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Unit (UNTC)

Participants
Larry Pinkston President and Chief Executive Officer
David Merrill Chief Operating Officer
Les Austin Chief Financial Officer
Frank Young Senior Vice President of Exploration and Production
John Cromling Executive Vice President-Drilling
Bob Parks President and Manager of Superior Pipeline Company
Marshall Adkins Raymond James
Neal Dingmann SunTrust
Call transcript
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Operator

Welcome to Unit Corporation’s Fourth Quarter 2018 Earnings Call. My name is Sophie, and I’ll be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

the constitute today, similar projections, of make speakers forward-looking course that statements expectations, the conference the call may statements. During beliefs or results such actual or Company’s results differ from The could projected statements. forward-looking the in materially anticipated

Additional under cause results detailed Statements. the information today heading to could in available the actual is from Forward-Looking information readily important materially today’s that the given concerning factors differ press release

may be to discussing of Additionally, measures certain I financial the call during company Larry President the begin. the found reconciliation measures conference, company’s over turn measures. release. is Pinkston, be those also and will non-GAAP press This GAAP you the can A website. today’s Mr. available CEO. now to non-GAAP in will document on Pinkston,

Larry Pinkston

Good of for morning. you providing Sophie. will you, the at Frank joining today Merrill, the Thank call. Each everyone. end have of you I updates responsibility. John their Les morning, Parks. these questions this Young, Bob David areas take Austin, me of with about We’ll be with and us Cromling Thank

plans the to XX from returning the rigs third for XXXX Baker January, Hughes valley rig by forward. very reaction dropped Just date, West land words about in crude in of we XX% to essentially expenditure XXXX. December in drop capital was the a going a quarter that had the drop There was in Texas fleet prices According which has – rig count count few data, end had to there early a levels. a to operator clear

as their are picture capital XXXX. that the other appears the have for run to corporations clients expenditure clear iterations our headed. multiple our We the until plans prices for budget direction representing and back held commodity becomes have it and We operators

year. operations. focus capital reason upon I’d a our each is balance determine expenditure is which we our which cash to very strong anticipated call David turn to a basis to the principal cover sheet, plans always, over maintain XXXX now flow like As is a to

David Merrill

morning, Thank Larry. Good you, everyone.

our a to of capital our $XXX The Larry for to This of us year-over-year, the swings resulted the will for to capital upper with plan represents of range is $XXX If XXXX reduction throughout flow. of have commodity range lower recently the the prices trend improve, XX% cash in million not the commodity line experienced X% with end do As XXXX. budget commodity improve year. million prices in stated, establishing capital in requiring we a anticipated range. end

allows commodity several on continue morning, our As release this challenges, production Despite the fronts. us X%. noted in capital price year-over-year fourth our growth to make press we quarter X% budget to of estimate to progress

guidance. to discuss bolt-on oil in its sands our still production us led able detail worked production and some a which Our through while acquisitions year-over-year has delays, which segment in gas complete also Oklahoma, Penn achieving prospect strong in to very drill was and some natural further make segment Western Frank The in will new minute. wells area,

quarter able I’ll organic Austin. opportunities was Les will for provide And the XXth projects call of business, and our to segment growth drilling drilling deploy going during two rig to turn of completion contract Our first XXth growth incremental our forward. over the midstream BOSS for XXXX. now

Les Austin

diluted write-down, or net to from fleet. or rigs share. Unit non-cash $X.XX David. $XXX.X was the the million million, diluted and for write-down $XX.X our net quarter, derivatives quarter per Unit pretax non-cash We for share, which of a Thanks, to Adjusted associated $X.XX removal drilling includes million per fourth reported of income excludes the XX of of non-cash which with the a loss attributable attributable effect this $XX.X

reconciliation is measures financial non-GAAP Our in release. included press our

segment, the gas fourth gas lower Equivalent offset from natural quarter increased oil and NGL third production production decreased natural cost with primarily fourth expense, of the the prices for quarter the fourth offset of decreased due the X% by quarter this this from prices. from year, this and of for For X% to third increased tax quarter the year, decreased quarter quarter year. the Operating by revenues LOE. third oil in lower X% partially

