5.11.20-Note Daily Observations – Earnings from CLR, CPE, BATL, XOG and CHK

A few earnings releases today.  Here are a few nuggets worth highlighting.

Callon Petroleum

• Q1 capex = $278M.
• Less than $100M expected to be spent in Q2
• Leaves ~$150M to $225M for 2H’20.
• CPE will exit Q2 with 70 DUCs as all completion activity in April was suspended.
• The remaining budget contemplates a potential return of completion activity in Q3.
• The company will move to one drilling rig in mid-May.
• Callon had been operating 9 rigs, but is now running two rigs and going to one.
• CPE noted a maintenance capex of $500M for next year.  Implies a modest uplift in activity relative to Q2 levels.
• Simultaneous frac operations driving efficiency as completed lateral feet per day in 2020 exceeds 2,000 feet, up from ~1,200 feet in Q1’19.

• This really interests us, so if you are conducting SimulOps and willing to give me a teach-in, please let me know.
• Management reduced cash compensation between 25-35%.
• Company highlighted a number of initiatives to help the community during the COVID crisis.
• There was no Q&A on the conference call.

Continental Resources

• Spent $651M in Q1, 54% of this year’s $1.2B budget.
• Company is now running 5 rigs, but will move to 4 rigs
• Three rigs presently in the Bakken with two in Oklahoma.
• No frac crews running in the Bakken with one running in Oklahoma.
• No Q2 guidance in the press release, thus we’ll look to the call to get color.
• Harold Hamm was one of the early leaders to announce shut-in’s.  Kudo’s.
• Unlike several peers which were more open to potential 2H’20 activity increases, CLR held their cards close to the vest.
• It did, however, say it would look at things on a month-to-month basis.
• There were several questions on the appropriate maintenance capex with ranges in the $1.5B to $2.0B.
• Our interpretation of management’s call was the number could be slightly lower.
• Assuming a $1.5B number suggests an uptick in activity given expected spending in Q2’20 through Q4’20.
• Simple math: if the remaining budget of $550M is divided equally, this implies quarterly spend in the $200M vicinity or $800M annualized.
• A $1.5B maintenance budget would imply a doubling of activity from today, all else being equal.
• Again, this is simple, dumb math, but it’s is supportive of our view activity for the industry will accelerate next year.

Battalion Oil Corporation

• Micro-cap Bakken E&P
• Shut-in over 50% of its production
• Borrowing base was reduced by 17%.
• Q1’20 capex = $65M.
• As we recall, the budget for 2020 was ~$60M to $76M.
• If correct, this would suggest the pause in spending will last through YE’20.
• Company suspended completion operations in Q1.
• Company has 4 DUCs
• Released its drilling rig on May 5th.
• Donated sanitizer to Ward and Winkler county first responders.  Good job.

Extraction Oil & Gas

• Q1’20 capex = $155M.
• We believe the 2020 capex budget is between $250-$300M.
• The company withdrew its 2020 guidance so it’s not clear if this budget has changed.
• XOG had been running 2 rigs and 1 frac crew.  All have been released.
• During Q1, XOG drilled 34 gross wells and completed 28 wells.
• Average lateral length was 2.3 miles.
• The conference call, which was this afternoon, did not have any Q&A.
• The company noted it had one drilled, but uncompleted pad….we don’t know the wells per pad for XOG.
• Borrowing base reduced to $650M from $950M.
• The company noted its has engaged advisors as it evaluates strategic options.

Chesapeake Energy

• The company did not issue a normal earnings release.
• Rather, it filed a 10Q.
• This is a long doc and we are still reading as we type.
• One thing that jumped out is the 2020 capex guidance which is now $1.0B to $1.2B.
• In 2019, CHK spent $2.2B.
• Q1 spending totaled $500M and we believe the original 2020 budget was $1.45B at the mid-point.
• In the 10Q, CHK notes it “has no access to capital and other financial markets. In response to the lack of new capital and funding, we are considering strategic alternatives, which may include but are not limited to additional expense reductions; seeking a restructuring, amendment or refinancing of existing debt through a private restructuring; and reorganization under Chapter 11 of the Bankruptcy Code.”
• We think the above comment was already well known to the industry, but we include it just in case you missed it.
• We wish CHK the best.  Their folks have always been good to us and we are huge fans of Oklahoma City.
• The company will not host an earnings call.

It’s getting late so we apologize in advance for typos or if we misinterpreted statements on the conf calls/press releases.  We were reading quickly. Also, we are heading up to the Dallas/Fort Worth area next week.  If anyone is free, let me know….thanks.