While still leaking some red ink, Oklahoma City-based Chaparral Energy Inc.'s management reaffirmed Tuesday that the company intends to complete its post-bankruptcy transformation into a pure-play STACK (the Sooner Trend of the Anadarko Basin, mostly in Canadian and Kingfisher counties) operator with plans for up to three rigs running there through the end of next year.
In a 3Q2017 earnings conference call, CEO Earl Reynolds outlined "several significant transactions" that will help smooth Chaparral's transition to putting all its attention on its 110,000 net acres in the STACK. One of the deals is the $170 million sale of the North Burbank and Texas Panhandle enhanced oil recovery (EOR) assets within the STACK to an undisclosed buyer.
Reynolds cited the EOR asset sale as a key to greatly lowering Chaparral’s overall debt and increasing liquidity and borrowing power. Chaparral is on track to close the sale by end of this month.
The transaction would reduce future production by about 5,700 boe/d. The company produced 24,500 boe/d during the third quarter, up 3% from the year-ago period. Reynolds said Chaparral is forecasting total production of 21,000-21,400 boe/d this quarter. STACK activity will provide growth in 4Q2017, Reynolds said, noting that he expects year-end production to be about 11,000 boe/d.
Chaparral filed for Chapter 11 bankruptcy protection in May 2016 and exited those proceedings earlier this year having shed $1.2 billion in debt. The company formed a drilling joint venture (JV) in September with Bayou City Energy to help fund development of its STACK acreage.
Although it accounted for less than half of Chaparral's overall 3Q2017 production, the STACK's year/year output jumped 34% and 12% sequentially to 10,300 boe/d.
Growth in the STACK is expected to be aided by the new $100 million JV with Bayou City. The partnership calls for 30 new wells, and Reynolds told analysts on the conference call that the agreement could be expanded. He also said Chaparral is on the lookout for other JVs.
Reynolds touted Bayou's willingness to invest in Chaparral as underscoring the potential of the company's STACK holdings. "Our current rig schedule has us running one JV rig through 2018, and I think we will be entering other joint ventures as we go through next year," Reynolds said. "We have a real constrained balance sheet, so we'll look for opportunities to add more JVs at the right time."
The current JV is going to allow Chaparral to "accelerate its learning curve" in Garfield and Canadian Counties, he said. "First things first, we want to get this [Bayou] JV going and bring in some results."
Looking forward, Reynolds said in 4Q2017 Chaparral expects STACK production to grow "at a modest pace," primarily driven by the JV. Capital investment overall is to be reduced next year -- except for the STACK -- where it will be increased by $20 million, he said. "We do expect our near-term STACK production to be somewhat muted due to the [current] integration of the JV program, but we anticipate our annual production growth to be on an excellent trajectory."
Third quarter revenue was $75.9 million, compared to $65.8 million in 2Q2017. Chaparral still reported a net loss of $19.1 million (minus 42 cents/share) for the period, compared to a net loss of $5.4 million in the same period last year. Third quarter financial results were primarily driven by $15.4 million of hedge losses.