Centaurus Energy Inc. (CTA) Earnings Call Transcript & Summary

Good morning. My name is Pam, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Centaurus Energy First Quarter Earnings Conference Call. [Operator Instructions] Mr. Tawil, you may begin your conference.

Thank you very much, operator. Thank you all for joining Centaurus Energy's 2020 First quarter Conference Call. First and foremost, regarding COVID-19, we continue to hope and pray that all of the company's stakeholders are healthy and safe and continue to be so. We're excited about and encouraged by our first quarter financial results. Sequentially, the company showed improvement across the board. Production and revenues are up and costs and expenses are down. Furthermore, we're targeting further cost reductions in the business at the end of the quarter and since. We have reduced executive staffing and compensation considerably, and we expect that those measures will continue to strengthen our bottom line. After much anticipation and as referred to on our fourth quarter call of 2019, on May 19, the federal government of Argentina established a floor price for oil production in Argentina at USD 45 per barrel. This is referred to locally as the creole barrel or the barril criollo. The benefits of the price setting will not be felt immediately by producers such as Centaurus due to demand issues as I'll address in a bit. However, in the very near term, the measures may not be a boon financially. Over the medium and long term, the measure will substantially benefit Centaurus. In addition, it will financially sustain and support oil production in Argentina generally. And possibly, most importantly, it evidences the very high priority that the government of Argentina places on the energy industry. Since the end of March, there have been some significant developments in worldwide oil on the supply side and on the demand side. With regard to supply, OPEC+ is now expected to overcomply with its pledged supply curve to the total tune of 10% of global supplies. The cuts in May have already totaled 8.75 million barrels per day, well above the 8.5 million barrels per day target. Saudi Arabia has slashed exports by over 25% in the first 2 weeks of May and is aiming to cut exports for at least a dozen Asian customers in June to accommodate its 1 million barrels per day voluntary additional cut. Oil stockpiles have stopped growing in China. The country's estimated inventories fell by 9.5 million barrels in April even with the country importing approximately 10 million barrels of crude oil per day in the same month. Although the supply numbers are very encouraging, the outlook on oil is still all about short and medium-term demand. Thankfully, there too, we have witnessed encouraging data recently. First, China has returned to near pre-coronavirus consumption levels. Next, U.S. driving is nearly back to levels seen before virus lockdowns. U.S. motor gasoline supplied by energy companies rose nearly 40%. In the 3-week period ended May 8, demand for distillate fuel, including diesel, commonly used by trucks, trains and boats, is also climbing, although jet fuel consumption expectedly remains weak. Indian diesel sales were 75% higher during the first half of May compared with a month earlier, and U.K. road fuel use has also risen over the last 2 weeks. In terms of thematic changes in the post-pandemic world of oil use, a very important story is the comeback of the personal automobile. In reaction to health-related fears of utilizing mass transit, many more people worldwide are using cars. In China, some companies are asking employees to avoid public transportation at all costs. On the streets of Beijing, Shanghai and Guangzhou, morning traffic is now higher than 2019 averages, while subway use is well below normal. The same is happening in cities around the world from Ottawa to Madrid to Berlin. Cities in Florida, one of the first American states to reopen, have seen fuel sales rebound to 30% below normal levels from 50% below normal levels a few weeks ago. We will continue to watch these developments on the supply and demand side with deep interest. On the broader Argentina macro front, the country and its creditors are getting closer to a restructuring deal which would avoid default and keep open the country's access to international markets. Even though the original May 22 deadline for reaching an agreement has passed and payment of $500 million or so of interest on its bonds has passed, and therefore, the country is technically in default, the parties are still engaged on both sides, and they are making positive statements publicly about the likelihood of reaching a deal. I will now turn to a review of the financial statements and the financial performance for the first quarter. As I stated in the opening remarks, sequentially, the company showed improvement across the board. Production and revenues rose and costs and expenses declined. Our netbacks were up more than 250% year-over-year despite a 10% reduction in the price per barrel. And the netbacks increased more than fivefold quarter-over-quarter. In addition, the company's EBITDA increased materially. We expect that our production will continue to increase due to the output from Coiron Amargo Sur Este. In addition, we will continue to strive to maximize operating efficiencies. Overall, management is pleased with the company's results in the first quarter, and the leadership is looking forward to emerging stronger from the recent challenging environment. And with that, I'd like to turn the call over to the operator for questions.

[Operator Instructions] There are no questions at this time. Please proceed.

Thank you. On behalf of management and the Board of Directors of Centaurus Energy, thank you for participating in our 2020 first quarter earnings call. We look forward to speaking with you after the close of the second quarter. Have a nice day.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.