Q4 2020 Whiting Petroleum Corp Earnings Call
Good morning, My name is Keith and I'll be your conference facilitator today, well the why do you petroleum's fourth quarter of 'twenty 'twenty Conference call.
Call will be limited to 45 minutes, including Q&A.
All lines of of placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer of periods. If you would like to ask a question. Please press Star then the number one of your telephone keypad.
If you'd like to withdraw your question. Please press Star then the number two on your telephone keypad.
Please limit yourself to one question on one follow up and as a reminder, this conference is being recorded on now I'll turn the call over to Brandon Day, Whiting Investor Relations manager.
Thank you Keith.
Good morning, everyone. This is Brandon day, Whiting Investor Relations manager.
You for joining us to discuss Whiting fourth quarter results from the period ended December 31 2020.
With me today is Whiting CEO Lynn Peterson.
Also available to answer questions during the Q&A session will be our CFO Jimmy Henderson.
Ill chip rimer, and VP of commercial Joanne Stockton.
Please be advised that our remarks today, including 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.
The relevant definitions and GAAP reconciliations may be found in our earnings release and 10-K.
Which can be found on our website at Whiting dotcom.
Investor Relations section.
Following the prepared remarks time permitting we'll open the call to your questions I would like to remind everyone that a replay of this audio webcast will be available via the company's investor Relations page at Www Dot Whiting Dot com.
Now I'd like to turn the call over to the CEO of Whiting Whiting Petroleum Mr. Lynn Peterson.
Thanks, Brandon good.
Good morning, everyone and thank you for joining us today.
Everyone continues to stay safe and healthy.
We filed our 10-K yesterday can you can refer to it for detailed information so I hope to highlight some of the significant items.
Let me begin with a huge understatement.
The thing else 2020, broad change and as we embark on a whole new year. The company is in excellent shape, both financially and operationally.
The Whiting team has done a wonderful job scrubbing and challenging every construe out the company.
We have reduced staffing cut salaries to reflect the current state of the industry and <unk> compensation plan for the executive team of more closely aligns with our shareholders as we look to reset the company.
Our results in the fourth quarter begin to reflect these efforts as shown by our free cash flow.
This call marks the end of the road for the year of 2020, and now we can truly focus on of future for Whiting.
We are all well positioned to take advantage of of solid asset base, a strong financial position and a team of talented employees.
Before getting into the financial and operating results I would like to give a shout out to our staff for the safety record in 2020.
The company reported its lowest total recordable incident rate in the history of the company.
Company also exceeded the state of North Dakota gas capture rate.
Any exemptions and will continue to strive to improve in all areas.
Okay and is projected to be paid down to approximately 275 million as we exit February.
We will have paid down of 150 million since September 1st and as we generate free cash flow. We will continue to reduce our borrowings as that is part of our credit facility that will setup of emergence and as our liquidity and dry powder as we think about future opportunities.
Our production of where the quarter average 91, 7000 barrels of oil equivalent of which 61% was crude oil.
The company's production continued to decline through the quarter and into the end of the year.
R Capital program and guidance is designed to essentially hold 2021 production flat from our December 31, 2020 exit right and we estimate full year of 2021 production to be in the range of 82 to 88000 barrels of oil equivalent per day and oil to be in the range of 40.
Eight to 52000 barrels of oil per day.
We've spent $21 million on capital expenditures during the fourth quarter to bring five wells entrepreneur Duction and commenced completion of operations on an additional six wells.
In 2021, we expect to spend $240 million at the midpoint of our capital expenditure guidance.
We currently have one drilling rig running in our Spanish filled in North Dakota, and anticipate of second rig could be added in late 2021.
We also have one on completion crew operating in the form of viewed area.
We plan on turning 56 wells to production in 2021 of which 13 are scheduled for the first quarter that were drilled on uncompleted wells as of year end.
Least operating expenses were $55 million or $6 and 57 per Bowie for the fourth quarter.
