Q1 2021 Whiting Petroleum Corp Earnings Call

Good morning, My name is Ian and I'll be your conference facilitator today welcome to weddings Petroleum's first quarter 2021 conference call the call being eliminated 45 minutes, including Q&A I'll line has been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer period. If you would like to ask a question. Please press Star then the number one on your telephone keypad. She would like to withdraw your question. Please press Star then two.

Please limit your questions to one question and one follow up I will now turn the call over to Brandon Day, Whiting <unk> Investor Relations manager. Please proceed.

Thank you Ian Good morning, everyone. This is Brandon day, Whiting Investor Relations manager. Thank.

Thank you for joining us to discuss Whiting first quarter results for the period ended March 31 2021.

With me today is Whiting CEO Lynn Peterson.

Also available to answer questions during the Q&A session will be our CFO Jimmy Henderson.

P O L chip rimer, and VP of commercial Jo Ann 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 be 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, which can be found on our website at Whiting Dot com in the Investor Relations section.

Following the prepared remarks time permitting we'll open the call for 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 Whiting Dot Com I.

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

Thanks, Brandon good morning, everyone and thanks for joining US today, we filed our 10-Q yesterday and you can refer to it for detailed information.

This morning's prepared remarks relatively short as the quarter went pretty much as planned and our expectations were achieved across the board.

I wanted to thank our staff for their work done during the quarter and our progress to date.

The work that was put into our planning and budgeting process late last year was executed very well by our field team despite difficult in adverse conditions caused by the winter weather.

One constant that we have working North Dakota has a knowledge of winter will return each year.

Bringing our production levels at the top of our guidance for the first quarter sets. The company up for continued success through remainder of the year.

As I look back on the past eight months, it's dragging how quickly the industry has changed as oil prices have increased significantly.

Now that oil has been trading in a range of $65 per barrel financial conditions have risen across the board.

To reflect the impact of this change on our company, we chose a conservative $55 per barrel crude price to reset our outlook.

Using that price for oil, we now expect whiting to generate approximately $550 million and EBITDAX.

And approximately $300 million in free cash flow in 2021.

Which using our current market cap, resulting in an approximate 20% free cash flow yield.

Keep in mind. This is after the effect of hedges that were required to execute upon emergence that are now obviously out of the money.

To put some context around those numbers, we reported a 39 million hedging loss for the first quarter and project over $180 million for the full year at current oil prices.

The first quarter of 2021 exemplifies the effect of this price environment and our strong asset base.

The company generated $108 million of free cash flow in the first quarter of 2021 compared to approximately $89 million in the previous quarter again net of hedge settlements.

The free cash flow generated since emerging from bankruptcy has gone towards paying down debt.

With oil prices above $60 per barrel, we clearly expect whiting to have a zero outstanding balance on its <unk> at the end of the year.

Looking closer at our financial results, we had a net loss on a GAAP basis of $1 million or <unk> <unk> per share during the quarter as compared to a loss of $1 2 million or <unk> <unk> per share per the previous quarter.

Adjusting for certain items, but primarily the mark to market of hedging instruments. We had adjusted net income of 108 million four or $2 79 per share compared to $56 million or $1 46 per share from the previous quarter.

Notably EBITDAX was $171 million compared to $154 million in the previous quarter, primarily due to the price changes as our production was relatively consistent.

Turning to operations, it's been great to get back in the oil industry, it's true drilling and completing activity.

As you recall, we brought in a completion unit in late 2020 and started up our first drilling rig back in February 2021.

The team has done a great job returning to a more active level of operations, while maintaining our safety first goal.

Our production for the quarter averaged 89 9000 barrels of oil equivalent of which 60% was crude oil.

Representing a flat line to our exit rate of December 2020, and at the high end of our corporate guidance.

We spent 56 million on capital expenditures during the first quarter to bring 14 wells onto production.

Drilled six gross operated wells and completed 15 operated wells.

We ended the quarter with 31 drilled uncompleted wells that will be completed throughout this year.

Currently both our drilling and completion activity is in our Sanish build in North Dakota as it.

What's the plan.

Lease operating expenses were $59 million or $7 34 per Boe for the first quarter of 2021.

As expected winter did return to North Dakota, and we increased our Workover program for well maintenance during the quarter.

As always I want to express my appreciation to the operations team for working through the challenging conditions in such a safe manner.

Turning to oil differentials in the first quarter, our oil differentials have been at the lower end of our guidance range as the Dakota access pipeline has remained operational with the Army Corps of engineers electing not to take enforcement action with regards to its policy on encroachments.

While continuing to monitor the ongoing E I S findings.

As we look ahead and await the pending district court ruling we estimate that even with the possibility of a near term negative outcome. Our 2021 average oil price differentials will fall within the full guidance range.

During the quarter, we secured additional crude sales and transportation arrangements that serve as flow assurance and price protection and a dapple shutdown scenario and.

In addition to supporting longer term value.

We believe we are well positioned regardless of the outcome.

As a reminder, under our credit facility, we are required to have certain minimum levels of our PDP production and we have exceeded those levels for the coming year.

