Iberia Capital Partners Oil and Gas...

31
Iberia Capital Partners Oil and Gas Day May 2015

Transcript of Iberia Capital Partners Oil and Gas...

Iberia Capital Partners Oil and Gas Day May 2015

Forward-Looking & Other Cautionary Statements

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The fo l lowing presentat io n inc ludes forward - lookin g statements . These statements re late to future events , such as ant ic ipate d re venue s, earnings , bus ine ss strategie s , compet i t iv e pos i t ion or other aspects o f our operat ions or operat ing results or the industr i e s o r markets in which we operate or part ic ipate in genera l , inc ludi ng guidance regarding the t iming and locat ion of addit ional r igs , results o f the Company's dr i l l i ng program, 2015 capita l budget , the pro jected dr i l l i ng and complet ion cost sav ings and the resultant impact on 2015 capita l bud get , pro jected interna l rates o f return, results o f our hedgin g program, the abi l i ty to fund the Company’s 2015 capita l expend i t ur e budget la rgely with f ree cash, pro ject ions regardin g tota l product ion, average da i ly product ion, percentage l iqui ds , operat ing expense s, product ion ta xes as a percentage o f revenu e, G&A expens es and capita l expend i t ur e levels for 2015. Actua l outcomes and results may d i f fer mater ia l l y f rom what is express ed or forecast in such forward - lookin g statements . These statements are not guarantees o f future performance and invo lve certa in r i sks , uncerta int i e s and assumpt ion s that may prove to be incorrect and are d i f f icu l t to predic t such as o i l and gas pr ices; operat iona l hazards a nd dr i l l i ng r i sks ; potent ia l fa i lure to achieve, and potent ia l delays in achiev ing expected reserves or product ion levels f rom exist i ng and futu re o i l and gas develop m e nt pro jects ; unsuccessfu l exploratory act iv i t ies ; unexpect e d cost increases or technica l d i f f icu l t i e s in construct in g, mainta in i n g or modify i ng company fac i l i t ies ; potent ia l l iab i l i ty for remedia l act ions under ex ist i n g or future env iron m e nta l regulat io ns or f ro m pendin g or future l i t igat io n; l imited access to capita l or s igni f icant l y h igher cost o f capita l re lated to i l l iqu i d i t y or uncerta int y in the do mest ic or internat io nal f inanc ia l markets ; genera l domest ic and internat io na l economic and po l i t ica l condit ions, as wel l as changes in tax, env ironm e nta l and other laws appl icabl e to Jones Energy ’s bus in es s and other economic , bus ine ss , compet i t i v e and/or regulatory factors a f fect ing Jones Ene rgy ’ s bus ine ss genera l ly as set forth in Jones Energy ’s f i l ing s with the Secur i t ie s and Exchange Commiss ion (SEC) . We caut ion you not to p la ce undue re l iance on our forward - lookin g statements , which are only as o f the date o f th is presentat ion or as otherwise indicated , and we express l y d isc la im any responsi b i l i t y for updat ing such informat ion.

The SEC require s o i l and gas companies , in their f i l ing s with the SEC, to d isc lose proved reserves, which are those quant i t i e s o f o i l and gas , which, by ana lys is o f geosc ience and engin e er i n g data , can be est imate d with reasonable certa inty to be economica l ly produc ib l e — f ro m a g iven date forward, f rom known reservo ir s , and under ex ist i ng economic condit ions (us ing unweigh te d average 12 -month f i rst day o f the month pr ices) , operat ing methods, and governme nt regulat io ns — p r ior to the t ime at which contracts prov id in g the r ight to operate expire, unless ev ide nce indicates that renewal i s reasonably certa in, regardles s o f whether determi n i st ic or probabi l i s t ic methods are used for the e st imat io n. The SEC a lso permits the d isc losur e o f separate est imates o f probable or poss ib l e reserves that meet SEC def in i t ion s for such reserve s, however , we current ly do not d isc lose probable or poss ib l e reserves in our SEC f i l ings .