The benefit of our cost cutting measures along with better than expected weather, an extended ESP run times positively impact of the quarter.
I will note that winter has since returned to North Dakota in early February where temperatures have been below zero four the most consecutive days since 1936 with temperatures frequently reaching negative 20 degrees Fahrenheit.
The operation teams continues to perform well. Despite these harsh conditions, but we do expect operating cost of increased somewhat of in the first quarter of 2021 as has been shown historically.
We anticipate an active workover program throughout the year to keep production flowing on our based portfolio of older Wells.
Moving to some of the recent regulations of Federal Appeals Court ruling in January affirmed the district Court's order to vacate the Dakota access pipeline easement and directed the court prepare and Eas of which was previously underway.
USL on record requested a two month continuance of the February 10th status conference ordered by the District Court.
To allow additional time to brief of new administration, and confirm where the pipeline will continue to operate while their environmental impact study takes place.
We have and will continue to secure alternative market arrangements to help mitigate the potential impact of an unfavorable outcome. We continue to believe that even with this of exposure are of 2021 average oil price differentials will be similar to what we experienced in the second half of 2020, both an average and <unk>.
<unk> ability.
There has been of focus unexploded of federal acreage as of Biden as part of the Biden administration, we have very limited exposure in North Dakota, and expect very minimal impacts to our future plans because of any potential restrictions of could be put in place.
To ensure our ability to fund our Capex program and generate free cash flow we of continue to layer on commodity price hedges as a reminder, under our credit facility. We are required to hedge certain minimum levels of our PDP production and we have exceeded those levels for the coming year.
We currently have 70% of our total forecasted crude oil hedged in 2021, and 75 per cent of our natural gas.
We have utilized a combination of fixed price clubs and colors, which are further detailed in our 10-K.
As we of guide previously we believe we will generate over $150 million of free cash flow in 2021 at a $45 wty crude oil price and of 250 Nymex natural gas price.
As a rule of thumb for every one dollar moving <unk>.
Excuse me, where everyone moving <unk>.
We expect approximately 10 million change and cash flows.
But this will be affected by hedging at very price levels.
During during.
During 2020, we made a concerted effort to overhaul our internal reservoir engineering team as well as engaging Netherlands to on associates as our third party independent engineering firm.
Are estimated proved reserves for 260 million barrels of oil equivalent with a peavey 10 of 1.2 million at December 31, 2020, compared to 485 million barrels of oil equivalent in 2019.
The two most significant components of the reduction in the reserves were pricing and activity level.
The pricing per barrel under FCC rules for December 31, 2020 was approximately $40 per barrel compared to December 31, 2019, which was approximately $56 per barrel or a total reduction of just over $16 per barrel.
Gas per Mcf decreased of $1.99 from $250 for the same two periods.
The reduction in the company's activity from early 2022 late 2020 had a ripple effect throughout the through the inability to book proved undeveloped locations.
Of fall outside of the FCC five year rule.
Combined with a more conservative approach to pud bookings going forward.
Interestingly since we have experienced of significant change in wty pricing over the last few months, we wanted to internally run our reserves of $50 per barrel and $3 natural gas to see the impact on our reserves.
This pricing increase.
Increased our proved reserves by approximately 20% and doubled our peavey 10 values.
The commodity price increase also has a positive impact on our future drilling locations expanding our economic drilling inventory of over six years modelling a to rig program.
We remain steadfast in our strategy of generating free cash flow.
Why of mitigating the impact of production declines.
In the near term and in accordance with our credit facility. We will use of free cash flow to continue paying down debt to insured continued liquidity longer term, we will look to our options of returning capital shareholders.
Lastly, one housekeeping item as you may have seen in the pre release, we agreed to of settlement.
With a general unsecured claimant, where we released approximately 949000 shares from the bankruptcy settlement for an exchange for release of claims, which eliminates certain obligations and a red tail project.
These shares have of lockup feature preventing the sale of more than 15% of the share during any 30 day period.
