Q2 2021 Whiting Petroleum Corp Earnings Call

Good morning, My name is Tom and I will be your conference facilitator today welcome to waiting Petroleum second quarter 2021 conference call.

The call will be limited to 45 minutes, including Q&A.

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

The speaker's remarks, there will be a question and answer period. If you would like to ask a question simply press Star then the number 1 on your telephone keypad.

If you would like to withdraw your question press. The Star then the number 2 on your telephone keypad.

Please limit yourself to 1 question and 1 follow up I will now turn the call over to Brandon Day, Weightings Investor Relations manager.

Thank you Tom.

Good morning, everyone. This is Brandon day, Whiting Investor Relations manager. Thank you for joining us to discuss Whiting second quarter results for the period ended June 32021.

With me today is Whiting CEO Lynn Peterson and also available to answer questions. During the Q&A session will be our CFO, Jimmy Henderson and C O O chip rimer.

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 and this call.

The relevant definitions and GAAP reconciliations may be found in our earnings release, which can be found on our website and the 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 on our website I'd now like to turn the call over to the CEO of Whiting Petroleum Mr. Lynn Peterson.

Thanks, Brandon Good morning, everyone and thank you for joining US today, you can refer to our 10-Q, we filed yesterday and our news release for detailed information.

To start with I would like to commend our team for its continuing efforts to execute on the plan that we set out back in December.

As our first half of 2021 results demonstrate we have proven our ability to optimize our asset base and take advantage of a dramatically different economic landscape.

We are clearly and a great position with current commodity prices solid assets and enviable balance sheet and the talented team.

The impact of these strength is evident and our financial results as well as the updated guidance and I will discuss shortly.

When we combine our strong first half results with our expectations for the second half assuming crude oil price of $60 per barrel. We now expect whiting to generated approximately 700 million and EBITDAX and over $425 million and free cash flow in 2021.

Which is over a 20% free cash flow yield at our current equity price.

Looking at our financial results for the second quarter 2021, we had a net loss on a GAAP basis of $62 million or $1.57 per share during the quarter as compared to a loss of $1 million or <unk> <unk> per share for the previous quarter.

Adjusting for certain items, but primarily the mark to market of hedging instruments, we had adjusted net income of $118 million or $3 and <unk> per share compared to $108 million or $2.79 per share for the previous quarter.

Notably EBITDAX was $176 million compared to $170 million and the previous quarter.

Due to the slightly higher production and commodity prices.

Our production for the quarter averaged 92.6000 barrels of oil equivalent of which 58% was crude oil.

This compares to first quarter production of 89.9000 barrels of oil equivalents.

Our oil production has remained relative flat quarter over quarter at approximately 53000 barrels per day.

The slightly higher Boe's are attributable to an increase and ethane recoveries from our third party midstream providers with the continuation predicated on supporting ethane fundamentals.

And as such we have adjusted both our oil and BOE production forecast for the year to be above the previously guided ranges.

We now expect our oil to average 50 to 53000 barrels per day and total production to be 88 to 92000 Boe per day.

The increase also takes in consideration and a slight decrease from fourth quarter <unk> as a result of the transactions, we've recently announced.

On the Capex side, we spent $58 million during the second quarter to bring 9 gross 5.4 net wells on production and we drilled 9 gross 5.6 operated wells.

We ended the quarter with 21 gross 15, 3 drilled uncompleted wells and we anticipate exiting the current year with around 30 drilled uncompleted wells.

The company currently has a rig running and the Sanish field and it tends to bring a second rig into are concerned or prospect area and later this year.

Our completion crew was dropped and may as expected and we brought them back and into July we plan to keep a completion crew active for most of the remainder of the year with a short break and fourth quarter.

We expect to bring the crew back in December which should help smooth out our 2022 production profile.

As a result, we've tightened our guidance range of Capex to 240 million to $252 million for the full year, putting it at the high end of our previous estimates.

We like all operators are seeing some cost increases as oil remains at its current level and we have tried to adjust our numbers to reflect our expected outcome.

At the same time, our team continues to drive efficiency, which to date and more than offset the cost increase.

Lease operating expenses were $64 million or $7.61 per Boe for the second quarter of 2021.

We're seeing faster turnaround and maintenance work over days due to better weather and more efficient processes.

The benefit of this activity and as shown in our production. So we'll continue to keep these workover rigs at work as these barrels are most effective and cheapest barrels to bring online.

Again, we've tightened the range of guidance for a low 8.2 to $135 million to $245 million of roughly $7.30 per Boe.