Factors a f fect ing u l t imate recovery inc lude our abi l i ty to acquire the acreage we are target ing and the scope of our ongo ing dr i l l i n g program, which wi l l be d i rect ly a f fected by the ava i labi l i t y o f capita l , dr i l l i ng and product ion costs , ava i labi l i t y o f dr i l l in g serv i ces and equip me n t , dr i l l i n g results , lease expirat ion s, t ransportat ion constra ints , regulatory approva ls and other factors ; and actua l dr i l l i ng results , inc ludi n g geo logica l and mechanica l factors a f fect ing recovery rates . Est imates o f resource potent ia l and dr i l l i n g locat ions may change s igni f ica nt l y as Jones Energy pursues acquis i t io ns. In addit ion, our product ion forecasts and expectat ions for future per iods are dependent upon many assum pt ions, inc ludi ng est imates o f product ion dec l ine rates f rom exist in g wel ls and the undertak in g and outcome of future dr i l l i n g act iv i ty , which may be af fected by s igni f icant commodity pr ice dec l ines or dr i l l i n g cost increases. U.S . investors are urged to cons ider c losely the o i l and ga s d isc losur es in our Form 10-K and other reports and f i l ings with the SEC. Copies are ava i lable f rom the SEC and f rom the Jones Energy websi te .

Who is Jones Energy?

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Experienced Operator

Midcon focus for over 26 years

Horizontal experts with >600 wells drilled

Cost Leader

“Fit for purpose” operations

30% AFE reduction since December

Trusted Partner

Numerous strategic partnerships

Expertise creates opportunities

Steward of Capital

History of value creation

Prepared for market opportunities

Key Statistics

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NYSE Ticker: JONE

Share Price: $10.83

Market Cap: $667 million

Enterprise Value:

$1.5 billion

Sponsor Ownership:

38%

Shares Outstanding:

61.6 million

Production: 26.4 MBoepd

Proved Reserves:

115.3 MMBoe

N o te : P ro v ed res erv es a s o f 1 2 / 3 1 / 1 4 . A v era g e d a i l y p ro d u ct i o n fo r Q 1 2 0 1 5 . S h a re p r i ce a s o f M a y 7 , 2 0 1 5 .

Anadarko BasinKey Formation: Cleveland

Cleveland Production: 19.0 MBoe/dArkoma Basin

Key Formation: WoodfordWoodford Production: 3.5 MBoe/d

Field Office

Austin

First Quarter 2015 Highlights

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1Q15 Production of 26.4 Mboe/d

More than 3,000 Boe/d above 4Q14

Oil production of 8.4 Mboe/d

Cleveland AFE now below $2.65 MM

Margins support additional rigs

Operational efficiencies driving cycle

time reductions

33 stage wells performing as expected

12 drilled / 11 completed

Tracking expected type curve

Borrowing base affirmed at $562.5 MM

Liquidity of ~$500 MM

Cleveland is a World Class Resource Play

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Strong results across Jones Cleveland acreage

Top wells on acreage from all four major acquisitions

Top 4 wells have IRRs greater than 100%

8 out of 10 wells have IRRs greater than 60%

TOP 10 JONE CLEVELAND WELLS1

WellIP30

(Boe/d)

Elmer Graves 615-1H 1,432

Peyton Ranch 417-1H 1,251

Kelln 65-2H 1,116

Buccaneers 11-2H 1,032

Hager Trust 616-2H 933

Robert Doyle B 614-3H 919

Robert Doyle B 614-4H 912

Peyton Ranch 417-2H 894

Elmer Graves 615-5H 838

Hager Trust 616-3H 825

Average 1,015

1 T o p 1 0 Jo n es C lev e la n d w e l l s b y I P 3 0 w i th f i r s t p ro d u ct i o n s in ce th e b eg in n in g o f 2 0 1 4 .

Crusader

Sabine

ChalkerExxonMobil

Well Location

JONE Acreage

Acquisitions

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2008 2009 2010 2011 2012 2013 2014 2015

US Rig Activity by Region as a % of Total

Midcontinent Activity Resilient

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Midcon activity has composed 20% of total US rig count throughout recent cycles

40% of Midcon rigs operated by private E&Ps

Midcon

East TX/North LA

West TX and NM

North TX

Northeast

Rockies

Other

Consistent Activity Across Multiple Price Cycles

S o u rce : R ig D a ta , T u d o r , P i cker in g , H o l t & C o .D a ta a s o f A p r i l 1 0 , 2 0 1 5

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MB

bls

Cleveland Gross Operated Oil Production

Focused on the Cleveland in 2015

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3 rigs currently running

AFE has dropped 30% since December 2014

Fourth rig by end of May (fifth rig to follow)

>30% oil uplift achieved

Frack optimization successful

33 stage OH completions provide uplift plus savings

High HBP position

>80% HBP

9 wells to be drilled in 2015 to hold leases

2014 leasing added 21,000 net acres

Jones Cleveland Locations Gross: 704Net: 477

~2,500 Cleveland locations remain

JONE Acreage

` 2015 Drilling Targets

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Day

sReduced Cycle Time Improves Efficiency and Returns

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Significant improvement in cycle time since October

