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Bonanza Creek Energy Inc (NYSE:BCEI)
Q2 2019 Earnings Call
Aug 8, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, welcome to the Second Quarter 2019 Bonanza Creek Energy Incorporated Earnings Conference Call. [Operator Instructions]

I would now like to introduce your host for today's conference, Scott Landreth. Please go ahead.

Scott Landreth -- Senior Director, Finance and Investor Relations and Treasurer

Thanks, Chris. Good morning, everyone, and welcome to Bonanza Creek's second quarter 2019 earnings conference call and webcast. On the call this morning, I'm joined by Eric Greager, President and Chief Executive Officer; Brant DeMuth, Executive Vice President and Chief Financial Officer; and Dean Tinsley, Senior Vice President of Operations and Engineering. Yesterday we issued our earnings press release, posted a new investor presentation and filed our 10-Q with the SEC. All of which can be accessed on the Investor Relations section of our website.

Some of the slides in the August investor presentation will be referenced during our prepared remarks this morning. Please be aware that our remarks will include forward-looking statements that are subject to many risks and uncertainties that could cause actual results to differ materially. You should read our full disclosures regarding forward-looking statements contained in our 10-Q, 10-K and other SEC filings.

Also during this call, we will refer to certain non-GAAP financial measures because we believe they are good metrics to use in evaluating performance. Reconciliations of these measures to the most directly comparable GAAP measures are contained in our earnings release and investor presentation. We will start the call with prepared remarks and then move to Q&A.

Now it is my pleasure to introduce Eric Greager, President and CEO. Eric?

Eric T. Greager -- President and Chief Executive Officer

Thanks, Scott. Good morning, everyone, and thank you for joining us for our second quarter earnings call. The Bonanza Creek team delivered a strong second quarter with production increasing 18% over Q1, while reducing our unit cash costs excluding production taxes by 24%. We will keep our remarks brief in order to get to Q&A, but there are a few points from yesterday's earnings release and the operations update a few weeks ago that I want to highlight.

First, our average daily production for the quarter of 24,428 BOE per day was up 18% over Q1. This was higher than the mid single-digit growth we had suggested last quarter, primarily due to the wells coming online in Q4 of 2018 and Q1 of 2019 performing stronger for longer than forecasted. As a result of our production performance year-to-date, we are raising our annual production guidance to a midpoint of 23 MBoe per day and a range of 22 MBoe per day to 24 MBoe per day.

Consistent with our plan, we didn't turn any wells to sales during the second quarter, but we will bring 23 wells online during the third quarter because our production grew at a faster rate than we had planned to the first half of the year. We are now expecting production to be flat to slightly up for the remaining two quarters, which is simply a result of having already achieved 38% production growth over Q4, 2018.

On slide 11 of our IR presentation, you see the results from our Legacy East area, where additional production history on the Pronghorn B-28 Pad demonstrates results that continue to exceed our East XRL type curve. We've also added production results from the White Tail A-4 well to the same production plot on slide 11. We continue to be encouraged by the early results from this well that is tracking with the East XRL type curve.

On slide 10, we've added another 90 days of production for the I-21 pad. As a reminder, this pad tested both our contemporary high intensity completion designs and down spacing at 16 well per section density and we're encouraged that this pad continues to exceed our West type curve.

The team continues to find opportunities to low our cost as well with LOE per BOE down slightly from the first quarter to $2.87 per BOE. Year-to-date, we're tracking in the guidance range we revised downward after the first quarter. Cash G&A per BOE decreased 24% from $4.77 per BOE in the first quarter to $3.61 per BOE in the second quarter. We couldn't be more proud and encouraged by the focus our team places on safe and cost effective operations.

With that, I will turn the call back to the operator for Q&A.

Scott Landreth -- Senior Director, Finance and Investor Relations and Treasurer

Chris, can we go to Q&A please?

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Welles Fitzpatrick with SunTrust. Your line is now open.

Welles Fitzpatrick -- SunTrust Robinson Humphrey -- Analyst

Hey, good morning.