We currently have approximately 68% of our total forecasted crude oil hedged in 2021 and about 75% of our natural gas.

We have utilized a combination of fixed price swaps and colors, which are detailed in our 10-Q.

On April 7th Whiting revolving credit facility was reaffirmed at $750 million by unanimous consent of the lenders of our RBS facility.

We appreciate the continued support from the lending group.

The company ended the quarter with $245 million drawn and $25 million of unrestricted cash.

Resolving and total liquidity of $527 million.

We remain focused on our strategy of generating free cash flow, while mitigating the impact of production declines.

In the near term and in accordance with our credit facility. We will use the free cash flow to continue paying down debt to ensure continued liquidity or.

Our credit facility precludes us from making any restricted payments before September and we want to continue to focus on pursuing accretive acquisitions.

Currently our board and management are evaluating all options for returning capital back to shareholders, including dividends and stock buybacks and we intend to lay out our plans later this year.

Last but not at all least our commitment to operating in an environmentally conscious and safe manner continues to be a priority of whiting.

Towards this we have established an ESG committee under the board of directors that is focused on oversight of our efforts in meeting best practices.

Further we have tied elements of ESG compensation, including safety human capital management and gas capture.

We continue to work towards transparent sustainability reporting that is index to established frameworks that are that can demonstrate our progress.

With that I will turn it back to Ian and open it up for questions. Thank you.

We will now begin the question and answer session to ask a question. Please press Star then one on your telephone keypad.

To withdraw your question. Please press Star then two at this time off policy momentarily to assemble our roster.

Our first question comes from David Dyck Obama with Cowen. Please proceed.

Good morning land and everyone. Thanks for taking my questions.

David.

And the last comment you probably going to get the most feedback on today.

As we look out here you had mentioned, obviously you're going to be debt free by the end of the year.

The strip sort of house, you guys, earning your entire enterprise value in five years.

How do you how do you kind of square that with the types of opportunities you should be looking at fees.

These are the M&A, obviously theres been several deals in the Bakken transaction values from moving higher.

What what sort of.

Is this sort of secret sauce or recipe changed versus what you would have been looking at when you guys took over the company.

Yes, David without a doubt I think things have changed dramatically I mean, when you think back eight months ago, we were in a $35 $40 environment.

I think there was several opportunities to.

To combine our clean balance sheet with.

Maybe somebody who had some debt flow.

As prices moved up people been able to.

To improve their balance sheets, and so you've seen a change there.

Well, we continue to look for is really.

Some type of transformational.

Acquisition that will bring not only PDP production, but also inventory.

I think the Bakken is one of the more mature plays out there and I think all companies are kind of pace in this for the most part and so this is what we continue to.

To focus our attention on I think.

The transaction that was announced earlier this week was interesting.

And.

I think when we read through that thing.

For equity I think this is what was interesting to me.

You can see from our most recent Q.

Have over three times of production.

From a barrels of oil from a barrels of oil equivalent certainly a much greater runway of inventory.

Yet when you.

If you look at three times a day.

The price that was paid in cash and compare that to our current market cap.

You can share a significant implied upside to our share price. So I mean these are some of the things we're trying to work through as we look at opportunities here.

So you're telling me picked up the phone and offered the company up for sale.

No.

That I've said that you can see the implied upside to our share of share Theres, an arbitrage for sure.

I guess, you know you mentioned inventory as well.

Is this commodity environment.

Causing you guys to kind of pick up the magnifying glass a bit more about what you have organically right now.

Either you know looking at including perhaps more secondary zones or re testing some concepts or do you feel like everything under the Hood is pretty well set at this point.

I think one of the things maybe chicken jumped in here with me, but one of the things. We're looking at is longer laterals in some of our areas that maybe are not quieter top tier one or two type acreage I think we're doing some of those things Jeff do you want to comment.

Correctly that we're looking at this from three mile laterals versus your typical two miles we're tweaking some of our completions and see what that does force and from our areas, especially in the foreman Butte areas and so additional sand and water we will see how those turn out this year. So we're tweaking a few things and hopefully get some upside, especially in these prices.

Yes.

Thanks for the answers guys best of luck line, yes. Thanks, David I think we want to reiterate again, our board is totally focused here, where we've had a lot of discussions.

I think there will be a dividend or a stock buyback combination of both as we look to the exit the year here.

Again, we're just trying to comply with our our revolver and our.

But stay tuned I would say I think youll be pleased.

Thanks Lynn.

Thank you.

Next question comes from Neal Dingmann of Trust Neil. Please proceed.

Alan your inventories I'm, just wondering could you walk through that again it seems like you still have a long runway I'm just wondering could you talk about current inventories, including the ducks as it sits today.

Yes, I think if you look back presentation out on our website.

Show over 400 locations at a $55 level and again, we kind of keep conservative, but that $55 range, but I think you can see as we look the next three years, it's highly focused in the Sanish area.

Chip do you want to add anything to that.

That's correct and we've got probably three quarters of those Bakken and the Finnish area and then of course.

Are those three forks, so we'll continue to focus on that area Thats our.