Open hole completions driving further improvements

Spud to Spud

Spud to Sales

~50% improvement since Oct peak

$3.8

$2.65

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$1.0

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$3.0

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Previous AFE Current AFE

AFE

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illio

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"All-in" Cleveland AFE Achieved Cost Reductions

Cost Reductions for 33 Stage Open Hole Wells

Over 30% in negotiated cost reductions since 4Q 2014

Achieved Reductions: $1,150,000

Breakdown of Savings:

Frack Services $487,000

Rig Rates $122,000

Downhole Equipment $84,000

Drilling Fluid $73,000

Directional Drilling $66,000

Fuel & Drayage $59,000

Cement & Services $45,000

Other Items $214,000

Total $1,150,000

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Impact of Cost Reductions on Returns

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Note: Based on JONE Cleveland decline curve. IRRs reflect JONE potential cost reductions. Strip as of April 15, 2015.

Well level IRRs for 2015 Cleveland drilling program

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IRR

Well Cost ($ thousands)

Unhedged Cleveland Well Level IRRs

Strip +20% Strip +10% Strip Strip -10%

$2.65 MM AFE

Cleveland Frack Optimization Successful

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Number of Frack Stages

2004 - 2006 2007 - 2009 2010 2011 2012

4-5

8-12

20

12

20

2014

43

2015

33

2013

60

Open Hole Completion

Perf and Plug Completion

Sliding Sleeve Completion

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Avg

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lati

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il (M

bb

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Effective Frack Stages

Cumulative Oil vs. Frack Stages (at 280 days)

Strong correlation between frack stages and cumulative oil production

33 stages is appropriate frack density for Cleveland

Supported by historical Cleveland production data and frack trial

33 Frack Stages: Ideal Cleveland Density

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Actual frack trial production60

Estimated production

60 Expected frack trial production

Actual production

33 frack stages: Right answer for

Cleveland

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43

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Oil

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bp

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Oil Uplift Comparison

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Optimization Drives Oil Uplift

2015 20 Stage Type Curve

Production Data from Wells with Over 20 Stages

EUR

20 stage 33 stage

Oil (Mbbls) 81 112

Gas (MMcf) 541 545

NGL (Mbbls) 70 71

Total (Mboe) 241 274

+38% increase

2015 33 Stage Type Curve

0%

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% o

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IP9

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Oil IP90 (Boe/d)

Increased Oil with Greater Predictability

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Increased frack density means more oil and more predictable results

Only 30 Cleveland wells required to achieve type curve

Expected range of outcomes more narrow and higher on average

IP90 highly correlated with EUR

> 20 Stages

≤ 20 Stages

Cleveland Oil IP90

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th

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Incremental PV-10 Value

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Incremental Oil Revenue(1)

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Oil Uplift Has Created Significant Value

(1) Incremental oil revenue for a 33 stage open-hole well as compared to a 20 stage open-hole well for full productive life of the well. Assumes 2015 Cleveland type curve. Strip as of April 15, 2015.

$270,000 investment translates to:

$1,250,000 – $1,750,000 in incremental oil revenue per location

$475,000 – $765,000 in incremental PV-10 value per location

Value accelerates as oil price increases

~$600,000 PV-10 value

$1.0

$1.5

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$3.0

20 stage well 33 stage well

$ in

mill

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s

Cleveland Well Cost Comparison

~$270,000increase

~$1,500,000 oil revenue

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2014 LOE and G&A Costs Among the Best

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LOE per Boe Cash G&A per Boe

Note: LOE and Cash G&A per Boe calculated on full-year 2014 basis. LOE excludes ad valorem and production taxes. Peers include AREX, BBG, BCEI, CRK, CRZO, CWEI, FANG, GDP, LPI, MHR, MPO, MTDR, PDCE, PQ, REN, REXX, ROSE, SFY, and SGY.

