Erin Energy Corp ERINQ

Nov 11th / Earnings Call Transcript

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Conference Call Transcript

11:00 AM ET November 11, 2014

Company Participants

Kase Lawal, Chairman and CEO
Earl McNiel, SVP and CFO
Chris Heath, Director, Corporate Finance and Investor Relations

Operator

Third Quarter 2014

Good day, ladies and gentlemen, and welcome to the 2014 Third Quarter Earnings conference call for CAMAC Energy. My name is Emily, and I will 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 call over to Chris Heath, Director of Corporate Finance and Investor Relations.

Chris Heath

Thank you, Emily. Welcome to CAMAC Energy’s 2014 Third Quarter Earnings Conference call. 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 Chairman and Chief Executive Officer, Kase Lawal, and our Chief Financial Officer, Earl McNiel will take you through the quarter’s key business and financial highlights. Other members of the management team will also be available to answer questions during the Q&A session following the prepared remarks.

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 our Chairman and CEO, Kase Lawal.

Corporate Finance and Investor Relations

CAMAC Energy Inc.
1330 Post Oak Blvd., Suite 2250 Houston, TX 77056 www.camacenergy.com

Kase Lawal

Good morning, ladies and gentlemen. Hopefully you’ve had a chance to review our press release by now. Earl will take you through the key financial data shortly. During the third quarter we made good progress on the work program of our projects. In Nigeria, progress has been made towards bringing on production of the two high impact development wells in the Oyo field, Oyo-7 and Oyo-8. We commenced and have since completed the Oyo field expansion project, which included the installation and testing of the umbilicals and flowlines on Oyo number 7 and Oyo number 8 and would allow for the wells to be connected to the FPSO.

The Energy Searcher drillship is in the process of plugging and abandoning the Oyo number 5 and Oyo number 6 wells, and will then move to the Oyo number 8 to complete the well horizontally. In addition to the work on Oyo number 7 and Oyo number 8 wells, we closed $100 million credit facility that provides funding for further expansion and development of OMLs 120 and 121.

We also continued our efforts of high grading our portfolio and made significant progress in maturing our prospect inventory. We increased P-50 recoverable resources by nearly fivefold on four top priority drill- ready prospects. We plan to drill the first of these four high impact exploration wells, which would target the highly prolific Miocene formation immediately following the commencement of production from Oyo number 7 and Oyo number 8. And we have engaged Stellar Energy Advisors out of London to actively market these four exploration wells to potential farm-in partners.

The cash flows from Oyo number 7 and Oyo number 8 will help fund future development and exploration efforts, and the success of any one of our Miocene exploration prospects would exponentially increase the size of our reserves and resources and enable us to continue our significant growth.

In Ghana, we are continuing our work with DeGolyer and MacNaughton to determine the economic viability of developing the three previously discovered oil fields. We are reviewing the existing 3D seismic and well logs, and looking forward to announcing the result of this evaluation very shortly.

We continue to make solid progress in Kenya and prospects are currently being matured in both our onshore and offshore blocks. During the quarter, we awarded a contract for the acquisition of 2D seismic surveys on our onshore Kenya blocks. The seismic work has commenced and the acquisition is expected to be completed in both blocks during the first quarter 2015. At that point, we will have completed 2D seismic acquisitions covering both offshore and the two onshore blocks in Kenya.

In offshore Kenya, blocks L27 and L28, the 2D seismic we acquired in March of this year, has been

processed and is now being reviewed by our technical team. Plans are to next acquire 3D seismic over the most promising areas.

In Gambia, we are currently processing the 2D seismic and are very encouraged by the recent offshore Senegal oil discovery just north of our two blocks in Gambia. After we process the 2D seismic, we intend to conduct a regional geological study, followed by a 3D seismic survey.

Our CFO, Earl McNiel, will now discuss the company’s financial results. Please go ahead, Earl.

Earl McNiel

Thank you, Kase. For the third quarter, CAMAC Energy reported a net loss of $42.2 million or $0.03 per basic and diluted share. Revenues were $19 million, or $100.85 per barrel and average production was 800 barrels of oil per day, net of royalties. Our liquidity position remains strong. At September 30, we had $54 million cash on hand, and an additional aggregate of nearly $65 million available under our credit facilities.

During the quarter, we closed on a senior secured term loan providing initial capacity of up to $100 million. At September 30th, we had $50 million outstanding under the new facility, which has a five year term.

Our near term capital program is centered around completing and hooking up the Oyo-7 and Oyo-8 wells. We look forward to the increased production, revenues, and substantial free cash flow that these two wells will generate. We will also look to implement a hedging program to lock in our profit margins and give us predictable cash flows to drive our continued growth.

The company’s institutional ownership is improving and we now have three equity research analysts following our stock with more to come soon.

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

Kase Lawal

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

Management remains bullish about the long-term outlook for the company and we believe we have the strategy, the high-class assets and intellectual capital to deliver the growth that will create value for our shareholders.