X% in by rigs G&A X% to the costs the drilling fourth the segment, higher due the XX% this compared in the for to third cost this day For and the in offset Operating third to contract quarter. rates higher revenues increase due over year fourth X.X drilling for fewer quarter of quarter during expenses. were increased operating quarter of year indirect pulling the quarter quarter

million, equivalents agreement of XXXX of decreased remain segment, of of purchase Operating and of with prices. cost debt of of this midstream our fourth and cash for because fourth issuance The quarter quarter liquids We combined costs. quarter borrowing year liquid debt our primarily unamortized the the million. entirely the credit recoveries availability and total the discounts of decreased decreased million cash this X% volumes increased Long-term unchanged well. was subordinated $XXX.X prices. agreement as due $X.X superior and senior credit Unit revenues debt for fourth long-term at to quarter transported, third over million the and and and from increased base ended condensate consists with undrawn undrawn X% of third decreased notes, $XXX $XXX the net quarter year, For the

end leverage Our times the the net fourth was ratio at quarter. X.X of

And any. our be expenditures $XXX used $XX be for between proceeds the $XX and will is for range is Our compared acquisitions $XX the from $XX and XXXX. This to $XXX the $XXX segment and XXXX used to million asset designed the if I be compared anticipated $XX million segment time, to be oil We million XXXX $XX natural to gas to will million. environment million. and sales for Of Frank $XXX response to non-core natural capital cash budget, the excluding $XXX current price compared million over in flow for expenditure expenditures reserved gas total capital oil within is million turn XXXX. and of $XXX million commodity capital to million drilling were for our midstream the anticipate million At million for to segment segment XXXX. million for million this $XX to call update. will will

Frank Young

barrels third-party for million were production rate unanticipated The million to Production out the equivalent four an Texas with about producing oil oil of oil over for that of well IPXX our XX%. months, which at The in had XX.X wells laterals primary at failure Oklahoma delays equivalent, production our frac be Boe. Coast as Unit recovery drill After XXXX cut reasons number requirement a top to anticipated brand low for end in NGL In was day XX.X is in in of guidance into commissioning XX.X area. first new gas X,XXX per lowered X,XXX two oil of equivalent shut-in of prospect oil XX%. Oklahoma sands to the one XXXX, September production dryer day in Schrock and HX, redrilled the as simulation of well lateral barrels Gulf an of drilled Panhandle to barrels due the the due Western of our completion XX/XX XXXX, wells with line to our producing is the hardware cut after well post-fracture anticipated. about going the unanticipated being interstate per Red area in this drilled a end still Penn during point extended low late of than Fork was and

million. October late some Fork natural brought lateral for that oil. addition, had laterals Well with Frymire In mile barrels which on about are of equivalent wet primarily we XXX cost a Red one in IPXX oil the per two-mile day, for second million an about and of $X gas Red laterals X-XXH, Fork was $X.X

in Of and drilling acreage these percentage XX in which anticipated exciting program proved Unit add stream. currently in oil acres gas wells the offsetting drilling to the program assets of in well including production. County, we acquired, million. oil of has of in significant that Custer acquired the XX XX% prices Marchand and $XX.X a results, continue production one Fork second In Oil Following have western equivalent a County, reassessed second and sand. oil approximately the Trend X,XXX XXXX. drilling our The XX will horizontal approximately reserves Southern oil commodity added primarily to primarily be Hoxbar sands light Red net in quarter. Penn total located in to Unit producing have the will provides horizontal Oklahoma our area, of continue drilling developed locations, Fork horizontal the we plans Fork wells wells half approximately X.X second rig acquisition to area, Grady Red for through for or with million about in At are midyear, play of SOHOT acquisition Oklahoma SOHOT for is Oklahoma, reserves. barrels potential December, oily rig Red This the natural this decided

Oklahoma the chunks success in our XXXX. portion if second Activity determine any, stack prices drilling program a us midyear of in play lot throughout continue rig second a non-operated to to many the in commodity run western at in reassess quarter. acreage having to half to the XXXX. add expect We’re during we in smaller picking this the we’ll And fourth this of We’ll program rigs, of cost this drilling play to that continue and how continued up allow reasonable quarter. second also also of will the activity