0%

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$60 oil / $3.25 gas $30 oil / $2 gas $10 oil / $1 gas

Pro

ject

ed

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en

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Unhedged Revenue Hedge Gain

Hedges Protect 2015 Revenue

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Hedging Impact on 2015 Revenue

Only ~5% change in total revenue due to hedges

Ready for Market Opportunities with Strong Balance Sheet

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$562.5 million borrowing base reaffirmed

~$500 million in liquidity

~90% of debt outstanding matures in >7 years

2.8x net debt/EBITDAX for trailing twelve months2

1 Undrawn credit facility as of April 15, 20152 Based on net debt as of year-end 2014 and full-year 2014 EBITDAX

$0

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$ in

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Debt Maturities Summary

Undrawn credit facility1

Jones Energy – Prepared for Today and Focused on the Future

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Solid Financial Position

Plenty of liquidity; spending within cash flow

Substantial hedges at favorable prices

Mid-Continent Focus

History of success for over 26 years

Expertise creates opportunities

Operational Excellence

“Fit for purpose” operations

A leader in cost management

Focused on Value Creation

Oil uplift drives returns

Beginning to ramp activity as planned

Substantial Footprint with Running Room

Lots to do in our own backyard

Stacked pays provide growth opportunities

APPENDIX

2015 Cleveland Type Curve

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Key Statistic: Oil Gas NGL TotalIP Bbl/d Mcf/d Bbl/d Boe/d

IP30 228 641 83 418 IP90 189 612 80 371

Cumulative Production Mbbl MMcf Mbbl Mboe

1 Year 36 141 18 78 5 Year 68 294 38 155 EUR 112 545 71 274

% of Total 41% 33% 26% 100%

Key statistics shown below for 2015 Cleveland type curve (274 Mboe EUR)

Cleveland 3P EUR of 305 Mboe, but with a higher gas component

The Anadarko Basin – Prolific History with Stacked Pay Potential

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MarmatonSandstone

Lease Acreage: ~97,000Gross Locations: 566

ClevelandSandstone

Lease Acreage: ~163,000Gross Locations: 704

TonkawaSandstone

Lease Acreage: ~122,000Gross Locations: 324

Stacked pay zones provide significant development opportunities

Current Target Formations

JONE Acreage

Tonkawa – An Untapped Opportunity

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Drilled 6 wells in 2014

Target AFE of $3.5 million

Drilling program halted due to oil drop

Ready to scale when economics dictate

Industry continues to derisk acreage

Extensive vertical production footprint

Over 500 horizontal wells drilled by industry

Underdeveloped compared to Cleveland

Jones has identified 324 gross (190 net) locations as of year-end 2014

Over 3,000 additional play locations

Cleveland technical expertise derisksfuture Tonkawa development

Tonkawa2.9 million acres

Average formation depth:Tonkawa: 7,500 feetCleveland: 8,500 feetMarmaton: 9,000 feet

JONE Acreage

Marmaton Shows Promise As Others Drill Ahead

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Marmaton lies just below Cleveland

Majority of Jones Anadarko acreage lies within the Marmaton fairway

Results by other operators indicate EURs and production profiles on par with other targets in the basin

No locations booked in 1P

Jones has identified 566 gross drilling locations (334 net) as of year-end 2014

Over 2,500 additional locations in play fairway

Similar geology to Cleveland

Often referred to as “Lower Cleveland”

Completed geological study across 5 counties

Marmaton Lime1.0 million acres

Marmaton Sand2.1 million acres

Average formation depth:Tonkawa: 7,500 feetCleveland: 8,500 feetMarmaton: 9,000 feet

JONE Acreage

0

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Wel

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Drilling History by Formation

Brown Dolomite

Tonkawa

Cleveland

Granite Wash

Morrow

Woodford

Dropped all rigs in 4Q08, but ramped activity in 2010 after

prices recovered

Able to Ramp Activity as Margins Dictate

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Operational flexibility allows us to ramp activity up and down

Reduced 2015 activity with focus on the

Cleveland

2015 Full Year Guidance and 2Q Production Guidance

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2015E 2Q15E

Total Production (MMBoe) 7.9 – 8.7 2.05 – 2.15

Average Daily Production (MBoe/d) 21.7 – 23.7 22.5 – 23.5

Oil (MBbls/d) 6.6 – 7.1 6.7 – 7.0

Natural Gas (MMcf/d) 54.8 – 60.3 57.0 – 60.0

NGLs (MBbls/d) 6.0 – 6.6 6.3 – 6.6

Lease Operating Expense ($/Boe) $4.75 – $5.25

Production/Ad Valorem Taxes (% of Unhedged Revenue) 6.5% – 7.5%

Cash G&A Expense ($mm) $25.0 – $28.0

Total Capital Expenditures ($mm) $210.0

Hedge Positions

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2015 2016

2Q 3Q 4Q 1Q 2Q 3Q 4Q

Crude Swaps (Mbbl) 613 595 572 492 465 457 411

Hedge Price / Bbl $82.93 $84.60 $84.05 $83.53 $83.67 $83.64 $83.35

Natural Gas Swaps (MMcf) 5,095 4,740 4,636 4,340 4,130 3,960 3,800

Hedge Price / Mcf $4.41 $4.47 $4.45 $4.65 $4.45 $4.45 $4.37

NGLs (MBbl)

