Emerald Oil, Inc. (EOX)
Q3 2012 Earnings Conference Call
November 9, 2012 10:00 am ET
Marty Beskow – Vice President-Finance and Head-Investor Relations
McAndrew A. Rudisill – President and Director
Paul Wiesner – Chief Financial Officer
Ronald Mills – Johnson Rice & Company L.L.C.
Stephen Berman – Canaccord Genuity
Curtis Ryan Trimble – Global Hunter Securities, L.L.C
Paul Grigel – Macquarie Capital (usa) Inc.
Greetings, and welcome to the Emerald Oil Third Quarter 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode, a brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Marty Beskow of Emerald Oil. Thank you, Mr. Beskow. You may begin.
All right thank you, Kevin. Good morning, this is Marty Beskow, Vice President Finance and Capital Markets. Welcome to our Emerald Oil’s third quarter earnings conference call. Yesterday afternoon we issued a press release and Form 10-Q to report our financial and operational results for the third quarter ended September 30, 2012.
We also posted an updated investor presentation on the homepage of our website at emeraldoil.com. On the call today, we have McAndrew Rudisill, Director and President and Paul Wiesner, Chief Financial Officer. Please be advised that our remarks, including the answers to your questions, may include statements that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act.
These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently disclosed in our earnings release and conference call. Those risks include, among others, matters that have been disclosed in our earnings release, as well as in our filings with the Securities and Exchange Commission including the Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. We disclaim any obligation to update these forward-looking statements.
During this conference call, we’ll also make references to adjusted EBITDA, adjusted income or loss, which are non-GAAP financial measures, reconciliations of these amounts to GAAP measures can be found in our earnings release.
I will now turn the call over to McAndrew.
McAndrew A. Rudisill
Thank you, Marty. Good morning to everyone. We’ll begin with some general comments from our management team and then we’ll open the call for a question-and-answer session. Third quarter was a transformational quarter for Emerald Oil. We closed the acquisition of Emerald Oil in late July and rapidly began the transition to operator, while restructuring the balance sheet of the company. The Emerald acquisition significantly strengthened our management team and added operational capabilities to develop our own operated Williston Basin drilling program.
We utilized the data from our non-operated database with over 200 well participation wells in the Williston Basin to identify top performing operators and geographic areas within the basin that we are targeting to grow our operated leasehold position.
With this data, we targeted our acquisition of 4,500 net acres in McKenzie County, North Dakota that was announced in early September and closed on October 5, following our $75 million equity offering in late September.
Our land team in Billings, Montana led by J.R.Reger has been busy consolidating our acreage to build operable drilling units. In July, we identified approximately 6,800 net acres that we targeted for conversion from non-operated acreage into operable DSUs.
I’m pleased to report the land team has already converted 4,600 net acres in Richland County, Montana that represents nine operable DSUs on 1,280-acre units. This conversion process is well ahead of our original projections. The conversion is being executed with cashless trades of acreage with other operators in the area.
These DSUs now represent a potential third focus area for us in the Williston Basin. With the conversion of these operable acres, Emerald Oil now has about 1,600 net operable acres in the Williston Basin and another sorry 16,000 net operable acres in the Williston Basin and another 33,000 net acres that we classify as non-operated.
While we transition our focus towards growing operated production, we continue to derive significant production from our non-operated wells. During the third quarter, we added 31 gross of 1.69 net wells to production, we produced an average of 972 BOE per day from our 181 gross or 8.25 net non-operated wells that are producing from the Bakken and the Three Forks formation in the Williston Basin. These wells produced $7.1 million of revenue and $4 million of EBITDA during the quarter, the third quarter.
Activity in the Williston Basin continues to remain strong. As of the third quarter end, we elected to participate in 21 gross or 1.08 net wells that we’re drilling waiting on completion or completed. We expect these wells will add to production in future quarters. We expect our production from non-operated wells will be flat to up slightly quarter-over-quarter until our operated wells come online.
We are currently modeling that we will add half the net non-operated wells to production each quarter over the next few quarters. We expect to exit Q4 2012 with production that is slightly over 1,000 BOE per day.
In regards to our operated program, we previously communicated that we plan to spud our first operated well by early 2013. We are well ahead of schedule on this plan. We currently have seven wells permitted of our nine operated DSUs in McKenzie County, North Dakota. We have two pads completed one of which is installed tank batteries.
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