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Petrohawk Energy (HK)

Q4 2010 Earnings Call

February 22, 2011 10:30 am ET

Executives

Unknown Speaker -

Floyd Wilson - Chairman and Chief Executive Officer

Richard Stoneburner - Founder, President and Chief Operating Officer

Mark Mize - Chief Financial Officer, Executive Vice President and Treasurer

Analysts

Michael Hall

Dan McSpirit - BMO Capital Markets U.S.

Leo Mariani - RBC Capital Markets, LLC

Ronald Mills - Johnson Rice & Company, L.L.C.

Brian Corales - Howard Weil Incorporated

David Heikkinen - Tudor, Pickering, Holt & Co. Securities, Inc.

Eric Hagen - Lazard Capital Markets LLC

TheStreet Recommends

Gil Yang - BofA Merrill Lynch

Marshall Carver - Capital One Southcoast, Inc.

John Nelson - Macquarie Research

Jason Wangler - SunTrust Robinson Humphrey Capital Markets

Presentation

Operator

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Previous Statements by HK
» Petrohawk Energy CEO Discusses Q3 2010 Results - Earnings Call Transcript
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» Petrohawk Energy Q1 2010 Earnings Call Transcript

Good day, and welcome to the Petrohawk Energy Corporation Fourth Quarter Earnings Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Floyd Wilson. Please go ahead, sir.

Floyd Wilson

Good morning, everyone, and welcome.

This conference call may contain forward-looking statements intended to be covered by the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. For a detailed description of our disclaimer, see our press release issued today and posted to our website, as well as in our other public filings.

On February 1, we published a detailed 2010 operational update, as well as our year-end reserves. Today, we'll discuss our fourth quarter and full year 2010 financial results and focus on the financial health of the company. And we'll mentioned briefly our new frac technology which we have employed in the Eagle Ford with spectacular early results.

Last year, we added $1 billion of book value to our balance sheet in helping our core assets in the Eagle Ford and we added reserves. There was nothing virtual about what we did last year. We raised $2.1 billion through divestitures, issued no equity, did no upstream joint ventures and refinanced a significant portion of our long-term debt at attractive rates. The end of our Haynesville and Bossier lease capture phase is at hand, and we will have discretion over our capital budget for the first time since 2008. This is a great feeling. The assets that we've captured are extremely valuable, long lives and have exciting future growth potential.

One component of that potential is our cost structure that improved dramatically in most categories during last year, as Mark will describe. Keep in mind that both the Haynesville and Eagle Ford are young. There are so young that we haven't yet embarked on the most promising operational efficiencies, full-scale development in pad drilling. Our cost structure is moving in the right direction, and we focused on cash cost. It is clear to me that in these plays and operationally speaking, the best is yet to come.

Again, we described one very important development today in our press release, the HiWAY Frac, and we have placed several slides on our website under Presentations titled HiWAY Frac Results. These are very interesting slides, I'd encourage you to take a look. Incidentally, NAVs for each of our core positions, the Haynesville/Bossier and Eagle Ford, in my opinion, have a greater value than where the market trade Petrohawk today. We really do look forward to the future.

Our debt to capitalization is at a comfortable 43%, about worse it has been for a long time. Today, we are highlighting the ratio of debt-to-proved reserves. Our debt to prove at year end was $0.78 per Mcfe, quite a change from the last few years. And we have arrived at this point without any more leverage. We've kept our two great plays intact, and we have additional options in our midstream and conventional properties for divestiture. This all feels pretty good.

We have successfully positioned the Eagle Ford to provide an immediate boost to cash flow from condensate and NGLs. While we have a positive view of natural gas, I believe it to be a realistic view. We aren't expecting the high prices of the past decade nor are we expecting to have sub-$4 gas forever. Our view is long-term as our assets. Our hedging program provides us the right amount of insurance for both oil and gas. You'll notice our hedged oil volumes for 2012 are nearly double the amount hedged in 2011. This speaks to our liquids growth. We have options going forward as to where we'll invest capital, and our hedging program supports this.

Finally, we value liquidity. We ended 2010 with about $1.4 billion liquidity followed by the sale of our Fayetteville midstream in January. Our bank revolver of a total of $1.55 billion will be utilized as we focus on reaching of our goal to be cash flow positive from operations. We have the right assets to make that happen, and we've been prudent with our finances. We look forward to many years of economic growth.

I'll turn the call over to Mark now.

Mark Mize

Thank you, Floyd. We'll just jump right into the financial results.

Revenue for the fourth quarter were $402 million and approximately $1.6 billion for the full year of 2010. This does represent about a 50% increase over prior year. Cash flow from operations before changes in working capital were $0.70 per share for the quarter, which does beat consensus of $0.66, and Petrohawk delivered cash flow per share of $2.47 for 2010. Our continued strong operational results as reflected by the production rate, underpinned by the hedge program, were the primary factors contributing to the strong cash flow per share metrics despite the low natural gas environment.

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