Our best area, we know that are very well and we're seeing great results from that so then there's the stuff down at the standards Foreman Butte areas that we think also make the make that level and looking forward to getting.

Getting some of those areas too.

Get better than what we've seen in the past and so we're like I said before we're tweaking some of our completions. We're looking at three miles and I think we're a great. Some great value out of some of those areas that we have explored.

Explored before in the past.

Great details and Lynn just that kind of by my my follow up.

Chip was saying for your chip are you doing I guess going forward.

Either at Sanish and going forward more co development you, obviously do have some other zones, you mentioned, besides Bakken and a lot of that.

Today or in the future would be doing more co development should we think about that.

Yes, I mean, its more its more Bakken in that the majority of our net we're chasing right now.

Okay. Thank you.

One last one in line just on service cost per Danny and place and yet and yet up to the north.

We're starting to see some pressures that we've been able to hold them pretty much a bay write down but I think as we look at second half of the year. We've talked about this I think you can see.

Wouldn't be spreadsheet of 5% to 8% increase over time.

Yes.

I really appreciate what our team has done on our supply chain our operations folks they've locked in contracts in the service providers. We've done a lot of strategic partnership total allow our prices to stay pretty constant.

Like Glenn said through the first three quarters may feel upside pressure on the back side Youre seeing a little bit on fuel side youre seeing a little bit on the steel side, we've locked our steel in and a little bit on the labor, but I think youre right line it'll be it'll be single digit, but you know.

To the team's credit may we actually try to think through this when we were doing our budgeting I think a lot of this has been built in I mean, you never perfect on these things, but I think we've actually.

Thought through that pretty clearly so I don't think well have any big surprises will go down.

The year here.

Thanks, guys.

Thanks Neil.

And our next question comes from Noel Parks of Tuohy Brothers. Please proceed.

Good morning.

Morning, Neil.

Great.

I just wanted to get your thoughts on.

I'm sorry.

The basin as a whole.

With a different deal activity and so forth it seems like it's kind of a.

The glass half full glass half empty. If you look at some parts of the basin and it seems like it's.

You know maturing not a lot of running room left looking at other parts in there there is still.

More and more.

More inventory out there.

And.

I guess it's.

Could you just talk a little bit about.

I guess unevenly.

<unk> has been developed at of course U being early in the Sanish area.

And just what you what you think might be revisited.

From.

Early vintage drilling out there that.

With your scale, maybe offer you an advantage that day.

Like a smaller operator of smaller consolidator it might not be able to match.

Yeah, I would say as you look at the base.

A lot of the remaining inventories in the hands of the bigger companies the majors.

The pace of activity.

Back over the last 10 years of our industry.

Companies, who are driven for growth that's what everybody wanted so there was a lot of drilling by the independents.

Where the majors I think took a different pace.

So I think when we sit there and look at day that that's where we see a lot of the remaining inventory.

These things change over time.

I guess, we're aware.

We know what we wanted to do but we can be patient and doing it we don't have to.

Knee jerk here by any means I think we're in really good shape.

And we just got to keep pushing forward here in <unk>.

And try to find some of those areas, where we can peel off some inventory.

Sure.

And just a follow up I'm sorry.

Just going to ask Jeff have you had any other thoughts in that regard no I think youre right and I think youre right spun off.

And just sort of explain the discussion Tim could the midstream part of the equation.

The pipeline and sort of federal issues that kind of a different.

Different uncertainty introduced into the mix, but.

It is.

On the spectrum models.

Hi.

Further investment in midstream versus trying to either I guess consolidate up or or consider spinning off your assets.

Just what where do you think.

What are the best hand for the midstream operations to be in these days would you say and just.

Does that play into your thoughts about consolidation.

I think when we look at.

The infrastructure of the base and I think we're in pretty good shape I think youll continue to see some consolidation on that side of it we've always set ourselves up to be operators.

The E&P side of it and stayed out of the midstream we do have some gas plants and stuff like that that will continue to evaluate and operate.

I think our whole industrial whether it's upstream or midstream is going to go through some additional consolidation here Joanne do you have any thoughts on that.

So what you are hearing in the field or anything hearing anything differently. I mean, I think as you alluded to we're going to evaluate it on a situational basis as it relates to for example, the specific plans and what our plans are layered on top of that.

Jimmy you got any comments.

Thats.

Your initial question about is the glass half full or half empty in a mature basin like this I think that.

You could say that's one of the positive things that you do have good infrastructure in place, especially at production levels that basin is occurring currently experiencing.

And we're in really good shape.

As Joanne.

Mark.

Before about where we are with dapple down and how that turns out.

Based on production levels in this in the basin generally we're in good shape.

I think you'll continue to see.

Gathering put in the ground to service our operations, but for the most part we've got some.

We've got pretty good level of service providers and good partners that we work with on that side.

Great. Thanks, a lot further perspective.

Thank 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. Thank you.

Alright, thank you.

I'd like to thank everyone for joining us this.

Morning.

And your interest line drilling will.

We will be attending from virtual conferences over the coming quarters moving forward.

Cement.

And that is in those events.

And we looked at before the meeting.

Thank you very much for your time from a great day.