Warren Resources' CEO Discusses Q4 2011 Results - Earnings Call Transcript

Warren Resources Inc. ( WRES)

Q4 2011 Earnings Results Conference

March 6, 2012 10:00 am ET


Norman Swanton – Chairman and CEO

Timothy Larkin – EVP and CFO

Stephen Heiter – CEO, Warren E&P, Inc

Ronald Morin – EVP, Warren E&P, Inc


Leo Mariani – RBC Capital Markets

Phillip Jungwirth - BMO Capital Markets

John Lowe - Sidoti & Company

Raymond Deacon - Brean Murray, Carret & Co

Jack Aydin - Keybanc Capital Markets



Good ladies and gentlemen and welcome to the Fourth Quarter 2011 and Full-Year Warren Resources Earnings Conference Call. My name is Jasmine and I’ll be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s conference. (Operator Instructions). As a reminder this conference is being recorded for replay purposes.

I’d now like to turn the presentation over to our host for today, to Mr. Norman Swanton, Chairman and CEO. You may proceed, sir.

Norman Swanton

Thank you. Good morning, everyone. Thank you for joining us for our Warren Resources fourth quarter and full-year 2011 financial and operating results conference call. We are conducting the conference call this morning from our Long Beach California Operations Headquarters.

With me is Steve Heiter, and Ron Morin, our CEO and Executive Vice President respectively of our principal subsidiary, Warren E&P, in California and Tim Larkin, our Executive Vice President and CFO. He is joining us from our New York City Office.

Before I turn the microphone over to Tim, to cover the financial results and Steve to discuss our oil and gas operations, I’d like to briefly comment on our performance for 2011 and the future direction of the company.

As you will hear in more detail from Steve and Tim, we had an excellent operational financial year in 2011. First of all, we are in a strong financial position, thanks to our continued drilling success in California. As a result of drilling 17 new oil wells in California, our proved oil reserves increased by 46% during 2011 to 15 million barrels of oil. Assuming $80 per barrel average realized oil prices in California, although current Midway Sunset pricing is out in $10 a barrel, we anticipate that the 9 Tar formation wells drilled in 2011 will achieve payout in approximately one-year.

The nine first ever Ranger and Upper Terminal formation sinusoidal wells drilled in 2011 and to in 2010 should payout in one to two years. Estimate ultimate recoveries of 100,000 to 200,000 barrels of oil per well are expected.

Importantly, we gained essential knowledge to advance the Ranger and Upper Terminal oil reservoirs concept stage to full field development. As a result of the success of the 2011 drilling program, Warren exited 2011 and over 33,300 barrels of oil gross at the Wilmington Townlot Units. With an additional – and with additional 2012 drilling of producers and water injectors, should allow for significant increased production and reserves in future years.

While growing our oil production and reserves at the WTU and NWU are our top priority, we are now in a position to consider attractive acquisitions in basins where we can execute on our advanced horizontal drilling expertise and profitably grow more oil production and oil reserves.

We had water injection permitting challenges in 2011, but we rose to the task and most of those issues are now behind us. Additionally, to protect 2012 cash flow we have in place $90 Brent Crude Puts covering 449,950 barrels and $70 NYMEX Puts covering 275,000 barrels for the remaining of 2012. We continue to believe that our long-term outlook has never looked better.

With that overview, I’ll turn the call over to Tim Larkin, our CFO. Tim?

Timothy Larkin

Thanks, Norman. Before I discuss the company’s financial results released 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 Forms 10-K and 10-Q, other periodic filings with the SEC and our press releases.

As Norman mentioned, we continued to make progress during the fourth quarter and we’re excited about 2012. Our cash flow from operations continues to be solid and we’re on a strong liquidity position. As of December 31, 2011 we had $40.5 million available under our senior credit facility. After year-end we drew down an additional $10 million during February 2012.

Today we reported net income of $3 million for the quarter, or $0.04 per diluted share and adjusted net income of $6 million, excluding losses from hedging activities of $3 million. Additionally during the quarter, we generated $14.6 million of cash flow from operations, also our oil and gas production was 463,000 barrels of oil equivalent for the quarter or 5,000 barrels of oil equivalent per day.

Production from our two oil fields in California totaled 247,000 net barrels during the fourth quarter. A 3% increase from the 240,000 net barrels produced during the same period in 2010. Additionally, natural gas production primarily from our Atlantic Rim project in Wyoming was strong and overall natural gas production increased 11% to 1.3 billion cubic feet during the fourth quarter compared to 1.17 billion cubic feet during 2010.

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