After the settlement our share count is approximately 39 million beginning in the first quarter of 2021.
With that I'll turn it back to the operator and open it up for questions. Thank you.
Yes. Thank you we will now begin the question and answer session to ask a question may hostile of on one on your touched on a farm and hanging on speaker phone. Please pick up on your hands have been cooperating of he's just try of question. Please press start on sale Tylenol pause momentarily to some of the roster.
And the first question comes from Leo Ariadne with Keybanc.
Hey, guys just wanted to.
Follow up a little bit on that last comment on that you guys know on.
In terms of the chairs in the reserve per unsecured claimants are out of the bankruptcy talk about 900 and some from thousand.
That was all of those color of resolved or other other.
Potential issues.
Absorbed reliable on of all crime.
Four and a layer of and let Jimmy.
Sure of address that please.
Yeah, I think we've got a good disclosure about this on the 10-K, but we reserves three 1 million shares for these types of claims and we still have.
Some some remaining unsecured claims to be cleaned up and it will take some time to.
Go through that process.
This one was.
Was we were both sides were equally motivated to to get it solved so that we can continue to work together going forward and but we have some other.
Legal claims that.
Will continue to work through for the remainder of the year basically.
Okay.
Of course with respect to.
And then all of you guys have been terrible vocal about maintaining will fall on those.
Okay in order to constantly Oregon, some acquisitions at some point in time I also <unk> a couple of deals are out of the bottle.
<unk> was one of the little song sort of those details of spots on <unk>.
Focused on the back on I also kind of looking at other based on some of this any kind of spotty hold on on on.
Yeah, we're very familiar with the transactions that occurred they're both of a little bit unique in certain respects. So.
We chose at this point, we're going to continue to look at our opportunities whether it's back on or wherever I mean.
We're looking for the right opportunity.
We do know the boat Bakken and that's where our focus is than I expected to remain so yes.
Yes, we can kind of comment too many items are.
Understood to share now that's helpful and you guys talk about a second rig Patel.
Potentially late this year, what really just to kind of setup of television program potentially and <unk>, what's the thought process, though.
Yeah, the whole of thought as to build our drilled uncompleted count up so we can maintain our 22 production level.
Otherwise everything starts to drop or on the end of the year on the first part of 2022. So I think we've got to kind of plan laid third quarter early fourth quarter timeframe to bring it in.
Okay. Thanks cash.
You bet. Thank you.
Thank you and the next question comes from Neil Diamond of Suntrust.
Well now.
First question is just thoughts around lighting of inventory all Rachel recently leader kind of laid out that show on I. Thank God as I recall as many about 432 cor locations at 55, so really of Lynn obviously nice increase of 50 scientists on that question is.
What type of kind of increase will be continue to see now that we're at 16 of random to 65, and maybe could you talk about how I am just kind of wondering again when you. When you look at these locations other pretty widely spread throughout or is it.
Couple of the other ones that of TARP on some of the others.
Or more of a centrally located.
Yeah, and I'll, let chip jump in here as well, but.
I think generally we put $55, we don't want to get ahead of ourselves here. So I think.
Due to that inventory number of growing and certainly as we get to 60, we see an increase as well but.
Chip you mind walking true.
Kind of where we see all of these locations in general Yeah. So you got a.
I appreciate the question so of course, our core Spanish and we will see probably over.
As of 200 locations in Sanish that we see.
As we get in that 50 range Cassandra kicks in around 40, or so and then as we get in the form of Butte at 55, we're seeing of 100 120 locations as we go and so is price of grew up we continue to see that continue to grow.
Not as much of pronghorn keep anything down I'm just on and on.
South of Longhorn is going to be a lot has to activate a lot higher.
Okay. Okay on all of our thanks Bye.
Poor area of their Neal yeah.
Got it got it and then just one more for Jimmy again can you remind me of I'd Neil Neil.
Just let me add one comment I mean, we did state that these are there are economic conditions of these dollar price yeah. It's important to know there's obviously a lot of locations out here.
Of uncertainty levels of oil pricing. So this hurts our our rate of return level and also there is a little bit of red tailed that takes off also it and that 50 55 will.
No I think we all appreciate that Linda that I think it's a number of that I don't want to say before we didn't trust, but it's a number of it definitely hang on had on that I really appreciate that led on.
And on Jimmy just of a follow up is on T.
<unk> remind me post kind of when you came out of restructuring I think there was some sort of stipulation as in there regarding your <unk>, what the repayment needs to be is it before you can do shareholder buybacks or other shareholder returns are different things like that I, just decided not to move on clear on that.
Yeah and are.
<unk> that our exit facility. If you will does have a.
A requirement to get too.
Basically September.
And show a history of free cash flow before we would be able to make.
Dividends are buyback start.
I think if we were.
<unk>.
And of position and and desire to we could probably pushed on that a little bit, but that's kind of of what we've been adhering to and.
We went on as we've said in the script and.
We want to continue to pay down debt because that is our liquidity that to pursue opportunities going forward and so that's still are preferred.
Use of free cash flow of at this point for.
For the for.
For the short medium term I'd say, that's that's B R focus.
Shell out of Jimmy when you get down to zero that day, you can't be much better.
We're not there [laughter].
We get there pretty quick.
We.
We hope to not get to that point because.
We hope opportunities present themselves that we can reinvest this.
<unk>, but.
At some point with just go on status quo, you get they're pretty quick you guys have done the modeling and kind.
I think everybody.
Knows the pace of our ability to pay down that debt.
Great Great job guys. Thanks, a lot of.
Now.
Thank you and the next question comes from David Deco Bond with Colin.
Wondering linens remains of of one thanks for taking the time.
Good point of of it.
I am going to follow up real quick just on the fourth quarter.
And the and the out of date that you guys put out before he reported the quarter of you highlighted that.
Production with a little bit better than expected on a more favorable based on line.
Can you elaborate a little bit on that.
Is this gain.
In case of just having more uptime.
<unk> on improves reservoir performance.
I'll, let chip address on main generally speaking I think we had some nice weather in the fourth quarter and we have a little bit of head on our activity pace, but chip.
Yeah I appreciate the question so.
We created of based management team here.
Guess it was just coming out of.
Of chapter 11, there and wound up they have really been focusing on downtime and so part of that is good weather, we had our lowest.
Downtime in three years in the fourth quarter, which really helped us going forward. So some of our run times also of extended so we might we manage our run times on our on see how long are.
Artificial lift is going and those extended almost 7% over year over year from fourth quarter of fourth quarter of some of the run times going longer we've got the downtime better and then you get better oil.
So.
To ask one of activity no you are working down some of the documents from a new bunch of area.
Industrial teenage partial area of chili as soon as a secondary.
On a close around or is this going to be mostly.
Finish partial sales program.
I think we will initially moving it into the Sanish area of David.
To our our goals are right now at least that's correct.
And then on the.
To follow up on some of the M&A day.
Sessions on the.
You can't say a lot, but I guess.
One can you characterize I guess, how how how many opportunities are out all day.
Can you elaborate a little bit on the pipeline and I guess I would wonder as well as you of evaluated some of the deals note that many of the deal of especially in the backing.
Of a very heavy PDP component.
When you look at value creation per waiting right now.
Are you looking for something that has a bit more of an undeveloped of sales of it.
The good question David.
We're trying to look at everything I guess I'll start there.
You're right the based on his older. It's on like the Mall Tour basin. So most of these do have a very high component frankly most of them.
Don't have a lot of inventory of going forward. So I think that is one of the challenges were faced here is how how do we try to get both of those situations.
Location of the acreage is also important.
<unk>.
Do we want to be on the reservation do we want to be off the reservation of these or questions that we have to ask ourselves.
So.
It's a myriad of questions and.
I think we look at every PDP deal and we are trying to find some pockets of undeveloped, but again I think we're all probably limited in this call. It a five day year range of inventory here, depending on what oil prices do I mean, we look at of $55 of oil price of thing.
Every package you look at is kind of similar in nature.
Hello.
Like I said with standard.
But some of any of those types of deals out there there's nothing that really in terms of the page that with the standard of those of that.
Change because of us.
Similarly.
Yeah.
It's an interesting environment, but again I also think of we can.
Find that situation to double where we have today, we're better shape because again some of those who will be.
Two of the cost we can work on.
Overhead costs on these type of things, which will be bring value to the bottom line. So I think there is definitely merit in looking at all of these and I do believe size of scale matters.
Change my mind, there at all we've got of grow here.
And we've got to figure that are path forward here.
Of the local and Kaney, Kansas.
Yeah Good area David Thank you.
Okay.
Thank you and the last question comes from know partially Tony Brothers.
Hey, good morning.
Normally.
I just wanted to touch back on on on the Workover program that.
You are putting per capital into this year.
Talk a little bit about the.
The cost of.
Sort of productivity or.
Returns, you think you might get out of them and.
How you come up with the priority of from.
Which areas or.
Which will scaffold first.
Yeah, We think it's our best dollar spent I'll, let maybe chip walk through our focus on how we go about.
This process.
No.
Let's start of we have two meetings of week on the production side with all of our operations.
And we're looking to see what the best opportunities are out there all of our fields and so we have a team that manages our work of of rigs we have about 25, plus or minus rigs at work out there that team goes towards most economic of wealth. They all of our best.
Returns and so that's what we focus on the guys will look at it and where do we need rigs, we need rigs up in Williston or down in Watford city, or where that might be and manage on a daily basis that wasn't always the case a couple of years ago and now I love of the way. The teams are working on the operate together.
Managing their business our team.
Inside of here down in Denver manages runs economics, which will is to go in and then we focus on those we focus on the cost managing the costs across the board to make sure we're getting the best Bang for the Buck.
To us from area, where the weather hits Us This february of whether it's pretty tough.
Workover rig is not protected so.
Those are out in the exposure so you're out of your point of the weather was brutal in February.
The joined rig doesn't lose of beat the.
Completions, just a little slower because of the work of a rigs just can't work on that and so we are going to pick up a couple of additional rigs to manage that but that's easily managed.
Great. Thanks for the details and that.
Just from the law Pantoyl standpoint.
Well most of what you do is hero windup capex of will.
Of wind up in a low.
Get a component of both.
Just kind of depends on what what day. The work is involved in general or you can.
If you're improving reserves are adding reserves than we would call it of capital, but for the most part these're repair type operations, so primarily gumby and other way.
Of of 25, probably 20 of those are working out of the way.
Alright, and are prepared remarks, Norway mentioned that.
We expect how are we to increase from the lower levels that we saw in the last part of 2020 and a lot of that is due to increase work over expense just keeping these wells maintained and up and running.
Alright, thanks, and didn't make the connection before.
Helpful. Thanks, a lot.
Alright, thanks of all.
Thank you both Panama there are no further questions of this time I was kind of far back to management of closing remarks. Thanks.
Alrighty. Thank you everyone will be attending some virtual comforters over the coming quarters sure hope at some point, we can have some face to face meetings, but for now everything will continue to be virtual.
Like to thank everybody for joining us. This morning, your interest from Whiting once again, one of the staff here Whiting for the work that has gone on over the last 12 months then.
Certainly a change of.
Working remotely and a large part of this so.
Just a huge shot out of the staff from what they've done here.
We're really looking forward to of 2021, we think we're starting the year in a great spot.
I've seen of nice boost of the oil prices here.
And we're excited of what lies ahead of us so thanks, everybody stay safe and.
Enjoy your day. Thank you.
Thank you.
Today's teleconference. Thank you for attending today's presentation made out of central lines.