Putting it at the high end of our previous estimate.

General and administrative expenses of $12 million was modestly higher quarter over quarter as work life continued to transition back to normal.

Overall, we continue to run less than our expectations, but we brought our guidance for G&A below the low end of the previous range a big Thanks goes to the team for holding and these costs down.

And lastly, oil differentials and the second quarter were narrower than lower and of our guidance range driven largely by the district court's decision to deny the motion for an injunction on dapple operations.

Along with and subsequent dismissal of this case.

With the risk of transportation interruptions inherently stabilize coupled.

Coupled with the overall basin production levels that remain significantly behind takeaway capacity oil.

Oil spot differentials had benefited as a result.

Pipeline and Utilizations and started trending downward from the beginning of the year and we've seen an increase on rail movements likely reflecting alternative marketing arrangements put in place prior to the dapple ruling.

Recent pipeline capacity additions and placed into service in July and August have also bolstered the continued improvement of oil differentials and as such we've revised our full year projections to reflect this.

Overall, when we look back the guidance provided back in December of 2020. We are pleased to share our progress and our ability to stay within the cost structure and still improve productivity.

Think back to that time, we had $40 oil and a possible dapple shutdown. So there are many variables going into our planning models.

Now turning to recent business development activities as previously announced the Whiting entered into 2 separate agreements to divest its red Doe assets, and Weld County, Colorado, and purchase assets, and Montreal County, North Dakota, allowing for a more focused asset portfolio.

Net oil production has to come from these 2 transactions is nearly identical so the net effect was little impact to our oil guidance.

The Colorado assets had a higher daily Boe, but the oil cut was significantly below the assets, we picked up and North Dakota.

The red tail assets and not received capital for several years and there were no plans to add activity. So it made sense to monetize that asset.

The assets acquired in the Williston basin overlap, our sanish build and expand our top tier inventory our inventory by over 60 location and.

It also included 5 drilled uncompleted wells.

That issue was 1 of the early builds developed and the Williston basin and was drilled with Wellbore asthma that is not common to today's development standards.

These early development resolved and shorter laterals and stranded tracks of land when offset D issues were operated by different companies.

The acquired assets will allow us to maximize lateral length across several D issues allow us to develop stranded resources and eliminate costs from frac protect as acreage was developed.

We were fortunate that both of these transactions came together in a timely manner.

Allowing for an attractive trade with little incremental cash consideration.

Thanks, and congrats to our team and the Counterparties on both deals were getting the agreements in place.

We look forward and closing both transactions and mid September.

Our debt levels continue to drop quickly and in spite of the 2 transactions noted above.

And we anticipate drawing something close to $90 million on our revolver, we still anticipate being and a positive cash position at year end with nothing drawn on our revolver.

Turning to ESG, we are committed to reducing our emissions and improving transparency on how we measure and report.

We are working with trade groups like a ex PC and API and our reporting comparability, while honoring sustainability frameworks like FASB.

We are also working with and established third party to measure and document our admissions.

We have stepped up efforts to coordinate discussions between our facility engineering teams and our midstream to identify plan and resolved gas capture limitations for future development.

Narrowing our focus to just the S or social part of ESG I want to compliment our staff from personally compute contributing money and then assembling school backpacks with supplies for the precious child and their fill a backpack drive for underprivileged students and the Denver area. These.

Type of efforts demonstrate the impact our company has on the communities and which we live.

Finally, let me address our plans for capital allocation with the results that we expect and the generation of significant free cash flow. We are in an enviable position financially we have had ongoing discussions internally and with our large investors or potential uses of our liquidity.

At this point and time, we continue to evaluate options and balance the desire to return capital to shareholders. While at the same time, expanding and improving our inventory.

Our opinion and this decision will continue to evolve as the economic and opportunity landscape dictate, but having only completed the bankruptcy process less than a year ago, we have decided to temporarily defer any decisions on returning capital.

And we want a return of capital decisions to be sustainable for future periods under a range of economic conditions.

With that I'll open this up for questions. Thank you.

We will now begin the question answer session.

To ask a question press Star then 1 on a touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys and to withdraw your question press star and too.

As stated before please limit yourself to 1 question and 1 follow up.

At this time, we will pause momentarily to assemble our roster.

And the first question comes from David Decal, Bob with Cowen. Please go ahead.

Morning, Lynn and Jimmy and team over there thanks for taking the questions today.

And David how are you doing.

Great.

And I did want to follow up I know, you're talking about deferring decisions on returns of capital.

I guess can you put a timeline on that and I think our prior understanding was that maybe there was a trigger point when the army Ellis fully retired.

