and the original work that has been done by our technical people. And we believe, in not-too-distant a time, we will be announcing the results of these significant -- results that the geological team have actually uncovered, which is substantially more than what we have announced before. So we are very excited and we are going to vigorously pursue the farming in from both large independents and major oil corporations that are neighbors. But we have actually determined, and it is going to be part of our budget in 2015, that whether they come in on time or not, we are on schedule to drill this high-impact exploration wells that we believe will significantly change our organization. We believe this is what this organization is about. We believe very strongly in the work that has been done, and we are very focused in drilling it, with or without a farming in at the time that we needed to do the drilling of the exploration well.

Operator

[Operator Instructions] Our next question comes from Phil Powers [ph], who is also a private investor.

Unknown Shareholder

I'm not sure if this question -- I'm not sure how they can answer it with the forward-looking statements, but I do know that the reverse stock split was approved. And I'm just wondering if you guys could inform me what that would do for CAMAC as a company, and what it would do for the investors as people that contribute to the funds of the company?

Earl W. McNiel

Yes, sure. No, we're happy to take that question. At our shareholders meeting back in May, we did ask for and receive authorization from our shareholders to affect the reverse split. We have not done that. It's something we look at. There are pros and cons. We would like to attract more institutional ownership and more institutional analyst coverage, and we've received feedback that a higher stock price would be beneficial in those results. At the same time, we're sensitive about doing anything during a time period where the stock might be perceived as not being strong enough. So I would say, in some ways, it's another tool in our toolbox and we'll keep an eye on the stock and the performance of the stock, and evaluate if and when it may make sense to affect the reverse split.

Operator

And ladies and gentlemen, at this time, I'm showing no additional questions. I'd like to turn the conference call back over for any closing remarks.

Earl W. McNiel

Yes, sure. And I'll let Kase do the closing remarks. Just as a follow-up to the question we had from Pavel about our capital spending plans for the second half of the year, we plan to fund our capital spending program of approximately $100 million through a combination of cash flow generated from operations and from a credit facility. We had been working on a new bank-led credit facility for the company for the last couple of months, and we are currently in the documentation phase. We're working on completing documentation, and hope to be able to make an announcement very soon about the completion of that substantial financing.

Kase Lukman Lawal

Yes, thank you very much, Earl. I think that is something that a lot of you have been asking about and when we're going to be doing that, so it's really good news for us to know that this is going to be completed momentarily. Hopefully, by the end of this month.

In terms of what I said earlier, we reiterate what I said back in February, when we were talking about the end of 2013 results. The Miocene results are very encouraging, and I will reiterate that the results that have been developed, the information that is available to management at this time, makes us believe that this organization is on a significant growth path in terms of significant potential results -- reserve opportunity. And this is an area that I believe the shareholders need to continue to focus on. We are very focused on that. We believe we know in the near-term we have to deliver in terms of the production growth, in terms of increasing significantly our cash flow, that we will do as we exit this year, but we believe the most exciting story for our organization is the exploration objectives and the opportunities.

We will keep you posted. We thank you very much for your continued support and we look forward to maintaining the trust and the confidence that you have in our organization and management. Thank you very much for joining us this morning.

Operator

Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your telephone lines.

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: CAMAC Energy's (CAK) CEO Kase Lawal on Q2 2014 Results - Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts