Q3 2020 Whiting Petroleum Corp Earnings Call

Good morning, My name is Matt I will be your conference facilitator today welcome to Whiting Petroleums third quarter 2020 conference call the call will be limited to 45 minutes, including human <unk>.

All lines have been placed on mute to prevent any background noise.

After the speakers remarks, there will be a question and answer period, if you'd like to ask a question simply press Star then the number one on your telephone keypad, if youd like to withdraw your question Press Star then the number two on your telephone keypad. Please limit your questions to one question and one follow up I will now turn the call over to brand them day weddings Investor Relations Ma'am.

Sure.

Thank you Matt Good morning, everyone. This is Brandon day Whiting Investor Relations manager. Thank you for joining us to discuss Whiting third quarter results for the period ended September Thirtyth 2020.

With me today is Whiting CEO Lynn Peterson.

Also available to answer questions during the Q and a session will be our CFO, Jimmy Henderson, and our COO chip writer.

Please be advised that our remarks today, including the answers to your questions include forward looking statements within the meaning of the private Securities Litigation Reform Act.

These forward looking statements are subject to risks and uncertainties that could cause actual results to materially different from those currently anticipated.

Those include risks relating to commodity prices competition technology, environmental and regulatory compliance.

Midstream availability and others described in our filings with the Securities and Exchange Commission, which are incorporated by reference.

We disclaim any obligation to update these forward looking statements.

In addition, we may provide certain non-GAAP financial information in this call.

Relevant definitions and GAAP reconciliations may be found in our earnings release, and 10-Q, which can be found on our website at Whiting Dot com in the Investor Relations section.

Following the prepared remarks time permitting well open the call to your questions.

Like remind everyone that a replay of this audio webcast will be available via the company's investor Relations page at Whiting Dotcom.

I'd now like to turn the call over to our CEO Whiting Petroleum Mr. Lynn Peterson.

Thanks, Brandon Good morning, everyone and thank you for joining us today.

We filed our 10-Q last evening and you can refer to it for detailed information.

I'm sure. There are a few you that probably thought you'd seen the last Jimmy and myself, but here we are again.

We are excited about the opportunities that lie ahead and are delighted to work alongside chip Brimer, our chief operating officer as well as the entire Whiting staff and our combined efforts to rebuild the company.

We have been here just a short time, but have been impressed with a great team of employees that have helped why didn't get through this tough time.

We emerged from bankruptcy on September 1st with a strong balance sheet and we intend to carry forward a very disciplined financial program. During these challenging industry conditions.

The oil and gas industry continues to experience commodity volatility and is adapting to a lower price environment.

As such we have made strides to improve our cost structure and streamline operations.

In addition to reducing our total workforce all officers along with a broad group of employees. So a decrease in compensation.

Furthermore, we continue to refine our compensation programs to ensure alignment with our shareholder returns.

These actions taken in the third quarter are expected to generate approximately 20 million in annualized savings in 2021.

We will continue to address kuna expenses and try to make impacts wherever possible.

EBITDAX for the quarter was 100 million after adjusting for nonrecurring items related to the restructuring and reorganization.

The free cash flow generated during the quarter went towards paying down debt.

Resulting in the current 400 million drawn on our revolver, along with 13 million in cash providing 363 million in liquidity.

I would now like to folks an operation where the team has performed at a high level.

For the three months ended September Thirtyth 2020 production averaged 93.9 thousand barrels of oil equivalent MB OE per day of which 60% was crude oil.

During the same period, we spent 10 million on capital expenditures and brought seven wells onto production.

The flush production from these wells materially enhance the quarter's production.

We anticipate spending approximately 27 million in the fourth quarter, while pushing five wells on production and commencing completion operations on additional wells.

Bringing full year capital expenditures to midpoint guidance of $215 million.

We are estimating full year production to be in a range of 98 to 99 Mboe per day at the same 60% oil cut mentioned earlier.

However, due to the timing of these completions as well as a decline from producing wells, we expect our exit for the year at about 10% under the full year production rate.

Our strategy for Whiting will be a continued disciplined focus on generating free cash flow along with attenuating the impact of production declines.

Free cash flow generated generated by this business plan provides us with options to allocate capital towards opportunities that are most accretive to the value of the stock.

In the near term, we will use of free cash flow to continue paying down debt to ensure continued liquidity.

Longer term. However, we will look at our options of returning capital back to shareholders.

Despite the continued challenging environment for the energy sector, our low level of debt combined combined with a moderate declining asset base.

Gives us a strong foundation to build upon this strategy.

As we move through the fourth quarter, we're continuing to refine our 2021 outlook.

Under the current commodity environment, we anticipate spending approximately half of our expected EBITDAX towards drilling and completion operations and the balance would be utilized to pay down debt.

Using current consensus pricing for 2021, we see capital spending at a similar level as our 2020 expenditures provide.

Providing us the opportunity to keep 2021 production relatively flat to the fourth quarter 2020 exit levels.

While we understand the challenges rather the volatility of commodity prices. This type of program would generate an attractive free cash flow yield in 2021.

Moving further downstream the appeal process related to the Dakota access pipeline is ongoing with.

With oral arguments taken place this past Wednesday regarding whether knee ice will be required.

We are expecting a decision from the DC Circuit Court of appeals by the end of the year or early Q1, 2021 as well as a decision from the district Court regarding continued operations should any I asked be required.

We have and will continue searching and securing alternative market arrangements to help mitigate the potential impact of an unfavorable ruling.

Ultimately as we continue to experience volatility in commodity pricing as well as in certain news around the netbacks of our products. We have multiple levers that we can utilize to decelerate activity. If we do not like the economic outcome.

Consolidation within our industry continues to be one of the most significant discussion points with investors.

We have seen this recently occur within the larger Matt market cap companies and we need to see this trend continue into this mid and small cap universe. It.

It is our endeavor to be a part of the future discussions and progression as we continue to redefine the industry.

Before we jump into queue, an a. I would like to welcome Scott Reagan as our New General Counsel Scott has been with the company over five years and will provide a seamless transition.

We would like to also thank Bruce the board for his long service at Whiting and wish him the best his retirement.

As we look forward to working on his golf game enjoying this family.

With that we'd like to open it up to questions. Thank you.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two please limit your questions to one question and one follow up at this.

Time, we will pause momentarily to assemble our roster.

Our first question comes from Neal Dingmann with Trust Securities. Please go ahead.

Cornell.

Hey, listen Jim My question is when you've been pretty straightforward that pretax hoping that sort of primary metric that you're looking at I'm just wondering.

Is that can meet the determinant on when and if you bring a rig back and looking at activity I'm. Just wondering could you talk a little bit about how when you and Jim you're looking at the plan for next year kind of what what is going into that.

Yes, clearly, we're all focused on doing the right thing here from financial discipline manner, you know clearly we'd like to bring a rig back we hope commodity prices will allow that as we get into 2021 I think if you look at consensus pricing again, we're in that area right. Now so yes, we're very optimistic that we move forward in that direction.

We kind of like try to lay out some goalposts, here's what we're thinking about for 2021.

We'll go through the fourth quarter and get this out to you later this year and more be more definitely on our plans.

Okay, and then I know you've been always very clear about doing what's best for shareholders of this company I know Youve passed comes down to good job with that is you know.

With that said you know what.

Right now you've had a lot there's been chatter as far as would you look to add and be a consolidate or would you guys consider obviously if somebody purchased you all you could be.

Equity lever asset for somebody Im just wondering when you think about M&A from.

Other side of that how should we think about it.

All of the above now I mean, we're here we're shareholders now we're going to try to do the right thing Weve tried to do that in the past we're going to do it here, we're excited about the opportunities.

So give us some time here, but we certainly want to move forward in that direction and again I think we will always be focused on shareholder value here.

Great to hear thanks Lynn.

Did they are now.

Our next question comes from Leo Mariani with Keybanc. Please go ahead.

Hey, guys just a.

We follow up on the M&A question I guess in the event that you know it looks likely that.

Whiting can be a consolidator when do you see out there and then the landscape.

Good opportunities in the Bakken are there distressed assets or assets that may become distressed down. The road that you guys think you might be able to get out there and hopefully by it maybe attractive price and what could be a low point that the oil price cycle here.

Yes look it lay up you know I came here for a reason to try to grow this company.

We're going to look at all opportunities, we're going to evaluate them at the time were very familiar with the lowest and obviously.

So we just need a little bit of time here to get everything moving in the right direction, obviously, we need some forward with oil prices commodity prices here, but.

We're going to try to evaluate everything possible here and there I will tell you right now our team is working diligently in that regard so.

Okay great.

Just with respect to the you know 21 outlook and now it's not from guidance at this point, but trying to hold.

Production flat here 21 versus exit rate.

Just trying to get a sense is that kind of predicated on a certain oil price do you guys. Just look at strip and say, Hey, if strip, which I guess is probably close to 40.

Next year, that's the type of price, we need to see for that outlook EPS any color you can provide on that would be helpful.

Yeah, maybe I'll, let Jimmy commented that if you don't mind, Jimmy Yes, I think you're generally like right Leo when we look at what the stripper consensus is right now for for next year. That's what our plan is based on.

And we have multiple levers to pull as we go through the year. So we're going.

We're going to be flexible with that one can see how things go I think when we when then discussed our rig activity earlier I think.

The real important thing is the cadence of completions and chip and team have done a really good job of.

Nailing down those cost and focusing on.

Being.

Really cost efficient on that side, so I think thats probably to.

The biggest lever that we have is when we pull the trigger on completing wells as we go through the year. So that's.

It will be highly dependent on on the pricing environment as we see.

As adjusted for hedges.

Our hedge book is pretty robust right now come and coming out of bankruptcy process. So we take that into consideration too so all of that.

Comes together to really define our decision, making on a real time basis.

Yes, that's right.

Any comments, Jeff any additional color there.

I agree 100% with Jim is the cadence you won't have that cadence to be able to do that efficiencies you build looking for our crews and various other things and I think we've done a great job in identifying those and I.

Extremely proud of our team we've done over the last year managing costs.

We've done a really good job there we've got a good group go forward, whether that's what.

Excites all of us.

Yeah. That's helpful color for sure and I guess, when obviously company emerged from bankruptcy very recently Union team.

Kind of came in very recently certainly looked like you.

You guys made some staff changes in gene improvements you know really rapidly just kind of looking ahead of any other sort of larger changes that you're looking at whether or not it's on the operating cost side or potentially drilling costs or any other things. You think you can do to the organization to maybe bring some improvement going forward.

No again lay our goal here to really grow the company, we're not looking to be a blow down situation.

You know.

I'm more focused on what opportunities lie ahead always continue to tweak our our team here and you always strive to improve no matter. What you do so I think as a natural part of our progression, but we're about trying to grow this company and trying to do the right thing for our shareholders here. So we're going to stay focused in that regard and and I think the rest.

Plays out.

Okay. Thanks.

You bet good period.

As a reminder, if you have a question. Please press star then one to be joined into the queue. Our next question comes from David Deckelbaum with Cowen. Please go ahead.

Morning, Light and Jimmy and gang welcome Bob.

Hey did you hear from you.

You thought you were done with turn to David.

I thought you were done to.

[laughter].

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Well then I'm curious so all in all a lot of people involved.

I think in the budget document subsequent press releases.

You're you're obviously brought on the growth of this company.

And I know you asked about the deals that are out there as you as you try to satisfy.

Free cash generation production stabilization.

When you look at your inventory do you see yourself more likely to add undeveloped locations at this point.

Or do you think it makes sense in this new paradigm, where we're going to see just some more PDP heavy deals.

To to help on the leverage in the free cash accretion side.

Well you know I think if you look at where people are trading at.

Current strip prices I mean, you can add PDP at a pretty.

Robust price my opinion, so I think anything we're going to do is going to be a combination I'd love to get a hold of some undeveloped acreage. So we can continue to work on our.

Inventory levels.

But you know again.

I guess, we're trying to look at this very unbiased and look at every opportunity and you know some will probably be more PDP heavy and I hope you will find a few that will have more opportunities for inventory, but we also got to recognize the Bakken been around for a number of years here.

There is not a great deal of remaining inventory for anyone. So these are all challenges that we have and we're going to address as we go forward here.

Do you think given those comments are you up a point, where you can be agnostic we want patients.

Thanks.

You know I think we got to be open to that again kind of goes back the maturity of the basin and so.

Well I think we do have a very very solid operating team here and I think we can handle some things.

I mean that is we're going to jump to another basin.

Tomorrow by any means but we're trying to look at every opportunity that lies out there and see what's best for our shareholders.

I appreciate it.

Last one for me.

The plant, obviously by maintaining guidance now and the 21.

I guess in the 22.

Well on track to generate free cash in each year at $40, perhaps below.

When you look at your $400 million.

Now how do you think about sort of free cash.

Quickly just to pay that down.

Hi, good leverage metric targets out there, but do you feel like you're in a little more color it should be an absolute target.

As you are dollars that is that the price.

I think there is a.

A balanced plan, where you'd like to show.

Somewhat of a return of capital, maybe some share buybacks or.

Are we trying to pay this down as quickly as possible.

No you know right now we're paying debt down because that are one avenue for look liquidity, but no. We clearly want to return to shareholders here and what's the right debt level, it's probably that one to one the half range.

Pretty comfortable where we're at today, even we're in great shape, So I mean.

This is all going to be a part of doing the right thing or with with our program and I hope we can use part of that for opportunity that rise and then I hope we can return.

A portion of that shareholders here down the road. So we just laid out or media plans of paying down debt because that's.

Focus today, but I mean, as this thing moves into 2021 and beyond we certainly.

Want to want to continue to focus on returns to shareholders here.

I don't know.

I'll queue back in if nobody else with questions, but thank you guys and welcome back.

All right I appreciate it Dave good to hear from you.

Thank you ladies and gentlemen, there are no further questions at this time I'll turn the floor back to management for closing remarks.

All right. Thanks, Matt.

Again thank.

Thank you all of you for attending this morning for leave I would like to.

To give a shout out to the Whiting staff for your efforts and dedication during this trying time.

Our team has lived with the company value of safety first and even though I know at times, there were distracted by the restructuring process and living through the cobot pandemic.

I look forward to working with his team to build a company that we can all be proud of and bring value to our shareholders.

And we'll be attending a few virtual conferences over the coming quarters.

More importantly, we look forward to speaking with our investors directly and.

Thank you for your time, if you got any questions. Please feel free to reach out to Brandon and we'll try to address those thank you very much have a great weekend appreciate your interest.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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