Eric T. Greager -- President and Chief Executive Officer

Good Morning, Welles.

Brant DeMuth -- Executive Vice President and Chief Financial Officer

Good Morning, Welles.

Welles Fitzpatrick -- SunTrust Robinson Humphrey -- Analyst

Can you talk a little bit about what you've seen in the market for acreage prices for mineral acres. I mean has it been relatively sticky like we've seen in the past or is the slowdown affecting that. I know you talked a little bit to, I'm sorry, I apologize busy day. Can you guys talk about the rates on -- the updated rates the GOR on the newly updated type curves that you put in the presentation?

Eric T. Greager -- President and Chief Executive Officer

Yeah, you bet. So, the GOR remains pretty consistent. We really haven't seen market changes to GOR other beyond the sort of the guidance in prior quarters and the performance we've seen in the past. It is a solution gas drive environment in DJ and we're in a little bit oiler rock and so a little lower thermal maturation, But like every place else as you put the wells on production, the GOR tends to rise a little over time. This is really the whole point for our enhanced recovery flow back as to ensure that we use each unit of solution gas drive energy to bring the oil out first and other than that we really haven't seen any anomalous behavior in terms of GOR. It's a little higher to the West and a little lower to the East. And that's pretty consistent with what you would expect. Well, does that kind of get out the question?

Welles Fitzpatrick -- SunTrust Robinson Humphrey -- Analyst

Yeah. That's perfect. And then on the Pronghorn, are you seeing obviously that hasn't turned over quite yet. It's been relatively flat. And we're almost at a year here. Are you seeing anything down-haul on the pressures that might indicate to you when that will start to turn?

Eric T. Greager -- President and Chief Executive Officer

Well, that's a great question, Welles. Thank you. And we're asking ourselves the same question and you're definitely starting to see it maybe closer to flat, but it is still slightly inclining. And what that tells us is there is still SRV, still stimulated reservoir volume that is logging into the well as compartments that have previously logged in have dropped in pressure as they're delivering their load recovery and then delivering some of their resource potential.

And we don't know where that SRV ends necessarily. There are markers that we're watching. E&P companies like us will watch that the quality of the flow back water. You look for chloride signatures and other geo-chemical signatures to try to indicate that you may be seeing the full extents of the SRV.

And at this point, we aren't seeing anything that indicates that the well is ready to begin kind of fulsome decline. If you asked me to bet on it, I would tell you that we're probably not going to be saying the same thing a quarter from now. My hunch is, it's probably going to roll flat and then it's going to stay flat for a period of time and then we're going to see a slower decline than normal.

And the reason I say that is because everything we've seen so far in whether you're talking about flowing bottom-hole pressures or other markers of reservoir performance and SRV. They indicate that it's genuinely bigger than we had anticipated. And that indicates to us that there's more fracture complexity, there's more fracture surface area and there's more here than we had even anticipated.

But these were big stimulation jobs and it's the first time that we put this kind of large stimulation in four well simultaneously [Technical Issues] and there's still a lot to learn. So, I'm going to leave it there and if you want to follow up feel free.

Welles Fitzpatrick -- SunTrust Robinson Humphrey -- Analyst

Yeah. No, that's great. And then just one last one some me. Any update from your partners on French Lake given the turn over there.

Eric T. Greager -- President and Chief Executive Officer

Yeah, those guys have got a lot going on and I'm not sure that French Lake at the top of their priority list, but our conversations with our partner have indicated they're still making progress and they're still -- we talked to them all the time.

And other than the fact that they've got so much going on that they can't help, but be distracted with everything feels pretty good. What I would suggest is, at this point, we're talking about Q2 in the rearview mirror. It's probably realistic for us to think about as we go into our budget cycle, maybe not picking up a rig in early January, but talking about something deeper into the year and we continue to work with our partner on that.

They're making great progress. They continue to be very constructive on that progress. But we're thinking it's probably more like a few months into the year rather than right at the start of the year as we had previously indicated. And that's just a practical -- that's just us being practical about how we view the matter.