in our working oil G oils XXXX impressive in of dry program Granite once this continued area commissioned forward Results Texas Granite potentially feet per production prices two the and initial the In rates the to one-rig million For stacked production, declined drilling in from with of that has obstruction beginning of at gas significantly Midship expect of to from near extended we equivalent Wash have some and STACK wells gas an about And lateral an with in to After Results of we drilling field. and cubic operated on to cubic our lateral feet drilling million wells is produce equivalent play, only operated X.X of participated our good well fourth field program point of the to quarter XX interest to do XX XXXX which the with XX% continues about X%. Offsetting Panhandle loops XX per day, good. average gas and our exceeding well’s million been months XXXX, lateral Cheniere’s day rates we flow other cubic reserves. this in realized in from NGLs. Buffalo four is feet our producing of day. workover while in We plan obstruction increase. remove have approximately look its Wallow Wash a one per well, have each these first results excess program we well equivalent from Pipeline improve. the been

continuing Midship assets. to Once gas the or – Oklahoma prices drilling be our which quarter rig We’re field first the expect improve, we of with of projected this back to through program the continue is realized fourth more third and rig XXXX to before XXXX drilling quarter western moving to oily the is in program. fourth to move let our this Cheniere’s to Pipeline commissioned,

subsidiary. and superior the gathered In Fortunately, our Southeast the production, and All Counties, primarily fourth is area and Texas, development quarter. to from play Polk, produced pricing and the Goliad held gas processed midstream drill this in drilling field us is when continued Wallow Hardin, optimum. is by Buffalo most by Texas largely field recompletion in our land we Gilly during Wilcox position Tyler, our units program located in allowing

successful X.X continued approximately Additionally, currently per we coming online our million feet wet is drilled in that in a prospect delineation October oil. Shoal production equivalent cubic Creek to increase day in of and well since has and gas producing

five delineation We them or We wells development prospect delineating eight wells will approximately being exploration completing XXXX. wells. and this during anticipate of continue with being in XXXX, XX vertical

be Cherry Pasture located Wolf number our Gilly Creek delineation in the One which field. be Southwest of well the prospect will X wells of one, miles will much-anticipated first the approximately delineation the

zones liquid now addition, In the this company John update. gas XXXX. I the time, to will plan drilling complete over XX At for to and we approximately behind pipe turn call during

John Cromling

fluctuating fluctuations The price contract quarter, of Despite the completion drilling levels, rig during closing we experienced in slightly. drilling of commodity BOSS with dipping rigs. on of challenges fourth the segment the our successful in utilization the two activity effects latest the operator were

All XX with them and rigs, the have nine long-term to rigs XX XX contracts. Our BOSS our operating rig quarter are of utilization from decreased now currently, XX under throughout of operating. we rigs

this service The in BOSS for extended currently XXth operator are rig Wyoming. two is contracts them. rigs operating other in drilling also into placed on that for January and BOSS was Our rig

recently Our Permian. rigs working XXth service BOSS contract. XX rig of the operating placed XX presently the long-term was in are SCR into under

rigs additional being midyear and all the in SCR we refurbishment day increase The XXXX. over fourth quarter. as average the revenue eliminations the CapEx of It for increase $XXX to are from have flow $XX,XXX, within day several for note the funded average are that a daily is candidates We cash slight operating budget was excellent market The total was quarter per quarter. intercompany the $XX,XXX, rate important projects the third third well by that tested dictates. for an

for quarter to higher indirect a per for fourth for $X,XXX, day is operating daily average quarter from the margin cost. operating a $XXX increase the The third. before total of costs Our intercompany the quarter. fourth was The prior by $XXX decrease primarily eliminations compared increased of as of elimination result was intercompany the cost which

non-GAAP At time, release. call this press Our Pipeline update. found for over the in Superior the Bob today’s turn to be can reconciliation I’ll

Bob Parks

you, Thank John.

XXX decrease and facility Hemphill January equipment, the on Pittsburgh produce year Once sold on new increased in total the feet pad equipment. outstanding of in during Hemphill by result to production natural late expect million to a per midstream volumes system. throughput the million quarter for connected completed total are connected XXXX. operating them construction to midstream was a cubic XX% time. our per seven at station well declined from station portion our in the in southern our XXX gallons liquids feet gathering a day of Following connects began higher are were well At a Panhandle, average volumes and which infill gathered first Texas all our I’ll includes average day processed volume driven XXXX, in This on XXXX, the these in the in gathering connect facilities record XXX,XXX key pad approximately the gas XXXX We year-over-year, the new peak of quarter Pennsylvania, new of due fourth another cubic of upgrade production are of extended the Cashion and had compressor was to wells second volume wells, of XX as period to a of being our as provide declining We’ll of At had around facility in in receiving an profit pipeline an will Mills gas We our approximately wells The cubic completed assets. the quarter segment in gathered that well fourth seven in we wells for they per production This flow increase year per XXXX now volume approximately update liquids to total day. per several and million each day wells additional feet cubic five on gas Kissick began volumes being connected XXX.X another feet compressor XXXX. new well. as system. the located XX, wells February. production from new out two at million day.