We will now open the lines for questions. Operator?

QUESTIONS AND ANSWERS

Operator

Thank you. We will now begin the question and answer session. To ask a question, you may press * then 1 on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press * and then 2. Again, it’s * then 1 to ask a question, and at this time we’ll pause momentarily to assemble our roster.

Our first question is from Peter Hitchens of RSBC. Please go ahead.

Peter Hitchens, HSBC

I am not sure which company I’m supposed to be from, it’s HSBC here. I was just wondering whether you could just elaborate on Gambia, the impact of Cairn’s discoveries on your acreage please.

Kase Lawal

Yes, thanks. That is something that is very significant event that has happened over the last two months,

and as you’ve read over the last two days, last Friday, the second well was completed and it ended up in a discovery. Now, the significant impact this has on our block is really tremendous, because it sits just on top of our block and it established a viable petroleum system. So for us, and for our location in Gambia, it’s very significant.

Our management is looking at actually accelerating the 3D seismic prior to the time that we have announced before. So we will be announcing this very shortly. There are some vessels in the area and we are going to accelerate the program in Gambia.

Peter Hitchens, HSBC

Okay, thank you.

Operator

Our next question is from Yi Chen of Aegis Capital. Please go ahead.

Yi Chen, Aegis Capital

Hi, thank you for taking my question. My question is, with the recent oil price trends, what’s your expectation for the oil price you sell at going forward?

Earl McNiel

Thanks Yi. Yes, well, we sell at a slight premium to North Sea Brent. We do sell a very light sweet crude out of the Oyo field. So we will see our sales price go down or up as Brent goes up or down. Thank you for not asking me to predict which direction oil prices are going to go. We don’t know, but we feel good about our operations and our planned activity levels at today’s oil prices.

Yi Chen, Aegis Capital

Okay, thank you.

Operator

Our next question is from Anthony Gullo, a private investor. Please go ahead.

Anthony Gullo

Good morning, gentlemen. Thank you for the continued progress that has been made. I have just a couple of softball questions here. How confident is the company in meeting the deadlines for the projected timeline for Oyo-8 and number 7 as far as drilling; and also, do we have a realistic timeline for the discovery wells in the Miocene area? When can we anticipate we’ll have some drilling activity there? Thank you.

Kase Lawal

Thank you very much, Anthony. As we have announced recently due to the problems we had with the rig and the BOP, obviously we had a little delay in our operation and the installation process. But the progress we made recently makes us to believe that we are going to be meeting the completion of 7 and 8 together and bringing both of them together in the first quarter. And I believe we have actually informed that by January ending we will be coming up with well number 8. So, we are on target. Just like any construction, the situation with the rig was fixed, but we have lost some time in terms of the downtime that we had with the rig. So, that is something that we are working on 24/7.

The team is very busy and everything is proceeding based on what we recently released in terms of our press statement. In terms of the exploration well, as you can tell from the press release that was announced about five weeks ago, we are extremely bullish on that. The process of farming out has commenced. We are receiving very, very strong interest from industry players and financial services investors. This is something that we believe and as we have announced, we will be drilling in the first half of 2015, and based on the investor response, we expect to drill another well in the second half of 2015; but certainly we are going to drill the high impact exploration well in Miocene in the first half of 2015.

Operator

As a reminder, if you’d like to ask a question, please press * and then 1 at this time. Our next question is James Carmichael of Peel Hunt. Please go ahead.

James Carmichael, Peel Hunt

Hi, good morning, guys. I’m just looking at next year’s capex program and given that sort of around $50 million cash and $50 million hedging on the debt, I was just wondering if that is going to be sufficient to fund the plans going forward and if perhaps maybe just if you’ve got any plans to farm down some of the high equity interest you’ve got?

Earl McNiel

Right, that’s a great question. We’re confident that the liquidity position we have today is sufficient for us to bring these next two wells on, well 7 and well 8, and we expect cash flow from those two wells to approach—if we achieve our production levels of 14,000 per day, we generate free cash flow of nearly $200 million next year and that would be sufficient for us to drill at least one exploration well in the first half of the year, one development well to increase production further in the second half of the year. What we do beyond that will depend upon capital availability.

James Carmichael, Peel Hunt

Great, thanks. And, are you still looking at the equity position you’ve got in the licenses? You’re around 100% in most of them, and so are you looking to bring in partners?

Kase Lawal

Most definitely so, we are actually busy, right now we are very active in terms of the farminee process that we are going through. Stellar Energy Advisors of UK is undertaking this. They are leading the process and in the interest we have received over the last two weeks since this commenced, it’s really been tremendous. And it’s cut across the value chain in this industry in terms of the large, independents and large players in the oil and gas space. So, we are extremely encouraged. Obviously, the prospectivity of our exploration assets has attracted this kind of response that we are getting. So, we are getting weekly reports from Stellar Energy Advisors and the results have been outstanding to-date.

James Carmichael, Peel Hunt

Great, thanks very much.

Kase Lawal

Thank you.