Friday, August 10, 2012

Notes from GMX Resources Q2 2012 Conference Call ($GMXR)

From the GMX Resources Q2 2012 conference call

We have not yet given specific guidance for Q3 production. However, it's unlikely that we will exceed Q2 oil production, particularly if we are successful in selling the Cotton Valley. Our plan is to update you with more information later on this quarter.
Uh oh! That's pretty grim. That means that they are having to drill new wells constantly just to maintain this weak production number. Why isn't there a conversation in the call about the rate of return on the Bakken wells?

Here's something that sheds light on the natural gas production declines in the Haynesville:
Q: [D]id the gas production come in a little lighter than you expected sort of in that mid-June timeframe what you are looking for?
A: [...] with the natural gas price environment, we're not actively working over wells as in a higher price environment [...] with natural gas prices collapsing, operators are going to suspend or pare back their treatments that they do, their normal maintenance and treatments that they do on those wells. And so to some extent that exacerbates the natural decline that you see in production.
That's bullish for natural gas. Nothing cures low prices like low prices.

There was one guy at the end of the call who was asking reasonably astute questions:
Q: even if you do get the 2013 to fully subscribe to the exchange, I assume the other source of liquidity is coming from the Cotton Valley sale. How far do you think your liquidity gets you? Because it seems like right now, you still would be running out of – without the Cotton Valley sale, you'd probably be running out of cash sort of towards the end of this year. So do you think sort of the – if you get the Cotton Valley sale done and you get the 2013 subscribed, that'll allow you to run a two-rig program through the first quarter of next year or sort of what's your timeframe of when you got to come back – when you need another transaction and sort of what you're thinking would be next? Would it be sell the Niobrara or what?

A: Yeah. I think that's a good question, David. My opening remarks were heavy on the word step. I think when you look at our transition, it's made up of multiple steps. So I think the Cotton Valley is a piece of that, the potential of the Niobrara is a piece of that, a JV might be a piece of that. We've historically gone into the capital markets with the story of expansion acceleration. So I think getting the 2013 note resolution is an important first step to setting the stage for the rest of the steps.
Right. There will be more steps. I'd imagine that they'll want to do something about the 2015 notes once the 2013s are taken care of.

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