Ethane 110 101 92 15 14 12 12

Propane 226 192 168 160 146 135 126

Iso Butane 15 15 12 6 6 4 -

Butane 45 42 41 12 11 9 6

N. Gasoline 60 57 53 24 22 21 16

Total NGL 456 407 366 217 199 181 160

Hedge Price ($/gal)

Ethane $0.27 $0.27 $0.27 $0.21 $0.21 $0.21 $0.21

Propane $0.85 $0.89 $0.93 $0.55 $0.55 $0.55 $0.56

Iso Butane $1.23 $1.23 $1.25 $1.30 $1.30 $1.39 N/A

Butane $1.21 $1.21 $1.20 $1.26 $1.28 $1.32 $1.26

N. Gasoline $1.94 $1.95 $1.95 $1.99 $1.88 $1.89 $1.82

NGL Hedge Position Detail

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2015 2016

2Q 3Q 4Q 1Q 2Q 3Q 4Q

Mt. Belvieu NGLs (MBbl)

Ethane 55 50 46 - - - -

Propane 42 39 39 - - - -

Iso Butane 3 3 3 3 3 3 -

Butane 15 15 16 6 6 6 3

N. Gasoline 24 24 23 18 18 18 13

Sub-Total Mt. Belvieu 139 131 127 27 27 27 16

Hedge Price ($/gal)

Ethane $0.34 $0.34 $0.34 N/A N/A N/A N/A

Propane $1.01 $1.01 $1.01 N/A N/A N/A N/A

Iso Butane $1.55 $1.55 $1.55 $1.48 $1.48 $1.48 N/A

Butane $1.36 $1.36 $1.31 $1.42 $1.42 $1.42 $1.42

N. Gasoline $2.06 $2.06 $2.05 $2.09 $1.93 $1.93 $1.85

Conway NGLs (MBbl)

Ethane 55 51 46 15 14 12 12

Propane 184 153 129 160 146 135 126

Iso Butane 12 12 9 3 3 1 -

Butane 30 27 25 6 5 3 3

N. Gasoline 36 33 30 6 4 3 3

Sub-Total Conway 317 276 239 190 172 154 144

Hedge Price ($/gal)

Ethane $0.20 $0.20 $0.20 $0.21 $0.21 $0.21 $0.21

Propane $0.81 $0.86 $0.90 $0.55 $0.55 $0.55 $0.56

Iso Butane $1.16 $1.16 $1.15 $1.13 $1.13 $1.13 N/A

Butane $1.13 $1.13 $1.13 $1.11 $1.11 $1.11 $1.11

N. Gasoline $1.87 $1.86 $1.87 $1.70 $1.70 $1.70 $1.70

NGL Barrel Component Detail

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Cleveland Conway

Woodford Mont Belvieu

*Assumes ethane rejection in the Woodford

Ethane – 37%

Propane – 34%

Iso Butane – 5%

Butane – 12%

Natural Gasoline – 12%

Ethane – 13%

Propane – 45%

Iso Butane – 5%

Butane – 19%

Natural Gasoline – 18%

Woodford

Cleveland

Basket Ethane 37% Propane 34% Butane 12% Iso Butane 5% Natural Gasoline 12%

Basket Ethane* 13% Propane 45% Butane 19% Iso Butane 5% Natural Gasoline 18%

(80% of forecasted 2015 NGL production)

(20% of forecasted 2015 NGL production)

Corporate Structure

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Jones Energy, Inc.(NYSE: JONE)

Jones Energy Holdings, LLC

(JEH LLC)

Metalmark,Management

& Other Investors

PublicShareholders

Class A Common Stock

41% of voting power in Jones Energy, Inc.

59% of total economic interest

of JEH LLC

41% of total economic interest of

JEH LLC

Class B Common Stock

59% of voting power in Jones Energy, Inc.

Updated for recent capital markets transactions

Stock trading liquidity has improved significantly post-recent transactions

JONE company ownership summaryMetalmark 38%Jones Family and Management 22%JVL Advisors 7%GSO Capital Partners 4%Magnetar Capital 4%Remaining Shareholders 25%Total 100%