Chaparral Steel Company (CHAP) Tops Q1 EPS by 13c

Chaparral Steel Company (NYSE: CHAP) reported Q1 EPS of $0.11, $0.13 better than the analyst estimate of ($0.02).

• Achieved first quarter 2020 production of 30.7 thousand barrels of oil equivalent per day (MBoe/d), exceeding the high end of guidance
• Reported net income of $4.9 million for the first quarter of 2020, or $0.11 per share, which included a $71.4 million non-cash ceiling test impairment partially offset by a non-cash mark to market gain on derivatives of $69.2 million; adjusted net income, as defined below, was $10.8 million, or $0.23 per diluted share
• Maintained strong Adjusted EBITDA, as defined below, of $40.7 million despite an approximate 19% and 22% decrease in WTI oil prices and Henry Hub natural gas prices compared to the fourth quarter of 2019
• Decisively responding to current environment by:o Stopping all drilling and completion activities, provided notice to rig providers in early March and released both rigs by April 8, 2020o Shutting in non-essential oil production to avoid exposure to abnormally low pricing for May crude saleso Continuing to reduce absolute lease operating expense (LOE) and general and administrative (G&A) costs
• Engaged advisors to assist in evaluating all strategic alternatives

“The global COVID-19 pandemic and the separate actions taken earlier in the year by Saudi Arabia and Russia have created an unprecedented environment causing significant uncertainty across the oil sector,” said Chief Executive Officer Chuck Duginski. “During these turbulent conditions, we continue to execute operationally at a very high level and we have managed through the pricing and logistical challenges that we have faced in this current environment.”

“This can be seen in our strong first quarter results where we performed well on the factors within our control. Production increased and was above the high end of guidance due to strong well results and operational performance.

In addition, we continue to capture savings in both LOE and G&A which were lower as compared to the fourth quarter, all while putting the health and safety of our workers and contractors first. The solid operational performance, coupled with our hedge position, resulted in strong first quarter Adjusted EBITDA generation of nearly $41 million. Despite these successes, the near term environment is, obviously, extraordinarily challenging.”

“In response to the current environment, we have taken decisive action to minimize our capital spend, maximize our annual cash flow and provide financial stability. Leveraging our operational flexibility and strong 2020 oil hedge book, we are reducing our exposure to the current abnormally low wellhead prices and maximizing cash flow for the year. In early April, we stopped all drilling and completion operations and shut-in the six well Greenback pad, which was performing above expectations after coming online in early March. We have also deferred completions of our three most recently drilled wells.” “The historic price shock in the final days of the May crude futures contract will have an ongoing effect on realized prices for May. To minimize exposure to the abnormally low wellhead price for crude oil, the Company has begun to shut-in substantially all non-essential oil production, which excludes oil wells associated with waterfloods and those with well-specific mechanical or other risks. In the process of shutting-in wells, we will increase crude storage at our operated well sites to be positioned for a rapid restart of sales when prices recover. These operational adjustments will, of course, result in lower production and lower costs in the second quarter, but we believe it is limiting our exposure to low near- term pricing and preserving future value. Given the uncertain environment, we remain cautious on providing detailed guidance for the second quarter or for 2020.”

“In April, as a precautionary measure in order to increase our cash position, we borrowed an additional $105 million under our revolving credit facility. That, along with the reduction in capital spend and our 2020 oil hedge book provide the Company with incremental flexibility as we navigate the current volatile market. We have also engaged advisors to assist in evaluating strategic alternatives during this challenging time. In all of this, the overarching theme is that we are operating prudently and excelling at the things that we can control while taking proactive, measured and decisive action to address the very difficult near-term environment and best position Chaparral for sustained success.”

For earnings history and earnings-related data on Chaparral Steel Company (CHAP) click here.

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