TransAtlantic Petroleum Ltd. (NYSEMKT:TAT) Q4 2019 Results Earnings Conference Call March 26, 2019 8:30 AM ET

Company Participants

Tabitha Bailey – General Counsel

Malone Mitchell – Chairman and CEO

Michael Hill – Chief Accounting Officer

Conference Call Participants

Chen Lin – Lin Asset Management


Ladies and gentlemen, thank you for standing by. And welcome to the Fourth Quarter 2019 TransAtlantic Petroleum Ltd. Earnings Conference Call. At this time, all participant lines are in listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advice that today’s conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Tabitha Bailey, General Counsel. Please go ahead.

Tabitha Bailey

Welcome to TransAtlantic Petroleum’s fourth quarter and year end 2019 earnings conference call. On the call today, we have Malone Mitchell, our Chairman and Chief Executive Officer; Michael Hill, our Chief Accounting Officer; and myself.

During today’s call, we will make certain forward-looking statements, which include statements regarding our belief, goals, expectations, forecasts, projections and future performance, and the assumptions underlying such statements.

Please note that, there are a number of factors that may cause actual results to materially differ from our forward-looking statements, including the factors identified and discussed in our earnings press release, which we issued after the close of business yesterday and in our SEC filings. Please recognize that except as required by law, we undertake no duty to update any forward-looking statements and you should not place undue reliance on such statements.

Now, I will turn over the call to our Chairman and Chief Executive Officer, Malone Mitchell.

Malone Mitchell

Thank you, Tabitha, and good morning, ladies and gentlemen. This morning my comments are going to be brief, and then, Michael, Tabitha or I will be glad to take your questions. Our fourth quarter 2019 results were an improvement on both the third quarter of 2019 and the fourth quarter of 2018 in many respects. But events since the beginning of the year have made most of this data irrelevant. If you have questions about the fourth quarter of 2019 or the full year, we will attempt to answer those questions later.

After reaching nearly $70 a barrel for Brent oil in January, almost declined to approximately $25 per barrel in March. Most respectable sources now forecast this could drop further over the next 30 days to 60 days before beginning a long recovery.

I along with several of our senior management and directors have seen multiple price cycles in our careers, but there is never previously been a drop in demand of the magnitude we’re currently experiencing.

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Actual numbers are hard to capture in real time. The credible estimates place reductions and consumptions at between 10 million barrels per day and 20 million barrels per day currently, while our earlier imbalances like in 2008 and ’09, 09/11 or 2014-‘15, for a magnitude of 2 million barrels per day to 4 million barrels per day.

If in fact Russia, Saudi Arabia, Iraq, Kuwait and UAE increase production several million barrels a day as they indicate, very low oil prices and very high storage will result. The drop in demand from slowing business and the Coronavirus panic is now in real, while the actuality and duration of increased production is still in the future and has an unknown duration.

We lifted our hedges on the rapid drop following the announcement of the Asia unrealized production increases. That announcement moved the market further than their announced target price. Better foresight would have realized a bit more proceeds.

The rationale to lift edges and pay 100% of those proceeds toward debt were as follows. First make a material pay down on debt and realize the bank term loan payments to basically eliminate the term loan payments on our bank debt for several months.

Next, at that time resolution of the Russia-Saudi dispute was expected to increase prices thereby reducing our proceeds.

And finally, the desire to eliminate the tendency to procrastinate on needed changes so long as the monthly hedge settlement proceeds were available to support status quo activity.

There are four levels of expenses in energy company has to pay and order the highest priority there first are production operating expenses. These are the electricity, chemical, field personnel, well repairs and some engineering necessary to keep the wells producing at their normal rates.

The cost to do this in our fields vary from $6 to $7 and our newer fields like Bahar, Yeniev and Arpatepe $6 a barrel to $7 a barrel. And the increases in our owner less productive fields like Selmo of up to $12 a barrel to $14 a barrel.

When you add the royalty, the trucking, the pipeline expenses to these costs, these fields make free cash flow when the price of oil is about $13 a barrel to $14 a barrel in our newer fields and above $18 a barrel to $20 a barrel in Selmo. We will try to cut some costs in the operating cost of the fields but our ability to do so is limited without jeopardizing operations.

