Warren Resources, Inc. Q2 2010 Earnings Call Transcript

Warren Resources, Inc. Q2 2010 Earnings Call Transcript
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Warren Resources, Inc. (WRES)

Q2 2010 Earnings Call

August 04, 2010 10:00 a.m. ET

Executives

Norman Swanton - President & CEO

Tim Larkin - EVP & CFO

Ken Gobble - President & COO

Analysts

Leo Mariani - RBC Capital Markets

Walter Morris - Barbow Growth

Joel Musante - C.K. Cooper

Presentation

Operator

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Previous Statements by WRES
» Warren Resources Inc. Q1 2010 Earnings Call Transcript
» Warren Resources, Inc. Q4 2009 Earnings Call Transcript
» Warren Resources Inc., Q3 2009 Earnings Call Transcript

Good day ladies and gentlemen and welcome to the Second Quarter 2010 Warren Resources Inc. Earnings Conference Call. My name is Yvette and I will be your operator for today, (Operator Instructions).

I would now like to turn the call over to Mr. Norman Swanton, Chairman & CEO of Warren Resources. Please proceed sir.

Norman Swanton

Thank you, welcome ladies and gentlemen to Warren Resources, second quarter 2010 financial and operating results conference call. I'm pleased to be here with Tim Larkin, our Executive Vice President, CFO and Kenneth Gobble, our COO and President Warren E&P is also joining us to disuse our operating results.

Before I turn the microphone over to Tim, to cove the financial results and Ken, to discuss our operating results I would like to briefly review some second quarter 2010 highlights.

During the second quarter of 2010, oil and gas production hit a record 2.6 Bcfe and revenue increased 38% to 21 million compared to the second quarter of 2009. Our net earnings per share were 8.6 million for the quarter or $0.12 per diluted share. Compared to a net loss of 9.2 million for the second quarter of 2009 or $0.16 per diluted share, representing a $0.28 per share positive swing in earnings.

I'm very pleased that we resumed drilling during the second quarter in out California Wilmington Townlot Unit, or WTU and completed our seventh new Tar formation well. The seven new tar wells are currently averaging 99 barrels of oil per day or 695 barrels of oil per day in the aggregate.

In early July, we also filled our first J sand sinusoidal Upper Terminal well in the WTU, which had initial production of approximately 225 barrels per day and it's currently producing at a rate of 180 barrels of oil per day.

We competed our second sinusoidal Upper Terminal well in the HX sand last week and the preliminary results are encouraging. Although our sinusoidal upward terminal drilling program is in the concept phase, our California geological staff has identified 60 to 80 potential sinusoidal Upper Terminal producer well locations in the WTU.

Based on these strong drilling and production results, we have increased our 2010 capital expenditure program by 7.5 million and we'll be accelerating our drilling in Wilmington. We are planning to drill an additional four WTU wells during the fourth quarter of 2010, including two additional Upper Terminal sinusoidal wells, one more tar formation well and out WTU sinusoidal ranger formation well.

Suddenly, even though we have not drilled any new wells in 2010 in our Atlantic Rim coalbed methane project in Wyoming, our frac program and well optimization increased our natural gas production by 25% to a record 1.2 billion cubic feet of cash equivalent compared to 0.9 Bcf in the second quarter 2009. We believe we are now fully back on track. To demonstrate a huge potential untapped -- or this huge untapped potential of our reserves in the Wilmington Field units in California.

The natural gas reserves and the large Atlantic rim Coalbed Methane Project in Wyoming and then emerging perspective Niobrara play below of the base of the Mesa Verde in the Atlantic Rim project. As I have stated repeatedly, I believe the strong operating results such as those achieved in the second quarter of 2010, are the true driver of future shareholders value it is through sales results that we were attract, interest from the investment community.

I continue to believe that our long-term outlook has never been better. We will continue to build environmentally sound foundation to deliver strong growth in domestic production, reserves and profitability for the years ahead in all of our core U.S. drilling areas. With that overview, I will turn the call over to Tim Larkin, our CFO. Tim?

Tim Larkin

Thanks Norman. Before I discussed the company's second quarter 2010 financial results release earlier today, I'd like to remind everyone that all statements made during our conference call that are not statements of historical fact constitute forward-looking statements and are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.

Actual results could vary materially from those contained in the forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements are described in our Form 10-K and 10-Q, other periodic filings of the SEC and our press releases.

During the second quarter, our cash flow from operations continue to improve our balance sheet and liquidity position, also as Norman mentioned, we placed seven oil wells and Upper Terminal Sinusoidal Well on production since we re-commenced our drilling program in April this year.

Results have been encouraging. As of June 30, 2010, current asset succeeded current liabilities by more than $7 million and after paying down another $2.5 million of debt during the second quarter, we now have $37.5 million available under our senior credit facility. We've now paid down $32.5 million of debt during the last nine months. Actually, even though we're increasing our capital expenditure budget, primarily to drill six additional wells in California and to require additional working interest in our Atlantic Rim project, we expect to fully fund our 2010 capital expenditures with cash flow from operations.

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