And that we might have some more visibility. There is this something that you might be able to update the market on by the end of the year.

Yeah, I think we're moving in that direction, it's going to be towards the end of the year for the following year I mean, I think we're just we're trying to show some patience here, David think about our shareholders first and I think it always comes to our mines, we got a lot of volatility and oil prices going on here and we want to make sure that these decisions, we make have sustainability to them that we.

Can deliver and future periods kind of regardless of oil prices. So.

Yes, we're just trying to be patient and thoughtful here as we go through this.

And I appreciate that and I know, it's probably early as well but.

There is obviously a considerably.

Considerable free cash yield and that you can see on 'twenty 2 with the strip.

With that and mind does that suggest that you would be buying back shares before kind of considering outright payment in terms of cash.

And I think this is certainly 1 thing and we've looked at it and when you look at your share price and trying to.

Balance that against the dividend I mean discussions from center with US right now.

Okay.

And just ask 1 on the operations side, you guys consummated the great bolt ons over and the Sanish field and you talked about having 1 active rig there.

And does that and the activity step up at all I guess and 22 or are you guys still kind of configuring units out there and seeing where you can sort of extend some of your lateral lengths et cetera.

And they ask chip rimer here to address that and again, we havent put out 22 plans, yet, but we're moving in that direction chip, yes, David Thanks, Yeah. We.

We drilled the Spanish and pods and Thats important to US we also have to reduce and permitting for 3 mile laterals. So we're planning on right now, but we will be doing some of the low.

The other wells, we picked up with craft and 2022.

I think you can kind of look of course run a 2 rig program for 'twenty, 2 assuming that oil prices stay where they are at we will have 1 real estate and sanish when the rig comes or do Cassandra and go back and the Sanish. So.

But the most part we will have.

And of the year will be mostly Cassandra and then go back into Sanish, all kind of the eastern half of our properties from <unk> correct, yes.

And I appreciate the color and it was definitely encouraging the signs from undeveloped locations left in Sanish and so nice job. Thank you guys were.

And we're pleased with the transaction picture David.

Again press Star then 1 to join the question queue.

Next question comes from Chris and join US with RBC capital markets. Please go ahead.

Hi, yes. Thank you I guess, just kind of following up here on the deferral I guess.

Shareholder returns and you kind of comment how much.

The consideration for additional M&A or acquisitions plays into kind of that decision or that that thought process.

The recent Williston acquisition was.

And our view.

They're accretive and extended that inventory life, So I guess with that and mind whats the appetite for additional M&A and how does that play into the shareholder return.

Thought process.

And I think excuse me I think we've treated our M&A process very much like we're looking at a return of capital and we're trying to be patient. We're trying to think through these things we want to build some here and it has long term.

Sustainability here, so yeah, I think there's some more things to do up there.

At the same time, we are very well of our share aware of our shareholders and we do on returning capital, but we wanted to try to do it the right way. So again I think we're just talking patient share a little bit and.

And now everybody wants everything yesterday.

And I think when we reflected back and when we think about.

Emerging from bankruptcy and less than a year ago without maybe we ought to just give us a little more time and see what commodity prices do and how this plays out. So when you think about all those things and we're certainly trying to build some bigger and what we have here today.

Got it. Thank you and then I guess just pivoting over.

And some operational stuff I think previously you mentioned the opportunity to drill a 3 mile lateral can you just provide an update on on when you expect.

To move forward with that and then the opportunity for I guess additional ultra long lateral development.

And as chip, maybe if you don't mind.

And we typically see Chris on or we go over to 3 malls, especially and Sandidge, We'll see 40, 45, 50% increase and rate of returns and so we got a re permits and things because of the acreage we picked up and we will definitely be doing some in 2022, we haven't planned and will be look and also up and our Cassandra area to be doing some of that increase that value also.

So it's.

Ongoing process, we continue to look we can manage our business improve our returns on our capital.

Got it thank you.

Thank you Chris.

Ladies and gentlemen, there are no further questions at this time.

From the floor back over to management for closing remarks. Thank you.

Tom.

So in closing I just want to thank our staff for their continued effort and dedication to rebuild our company I wanted to thank our shareholders for their continued and growing faith and our program and I look forward to the continued dialogue.

We'll be attending some virtual conferences over the coming quarter and hopefully, we'll get a few and person and we look forward to talking to many of you at these events.

Thank you for joining us this morning, and your interest from Whiting petroleum stays safe and healthy and we look forward to meet you soon thank you and good day.

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

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