Our next priority is our debt service. Since 2014, we’ve been unable to secure revolver type financing in our senior debt. In February, we were negotiating extensions with both our current bank and our new multinational bank. Those discussions were halted by the reduction in economics as a result of the oil price decline.

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Our preferred stock represents an obligation of $46,050,000 due in 2020 forward. Each month, we must elect for that quarter approximately 45 days before the end of the quarter to pay our dividend in either cash at a 12% annual rate or stock at a 16% annual rate. In February, we elected and must pay this quarter in cash. At current forecast oil prices, it is probable that all remaining 2020 preferred stock dividends must be paid in stock

Since 2015, debt for the energy industry is generally secured by what you have in producing oils for your PDP. In every well, and every field, in every country of the world, each well is depleting at recoverable reserves every day. This also means that accepting temporary increases from newly initiated secondary or tertiary floods, every well is declining in production every day.

This dictates another priority and expanding, which is to generate sufficient capital to either buy, drill or complete enough new wells or zones to offset the decline and production from your existing well base. Without this any company will continually shrink.

And finally, your additional expenditure demands come from the other G&A you have. These are all of the things which could not bring a barrel of oil out of the ground and get into the refinery and build.

Frankly, $25 oil doesn’t work very well for our oil company or any oil company. We need to make hard cuts in order to satisfy our operating expenses and very little will be left for any other priorities until we see oil prices rise substantially. The Board of Directors has been discussing our revised 2020 plan on an ongoing basis since the dramatic oil price decline. We will be releasing additional data as we approve a modified plan.

I will now open the line to questions.

Question-and-Answer Session


[Operator Instructions] Our first question comes from the line of Chen Lin with Lin Asset Management. Your line is now open.

Chen Lin

Yeah. Hi. Thank you for taking my question. Good move for removing the hedges. So you mentioned that they will remove the bad obligation for a few months. Do you know when TransAtlantic need to start paying that for the debt and you have sufficient cash flow to cover that? Thank you.

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Malone Mitchell

We’re paying interest only in our debt. We only have a single loan out now which constitutes our 2019 loan. So our interest rate on that’s about 7.25%. We’ll resume paying a partial payment in June and then we will resume paying full payments in July and those payments are about $1.4 million per month.

If everything stayed as status quo right now, we would not have sufficient money to pay that debt and maintain appropriate cash working balances through the maturity of that debt. We will make cuts with — we will make cuts and attempt to do so.

Chen Lin

Okay. Okay. Thank you. So that including maybe renegotiate with the bank for extending the loan for the period or is it possible?

Malone Mitchell

We will make that effort.

Chen Lin

All right.

Malone Mitchell

The difficulty is, obviously, yeah, but we will make that effort.

Chen Lin

Okay. Thank you, Mitchell. Yeah. I like that.

Malone Mitchell

Thank you.

Chen Lin

I have additional questions. Well, good move on the…

Malone Mitchell


Chen Lin

…removing the hedge.

Malone Mitchell

Well, perfect size would have us remove it later. Now one of our two hedges we removed at a much shorter duration. The one thing I’ve found in the history of operating hedges or anything is, it always makes you wrong, whatever trades you make, makes you wrong, and obviously, if we lifted it today, we could have realized another a little bit more money.

Chen Lin

Right. Well, you cannot time the market. I — if I remember correctly, those hedges were put in like around $70 last time we thought?

Malone Mitchell

We had one collar but it was over in April and the three way collar that had a basic $55 and then we had a fixed price edge on about a third of our oil production for the year 2020 that had, I believe, a $60.30, although, that maybe off and those numbers are all set forth in our 10-K.

Chen Lin

Okay. Thank you.

Malone Mitchell



Thank you. [Operator Instructions] We have no further questions in the queue at this time. I would now like to turn the call back to Malone Mitchell for closing remarks.

Malone Mitchell

I’d like to thank everybody that joined this morning, and as I said, we expect to update the public on the revised plan of TransAtlantic in the near future. Thank you and good morning.


Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.