Josef Schachter

Joseph Schachter questioned the $67 million charge for decommissioning drilling rigs, asking about the class and age of the rigs and the absence of assets held for resale on the balance sheet. He also inquired about the $17 million charge related to drill pipe, including pricing trends, timing for purchases, and the specific reason for the charge.

Answer

Carey Ford, President and CEO, explained that the decommissioning charge resulted from a deep dive into industry trends, revealing that certain rigs were no longer competitive due to the increasing complexity and strain of drilling programs. He noted that parts would be stripped from these rigs for fleet use, and the remainder scrapped, without a specific timeline for 'held for sale' classification. Dustin Honing, CFO, added that the drill pipe charge was due to an adjustment in useful life, as drill pipe lifespans have shortened due to more complex wells, an industry-wide dynamic.

Joseph Schachter asked about the $67 million charge for decommissioning drilling rigs, specifically inquiring about the class and age of the rigs involved and why no assets were listed as 'held for resale' on the balance sheet.

Answer

Carey Ford, President and CEO, explained that the charge resulted from a deep analysis of the fleet, identifying rigs no longer competitive due to the increasing complexity and strain of modern drilling programs. These rigs will either be stripped for parts or scrapped, and without a defined timeline for sale, they are not classified as 'held for sale.' Schachter also questioned the $17 million charge related to drill pipe and the company's bulk purchasing strategy, asking about pricing trends and the specific reason for the charge. Carey Ford clarified that bulk purchases capitalize on supplier discounts for production schedules. The $17 million charge was an adjustment to the useful life of drill pipe, as more complex wells are causing drill pipe to wear out significantly faster, an industry-wide dynamic requiring accounting treatment adjustments.

Josef Schachter of Schachter Energy Research Services Inc. requested a timeline for achieving the upside production potential in Ecuador and asked for insight into the factors that could push production to the low or high end of the company's guidance range.

Answer

CEO Gary Guidry projected a 2-to-3-year timeline to reach plateau production in Ecuador, with the pace being dictated by oil price volatility. He identified global commodity prices as the primary variable influencing the guidance range. COO Sebastien Morin added that existing environmental licenses provide the necessary flexibility for this development.

Josef Schachter from Schachter Energy Research Services Inc. asked for the timeline and well count required to achieve the upside production potential in Ecuador. He also requested clarity on the scenarios that would lead to the low or high end of the full-year production guidance, given the strong start to the year.

Answer

President and CEO Gary Guidry projected a 2-to-3-year timeline to reach plateau production in Ecuador, with the pace dictated by oil price volatility. He identified commodity prices, especially for natural gas, as the primary variable influencing the guidance range. COO Sebastien Morin added that existing environmental licenses provide the necessary flexibility for this development.

Josef Schachter of SERSI questioned the timeline for achieving the upside production potential in Ecuador and asked for details on the scenarios that could lead production to the high or low end of the full-year guidance range.

Answer

President and CEO Gary Guidry projected a 2-to-3-year timeline to reach plateau production in Ecuador, with the pace dependent on oil prices. He also identified commodity prices, particularly for natural gas, as the main variable that will influence where production lands within the guidance range, noting the company will adjust its capital program accordingly.

Josef Schachter asked about the allocation of free cash flow between debt reduction and share buybacks, the political outlook in Ecuador, the potential for the 2025 program to stabilize Colombian production, and what actions could be taken to address the stock's valuation discount.

Answer

EVP and CFO Ryan Ellson stated that excess free cash flow would be split 50/50 between debt reduction and share repurchases. President and CEO Gary Guidry expressed confidence in a continued business-friendly government in Ecuador. COO Sebastien Morin affirmed he is comfortable that the 2025 program can maintain Colombian production levels. Finally, Gary Guidry reiterated that continuing to buy back shares is the primary tool to address the stock's discount to NAV.