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Delta Petroleum (DPTR)

Q4 2010 Earnings Call

March 17, 2011 12:00 pm ET


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Kevin Nanke - Chief Financial Officer, Treasurer, Chief Financial Officer of DHS Drilling Company, Treasurer of DHS Drilling Company and Director of DHS Drilling Company

Daniel Taylor - Chairman, Member of Audit Committee and Member of Nominating & Governance Committee

Carl Lakey - Chief Executive Officer and Director

Broc Richardson - Vice President of Corporate Development & Investor Relations


Evan Templeton - Jefferies Co

Joseph Magner - Macquarie Research

Jeff Davies - Waterstone Capital

Gregg Brody - JP Morgan

Michael Martino

Andrew Shapiro - Lawndale



Hello, and welcome to the Delta Petroleum Year-End 2010 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Broc Richardson. Please go ahead.

Broc Richardson

Thanks, Amy. Good morning and thank you for joining us for Delta's Fourth Quarter and Year-End 2010 Financial and Operating Results Conference Call. Before we begin, I would like to remind you that we are conducting this call under Safe Harbor, and that this call will include projections and forward-looking statements within the meaning of the Federal Securities laws and are intended to be covered by the Safe Harbor protections. In that regard, you are referred to the cautionary statement displayed on Delta’s website, which is incorporated by reference with respect to the information provided for this call. Investors are urged to consider closely the oil and gas disclosures and the risk factors set forth in Delta’s Form 10-K for fiscal year ended December 31, 2010, as updated by subsequent periodic and current reports on Forms 10-Q and 8-K respectively.

Today's speakers from Delta are Dan Taylor, Chairman of the Board; Carl Lakey, President and Chief Executive Officer; and Kevin Nanke, Treasurer and Chief Financial Officer.

I will now turn the call over to our Chairman, Dan Taylor.

Daniel Taylor

Thanks, Broc. Good morning, everyone, and thank you for joining us today. On this call, management and I will not just discuss the fourth quarter and 2010 annual results, we will highlight the goals we set for Delta in 2010 and the accomplishments we achieved in the latter part of the year. We will also explain how we intend to carry these achievements forward in 2011 and what that means for our shareholders.

Contemporaneous with the appointment of Carl as our CEO in the summer of last year, the Board outlined several objectives to be achieved for the remainder of 2010. We communicated this to you in our prior conference calls. They were the simplification of our asset base through the sale of non-core assets, the reduction of operating and overhead cost, the improvement of Vega Area's per well reserves and economics and the obtaining of a new senior secured credit facility.

We achieved all of these objectives, and Carl and Kevin will take you through each of them. These accomplishments are noteworthy and of great value to Delta, particularly in the current gas price environment. Going into 2011, these operational improvements will have a very positive effect on Delta's direction, strategy and asset value. For this year, our objectives are to maintain the cost improvements we achieved in the fourth quarter, to quantify any additional reserve upside in the deeper zones of the Vega Area, to solidify our acreage position in the Vega Area, to maintain an operational focus on our core asset and to reduce our financial leverage and improve liquidity. The execution of these objectives will ensure that we realize our ultimate goal of continuing to improve our asset value in the current commodity price environment and creating value for our shareholders.

I'm sure many of you have heard or read the response of noteworthy CEOs of other E&P companies that have expressed their research, reviews and forecast of the North American natural gas market. While we generally share these predictions of the recovery of natural gas prices, we view it is our responsibility to help Delta prosper in the current natural gas market environment and not to simply survive until the recovery occurs. We have taken some meaningful concrete steps in that direction and will continue to do so in 2011.

Carl and the rest of the management team have shown the Board that they are fully capable of achieving the strategic objectives for 2011. The management team and the company have the full support and backing of its largest shareholder, Tracinda Corporation. We are anticipating a promising year in 2011.

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

Carl Lakey

Thank you, Dan. We certainly recognize and appreciate Tracinda's continued support of Delta. I also believe 2011 will be a promising and transformative year for the company. With regard to the objectives we achieved in 2010, I will first address the simplification of our asset base, which now consists of the Vega Area, of the Piceance Basin and interest in other fields, which are non-operated. This simplification allows us to retain a smaller workforce that is focused on one thing: the efficient management and operations of the Vega Area. An important element of this focus is the associated reduction in Delta's stand-alone cash G&A expense as evidenced by Q4 2010, which was 43% lower than the run rate in the first half of 2010.

We remain focused on managing our G&A expense, and we'll seek to implement further reductions in the future. Not only did we see significant reductions in our G&A expenses, but we also achieved meaningful 38% quarterly improvement in our lease operating expense in Q4, which is now at $1.09 per Mcfe for continuing operations. Much of this LOE savings is attributed to low production and water disposal cost. We had substantial completion activity in the fourth quarter, and were able to reuse our produced water and completions rather than having to pay for disposal. Going forward, we anticipate sustaining our water disposal costs at their decreased level even as completion activity decreases in the current quarter.

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