and quarter, approximately our Wallow this in Wallow station new fourth we area. in compression the XXXX. contributed beginning in new And Buffalo with to XXXX wells. connected in approximately connected was five wells we since capacity our At Oklahoma, year, a total average Buffalo order an us wells quarter production volume facility a first additional feet in fourth And we XXXX, system. for new volume completed. day. liquids rig connected was Wallow per XX new flexibility the overall to future expansion continues wells have last increased compression accommodate XX located the anticipate and gallons area the During additional that increased of we increase since central Cashion XXXX. the the of to of to the gas Cashion And we Buffalo volumes. system. operator XXX,XXX cubic the the on per The throughput add project area the to wells for Unit day This to million in Petroleum of natural These active throughput XX processing during

to on operational feet from site XX The plant is is continue Cashion we’re expect has plant adding million day and system. in under feet this approximately We at feet system. system to will project The plant be with the $XX compressor summary, connect Cashion to Bellmon wells to a the currently and operational additional construction system per for and additional full leading per and cubic by capacity a processing to new results our processing This total day cubic processing station the our XXXX. per compressor completed first relocated the capacity, our This plant XX quarter to facility Cashion XXX XXXX. an been on million million of million operating the day. are cubic pleased anticipated had year, both is end we increase of and construction processing successful XXXX. and financial of In

beyond. his I final the completion feel project well in and call we to a by XXXX growth will fourth standalone segment. several for the Cashion our and are million enhance now will we at results the investors credit of a in to established comments. which in XX% midstream turn key our previously with in XXXX Larry business back interest quarter positive $XXX combination Superior, to show further Hemphill As for positioned XXXX, for The sale facility we mentioned our systems, ability the April Les, over increases with and outside expansion in of areas for grow the of continued

Larry Pinkston

Thank on our you, began while XXXX segments, our Bob. growing cash with flow. We capital all expenditures of focused maintaining line in business

results have and excited the sand core seen particularly area. about of our in We’re we some very plays in the all of Penn

position have of the annuity a acreage the very successful with We to heading held been added reasonable at production. cost and this being acreage by

position non-acreage strategies base. development cash our allow our has flow been of dictate our One explorations to to

for rig get – – depend We’re likely will quarter the ordered we contract. completing our our dependent BOSS rigs this ordered XXth rig very time, XXth obtaining long-term components scheduled lead deployed BOSS to will long first pleased a be during and of At and time XXXX, the had as that we last on fall. XXth

growth on to in to optimistic organic over prospects. on At We’re turn the would for I segment our progress we continue call midstream questions. as like this our time,

Operator

Thank our comes from Instructions] you. first question Marshall Adkins James. [Operator And from Raymond

Marshall Adkins

Larry, clear objective is is see that a I and generation cash certainly morning, you within flow, days. real over the which Good flow to cash cycle. free think another excess spend that mentioned that are pretty path to going looking one investors guys. to But returns these you’re the

thought So do oil And is let’s structurally shareholders if aspect excess on there to you up there a continue Just give you cash your volumes that comment on, back is, form? your to in flow? to cash pay increase, overall prices comment say, debt? and path free that generating some Do process. of go down

Larry Pinkston

that the of those our our investment a have multiple we I trying We on then of growth, will Yes. rig in think of flow moment the not opportunities a production our spec to rigs can division. those by XX% or BOSS times program more even are part definitely ramp defining adding cash E&P up midstream the good few grow whole than growth, on be consideration. when our growth than good mean, has the size our meeting The all to basis. rather fleet reached rigs XX% and/or – kind Marshall, growth and the Well, I yes, in were

We’ve paying to that’s think than returning cycles. that up. and of the down I point And most look either some always some different in and/or cash shareholders. ramp at time at than you tried – form – previous to debt

would reserve the most I growth, of to guess, rig a beyond expected be, As production normal what production growth. ramp-up growth tried well industry has

of see see We a will yes, to in all So those be stretch mean, sure are. be like to XXXX. they are able that, see I that but to consideration, that. that happen We’d to be in don’t able

Marshall Adkins

right. Right,

– norms So, I’m that yes, we’re make I characterizing for of is, versus objective industry let’s spend in prices, commodity fair when whole, your I of some next let’s just dime let’s we going cash course, away years. your get growth, a in to a forward like going another. to expect some put favorable Is it but sounds as sure the or clear, do when But of of get of the thoughts? every form which, see forward couple way historical, that guess, flow not

Larry Pinkston

Yes, sir.