Welles Fitzpatrick -- SunTrust Robinson Humphrey -- Analyst

Okay. That makes sense and given my first question. I don't think I can criticize anyone for being a little distracted. Thanks. Thanks for the color.

Eric T. Greager -- President and Chief Executive Officer

Thanks, Welles.

Operator

Thank you. [Operator Instructions] And our next question comes from the line of Nicholas Pope with Thomist Capital. Your line is now open.

Nicholas Pope -- Thomist Capital -- Analyst

Hey, guys. Good morning.

Eric T. Greager -- President and Chief Executive Officer

Good morning, Nick.

Brant DeMuth -- Executive Vice President and Chief Financial Officer

Good morning, Nick.

Nicholas Pope -- Thomist Capital -- Analyst

I wanted to ask about the -- a little bit about the wells that are going to be coming on in the third quarter. Should we expect that they're going to look similar than the wells that you've brought online in the first half of the year? And see that big fluid unloading and the ramp that takes production up for the first five or six months. And I guess trying to understand what that kind of means for further the rate as we exit 2019?

Eric T. Greager -- President and Chief Executive Officer

Yeah. So, that's a great question, Nick. Thank you. So we're bringing on two pads in Q3. Well, it's a number of pads. It's three pads. They're in two areas. We've got some West. Higher pressure, much higher thermal maturation to the West that we're bringing on early in Q3 and those are going to unload very quickly. They're going to cut hydrocarbon very quickly and they're going to start contributing to production numbers fairly quickly that -- those are happening literally right now kind of as we speak. And those are -- that's a pad in the West. Deeper into the quarter we'll be bringing on line two pads further East.

And those are going to take a little bit more time. And all of this is -- all of this timing is sort of built into our flat to slight upward trajectory on the sequential quarters. And these are -- when we talk about kind of flat to slightly up those are risk adjusted forecasts.

So, to the extent that, we outperform our risk adjustments then there's perhaps a little upside there. But our timing of these 23 wells in Q3 is built into that kind of flat to slightly up trajectory. Is that answer your question?

Nicholas Pope -- Thomist Capital -- Analyst

Yeah, I think, that's great. Thank you.

Eric T. Greager -- President and Chief Executive Officer

Thanks, Nick.

Operator

Thank you. And our next question comes from the line of Irene Haas with Imperial Capital. Your line is now open.

Irene Haas -- Imperial Capital -- Analyst

Yeah. So, let's follow up on the last question. So, you get 22 wells in the third quarter, and fourth quarter are you going to complete any wells at all? If not then could you give us a little color as to how 2020 might unfold? So we'll just have a feeling as to what could happen?

Eric T. Greager -- President and Chief Executive Officer

You bet. And good morning, Irene. So, we brought on wells, strong wells in Q4, Q1. No wells in Q2, but we had some stronger for longer performance flowing through Q2 and then we're bringing on a slug of wells on three pads in Q3.

We don't currently have scheduled and don't intend or plan to turn wells online in Q4. Just to be clear that we will continue completing wells that are under progress. And so as we flow into Q1 of 2020 the way we're thinking about 2020 is in terms of absolute production numbers, it's going to be about the way we've soft guided so far.

We're not really seeing indications that suggests anything different from the absolute numbers we've been talking about now for a couple of quarters. When you think in percentage terms though, we've been soft guiding 20% and because 19% is so much stronger as a base. You couldn't expect the performance of 2020 over 2019 in percentage terms to remain at 20%.

So, I'm saying, we're kind of holding what we believe to be the 2020 production forecast, but it's not going to be 20% because '19 is so much stronger, and we're raising that base guidance. So, does that answer your question about kind of leaning into 2020 and what the balance of '19 looks like?

Irene Haas -- Imperial Capital -- Analyst

Yes. So, you're going to continue to complete fourth quarter. So, presumably, is the right time some wells on first quarter of 2020?

