AUSTEX OIL LIMITED Good morning ladies and gentleman, or for those of you outside Australia in other parts of the world, good evening as the case may be and welcome to AusTex Oil's initial quarterly investor call. My name is Nick Stone and I am one of 2 co-managing directors here at AusTex Oil. I am joined on today's call by my fellow co-managing director, Richard Adrey, and our 2 Australian non-executive directors, Russell Krause and Justin Clyne, who is also our company secretary.
Prior to commencing with the detail of today's call I refer all shareholders and investors to our standard disclaimer relating to the information contained herein. Although all reasonable care is always taken to ensure that the facts stated and opinions given throughout this call are accurate, the information has not been independently verified. A copy of our full disclaimer is contained within each of our presentations released to market should you wish to view those terms.
I am pleased to say that we have shareholders and interested parties dialling in from all over the globe including Australia, New Zealand, the USA, Canada, Australia, Hong Kong, Malaysia, the United Kingdom and the Philippines. I would like to start this call by giving you some background on why AusTex has decided to introduce these quarterly investor calls, a brief outline on how today's call will proceed and then how future quarterly investor calls will proceed.
I have been fortunate enough during the last 2 ½ years in my involvement with AusTex, firstly as a non-executive director, and now as a managing director to visit Australia on a number of occasions for the purposes of our Annual General Meeting and investor roadshows. This has given me the privilege of meeting many of our shareholders. These trips have generally been very positive experiences and one of the main points of feedback has
been that shareholders would like to hear more from the US side of our operations. A very fair request.
Given the size of our company and the hands on nature of the role shared by Richard and myself and the current opportunities in the US, we believe our presence in the USA, our focus on the Company's operations and its acquisition opportunities is imperative at the moment. Russell and Justin do a good job in getting around and speaking to as many shareholders as possible but it is clear that people want to hear more directly from US management particularly on the day to day operations.
These calls will aim to close that gap and provide shareholders with a greater opportunity to hear directly from Richard and me.
This initial call is introductory in nature and an opportunity to introduce myself to those shareholders I have not directly spoken with and will take the form of a transcript where I will provide an update on operations. Incorporated into this script in the information provided is detail from a number of questions that have been received from shareholders over the past week. Your questions give us a key insight into the types of issues shareholders see affecting the company and should allow us to help make the call more useful for you. Future investor calls will have a live question and answer format where shareholders may ask questions directly in relation to the topics raised in the call. For this reason today's call will be a lot briefer than future quarterly calls.
These calls also represent a further step in our transition over the past 2 years in graduating from an ASX exploration company to a producing entity and our attempts to raise our profile accordingly.
Some Context:Before we proceed into details about the quarter, I think it is worthwhile to take a step back and provide some context for the position AusTex is in today. None of us are excited about the oil price or the share price at the moment. That being said, I am very excited about the position we find ourselves in as a Company. Over the past 16 months, there have been several strategic steps that have materially improved the Company's position. First, we took out a $20mm US Dollar term loan designed intentionally to reduce the level of bank interaction with the reserve assessment and proactively hedged a large portion of our oil production at $80 and our gas production at prices that are 85% higher than market today.
Second, we rapidly constrained our drilling and completions in response to the declining oil price to guard our capital. Third, we materially upgraded the amount of human capital in our office by capitalizing on the recent layoffs in our area to recruit much higher quality talent. Fourth, we aggressively right sized our use of contractors and field staff to match our reduced pace of activity and to optimize our field for profitability despite the low oil price. Fifth, we have intentionally waited to pursue acquisitions under the belief that the environment would become more and not less favourable for us to acquire. Those actions leave the Company today with no net debt (an enjoyable rarity in our space), with almost $25mm US dollars of cash on the balance sheet, a term loan that does not mature until October 2017, a Company that despite the challenging commodity prices was roughly breakeven in the fourth quarter excluding the impact of our hedges and interest expense on as of yet undeployed capital, a technical team in the office and the field that is well positioned to evaluate acquisitions and new acreage and a management group that has substantial Mergers and Acquisitions experience.
At the same time, the environment has only become increasingly stressed. Banks are starting to accept the level of impairment in their loans with senior managements at banks now aggressively scrutinizing the actual loss potential, producers are increasingly facing ongoing cash needs to continue production that cannot be met, and Companies have markedly increased their asset sales to focus their operations on core areas and fund their contractual commitments. Unlike a drilling program that carries material geological risk in addition to commodity price risk, this environment should allow the Company to opportunistically acquire production in a fashion that requires accepting only commodity risk (which can be mitigated meaningfully with hedging). We are well positioned for the acquisition environment today, and I believe this opportunity could be very compelling. That knowledge is what I personally find exciting about AusTex amidst an otherwise lacklustre macro backdrop for oil. Rich and I feel fortunate to be in the position we are in today, and while we would clearly like to see a much higher oil and stock price, we choose to look at this environment as an opportunity to position AusTex to grow significantly during an eventual rebound in commodity pricing.
The Last Quarter:Now let me turn to what AusTex has achieved over the last quarter to 31 December and subsequent thereto.
During this time we have continued to execute upon our 2 approach strategy being, firstly, the preservation of our capital and resources during this significant period of downturn and, secondly, positioning ourselves for growth for when the expected upswing arrives, whenever that may be.
Over the last quarter we have continued to reduce and eliminate inefficient expenses including but not limited to non-essential overhead expenses, underutilised staff and pricing of necessary services. With the continued curtailing of production as part of our overall strategy of roughly matching production to our hedging positions and preserving oil in the formation, we have significantly reduced our field staff from 24 personnel down to 10. These overall cost savings have had the result of reducing such costs as our Lease Operating Expenses (LOE) from an average of ~$6.40 per BOE 12 months ago to ~$4.20 BOE in the last quarter. Our reductions have also resulted in an increase in our net cash position of USD$600,000 in the last quarter alone. The Company intends to continue to roughly match production with our hedging book. A detailed overview of our current hedging position was included in our last quarterly report.
As you likely know, Rich and I value profitability over production, and as such we will choose to eliminate production to maximize the bottom line. As a result during the quarter, 8 wells were shut in as being non-economic at this time. We would look to turn these wells back on again with a WTI price of approximately $50 US dollars. We will continue with this strategy in the near term while monitoring oil spot and futures prices. Fortunately, the process required to effect a change in operating status is very quick, so we can be quite responsive to changes in commodity pricing.
We don't know how long the downturn will last and haven't targeted an actual price per barrel that will see us recommence a robust drilling campaign. We have been asked by shareholders whether we can last the next 2 years if WTI remains at levels of around $30. The short answer to this is we believe we can. As you would expect, that environment is not what we are solving for presently, and it will require adjustments to our current cost structure. While neither we nor the market forecasts that eventuality today, we believe that our cash position (even allowing for the repayment of the term loan to Macquarie) will still see us in a net cash position after 2 years assuming a WTI price of roughly $30.
Some of you have asked what it will take for AusTex to recommence an aggressive drilling campaign, and unfortunately there is no definitive answer to this. If we saw a rebound in WTI
AusTex Oil Limited issued this content on 10 February 2016 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 10 February 2016 00:39:03 UTC
Original Document: http://www.austexoil.com/IRM/PDF/1829/TranscriptfromInvestorCall10February2016