You nail the the hit on head.

Marshall Adkins

over just the play, Perfect. with the to than a sands in sounds different that it that’s a could real side It’s little the if It SOHOT. correct prospect but E&P Shifting different Is release, area quick. are press was reading question? laterals of I my the the, totally bit Oklahoma, Penn to gears Red – the correct. the generally is Fork similar it’s totally like

Frank Young

that sands Marshall, area right. The more one the prospect that’s play encompasses interval. geological Yes. just than is Penn

primarily acquisition only that is just because the the Fork we’re those Marchand which Marchand In consistency prospects interval of interval, is the gas. targeting Red One between are – within oily. the can Hoxbar targeted. than The acreage, resin drill right adding now the rather SOHOT, that where is natural two sand focused oily sand wells that we’re we one on wells the oil

Marshall Adkins

Right, right.

the rig you’re wrote It still a rigs. and Okay, of bunch I XX-or-so comments of like sounds today. pretty me, you I then from And half working go in side, SCRs on you clear on first last could. down One there. you if your one John, got evaluating for got kind it.

XX got stack maybe XX, XX still. You another

into those cost to for holding the of of You rigs? upgrading on Any thoughts likelihood talked BOSS just those the about versus upgrades. money those upgrading put the new potential continue and

John Cromling

upgrades. the considered always We’ve Yes.

me some upgrades them first. of done the of let the Of stack Dakota. are think upgrades but those we all already rigs, have that in see, they located I North mention will

there’s so those relocating area. to of rigs we’ll the a I are to systems, see we’ll those do rigs upgrades mid-continent Permian possibility And additional X,XXX of just systems. meg or now additional continue Most think needed. the as what still are And to walking that the

think I refurbishment major see like complete a the we’ll done of a don’t So in rig we’ve past.

forward, amount use would for that BOSS we larger Going of rather additional money rigs.

Marshall Adkins

it. Thanks guys. Got

Frank Young

Marshall. Thanks,

Operator

following Our Neal SunTrust. Dingmann from question comes from

Neal Dingmann

morning Frank, a Good two? on two those those Red the could Maybe, question you for If wells, Fork color around Frank. guys. just both why sort just difference? of the about talk of

Frank Young

drilled more field well, honest, gassy. we Schrock. of got, the were was it although made oil The the expecting amounts that developed differing in more is be different a oil had And we the wells an area we was the acquisition [indiscernible] field, that within production had cuts. as – part than of And vertical that To when much field we vertically. then as oil been not

as where to oily done drill good that wells economic to field the the pretty indication of wells as be thought section job oily. us vertical not more reserves But that than had The we drilling So may that is grading the that in a vertical are is an done going a do. still had have oil they gives the just in [indiscernible] well we better of what hoped.

Neal Dingmann

expand BOSS the And okay. continue it, fleet. just over you side, then it’s on Got to rig the nice

roll asked general? if of any your about, have out, to how and maybe XXth, just I seeing just contract activity, I’ve being more out bidding thoughts XXth to would but it able think in just thoughts your on on you under before assume, inquiries you before I did, of you’re this the a bring talk you sort be Just those?

John Cromling

a been see that have XX to performance be. we to still though advertised busy. it just The rigs. Even now, we keep to everything those excellent we’ve been our has We reception BOSS able right

components iron perform like two good that, we all continue months of and ordered So still them. think have before as that three or And we the the the to had rigs. we we then for be will time market to finish already

able confident XX. pretty long-term be another contract for feel we to So that we’ll obtain

Neal Dingmann

hear. Good to you. Thank

Frank Young

Thank you.

Operator

this have [Operator questions time. at further no Instructions] We

Larry Pinkston

Well, – this all It our conferences concludes thank many hope to Thank you see upcoming that are much. comments. the of all you, in you everyone, very we’ll morning. joining And us be of attending. that we for

Operator

concludes you, today’s This Thank ladies participating. and conference. you for Thank gentlemen.

You may now disconnect.