Eric T. Greager -- President and Chief Executive Officer

That's right, yeah.

Irene Haas -- Imperial Capital -- Analyst

And then would you kind of do a similar pattern when you chill for a quarter and then turn more wells on. It's going to be similar to that?

Eric T. Greager -- President and Chief Executive Officer

Yeah, that's right. And it's -- just to be clear we're not deliberately chilling for a quarter. Although that -- it's kind of the cadence that's setting itself up. It's more a result of the way we engineer the deliberate sequential growth. And on a risk adjusted forecasting basis, we engineer that sequential growth, and also the way we work to achieve kind of the maximum operational efficiency.

For example, you might recall at the beginning of the year, we talked about having no frac crew running at the beginning of the year and then we picked up our frac crew kind of midway through Q1. And we were going to run one continuous frac crew for several months, and we were going to pick up a second, and then we were going to go back to one and then possibly to zero at some point later in the year.

As we've been able to keep pace ahead in Q2 both on the drilling side and on the completion side the fracture stimulation side. We were able to avoid picking up that second frac crew and maintain hundreds of stages ahead of schedule just with the one frac crew and that's really an efficiency story.

So, we're five rig releases ahead of schedule, and we're hundreds of stages ahead of schedule on the fracture stimulation side. And this gives us optionality to manage on a much more efficient basis and kind of capture some of the opportunities that efficiency lends itself to.

And I explain all of that primarily because I just don't want you to misunderstand that we're sort of going hard for a quarter and then deliberately skipping a quarter. It's just the way it sets itself up. Its set itself up as a consequence of our engineering, the sequential guidance, and trying to be predictable and methodical about maximizing our efficiencies.

Irene Haas -- Imperial Capital -- Analyst

Okay. And maybe you can give me a little color as to how those stair stepping on production might look like in 2020? I mean is it going to be more of a pretty steady sequential growth or it's going to be more lumpy?

Eric T. Greager -- President and Chief Executive Officer

Yeah, we're going to work to engineer a steady sequential pace. These are pads though and so to the extent that the pads outperform our risk adjusted forecasts or something about the environment. It just maybe we get some really superior circumstances and things outperform. There'll be -- there may be some lumps in the profile, but those we intend to be pleasant surprises and not lumps to the other side.

Irene Haas -- Imperial Capital -- Analyst

Okay. All right. And one more quick follow-up. The 10 million acquisition that you did in this quarter. Any color on that?

Eric T. Greager -- President and Chief Executive Officer

Yeah. From time-to-time, so we budget for this. We've got accounts like everybody else in our proposed budget that we carry for opportunities that present themselves and acreage in the DJ is just not something that's happening.

Acreage purchases and sales upside in terms of just well inventory and upside inventory on acreage is just not something that's moving very effectively in the DJ. But from time-to-time we get opportunities to acquire working interest in our own operated pads where we're not already 100% working interest partner. And to the extent that those are value accretive to our company. We're going to capitalize on them.

Irene Haas -- Imperial Capital -- Analyst

Great. Thank you.

Eric T. Greager -- President and Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] All right. And at this time I'm not showing not any further questions on the phone line. I would now like to turn the call back to Eric Greager for any further remarks.

Eric T. Greager -- President and Chief Executive Officer

Thanks, Chris. Thank you all for joining us on the call this morning and your continued interest in Bonanza Creek. As a reminder, we will be attending EnerCom's Oil and Gas conference in Denver next week. I know many of you will be there and I hope to see you. Thank you. Bye, bye.

Operator

[Operator Closing Remarks]

Duration: 20 minutes

Call participants:

Scott Landreth -- Senior Director, Finance and Investor Relations and Treasurer

Eric T. Greager -- President and Chief Executive Officer

Brant DeMuth -- Executive Vice President and Chief Financial Officer

Welles Fitzpatrick -- SunTrust Robinson Humphrey -- Analyst

Nicholas Pope -- Thomist Capital -- Analyst

Irene Haas -- Imperial Capital -- Analyst

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