Q3 2021 Whiting Petroleum Corp Earnings Call

[music].

Good morning, My name is Andrea and I will be your conference facilitator today.

Welcome to Whiting Petroleum's third 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 speakers remarks, there will be a question and answer period. If you would like to ask a question simply press Star then the number one on your telephone keypad.

If you would 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 Brandon Day, Whitings Investor Relations manager. Please go ahead.

Thank you Andrea Good morning, everyone. This is Brandon day, Whitings Investor Relations manager.

For joining us to discuss <unk> third quarter results for the period ended September 32021 with me today is widening CEO Lynn Peterson also available to answer questions. During the Q&A session will be our CFO Jimmy Henderson.

C O O chip rimer, and VP 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 pay provides 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 in the Investor Relations section.

Following the prepared remarks, 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 our CEO of Whiting Petroleum Mr. Lynn Peterson.

Thank you Brandon and let's go ahead and get started good morning, good morning, and thanks for everybody joining us three of all thoroughly read and enjoyed our 10-Q, we filed last evening as well as our news release and reconciliations to non-GAAP measures.

And you can refer to them for detailed information.

Over the past year, the macro environment has changed dramatically.

However, we have remained disciplined in our approach and continue to execute on our plan.

We find ourselves in an enviable financial position, whereby we expect to have no debt and be cash positive before the end of 2021.

We're working through the 2022 capital plans now and I'll give some high level thoughts after briefly discussing some of the quarterly financial numbers.

Starting with our financial results for the third quarter of 2021, we had net income on a GAAP basis of $198 million or $5 per diluted share during the quarter as compared to a loss of $61 million or $1 57 per share for the previous quarter.

Adjusting for certain items, but primarily the mark to market of hedging instruments and the gain on sale of properties in the previously announced divestiture.

We had adjusted net income of $142 million or $3 57 per diluted share as.

As compared to $118 million or $3 <unk> per share for the previous quarter.

Adjusted EBITDAX was $201 million compared to $176 million in the previous quarter, primarily due to better commodity prices.

Our company's production on a barrels of oil equivalent remained relatively flat quarter over quarter, averaging $92 1000 Boe.

Compared with second quarter production of 92 6000 Boe.

Oil production for the third quarter averaged 51 8000 barrels of oil, which was down from the second quarter of $53 4 million barrels of oil.

Bears warm.

Most of the wells turned in line during the quarter, wherein our sanish field, which typically come on with lower initial production rates, but experienced some shallower overall decline, particularly in the first year.

Additionally, some of our third party midstream providers have continued to increase ethane recoveries as illustrated by our NGL yield for the quarter.

Oil differentials have continued to narrow given an overall basin production level that remains significantly behind total takeaway capacity of which increased during the quarter as expansion capacity was placed into service.

On an activity basis, our oil differential was similar to what we realized in the second quarter.

However, revisions primarily from third party providers recognized in the third quarter, resulting in a wider differential reflected in our financials.

We expect our full year oil differentials to land within the low end of our stated guidance.

Additionally, with the majority of our G&P agreements structured on a fixed fee, we have seen a more pronounced benefit to our net realized price from the increase in both residue gas and purity product benchmark prices.

The company invested capex of $67 million during the third quarter to bring 17 gross nine one net wells onto production and we drilled 10 gross five six net operated wells.

We ended the quarter with 25 gross $14 three net drilled uncompleted wells.

Company currently has a rig running in the Sanish build in a second rig in our Cassandra area that commenced drilling operations at the end of September we have just released the completion crew. This week and we expect them to return to mid December.

Lease operating expenses were $57 million or $6 68 per Boe for the third quarter of 2021.

<unk> benefited from less operating expense workovers during the quarter.

General and administrative expenses of $12 million or $1 41 per Boe was similar quarter over quarter.

In September we completed the previously announced acquisition of assets in North Dakota, and divested our red pill assets located in Colorado.

Assets in the Williston basin overlap, our sanish build and expand our inventory of over 60 gross locations.

The acquisition also included five drilled uncompleted wells.

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

Okay.

We plan to issue our 2020 sustainability report later this quarter I.

I am pleased with the progress the company has made and how we continue to improve on the goals. We've set for the safety of our employees.

Their environmental controls for our operations and the ongoing governance improvements.

Gas capture remains to be an area of focus for the company and we continue to make improvements in that area.

I would now like to spend a little time thinking about 2022.

We expect the company's reinvestment rate in 2020 to be similar to what we saw here in 2021.

We will have invested roughly 35% of our EBITDA.

Let me highlight a few items that we think will impact our 2022 outlook.

First we are budgeting for some additional activity in 'twenty two both from an operating standpoint as shown from our second drilling rig that we brought in and during September but also non operated properties and we've seen our peers increased activity during the year.

2021 has been somewhat of an anomaly for us and that the company shut down operations during its restructuring in 'twenty and therefore 21 has been a rebuilding year.

Our corporate decline rate increased during 'twenty, one as we brought on new wells and therefore, we will need some additional activity level to replace that production.

Second.

We do we do believe we will be dealing with some inflationary cost.

We are estimating this to be in a range of high single digit to low double digit percentages.

To address price inflation, the team has been aggressively securing contracts and lining up equipment through the first half of 'twenty two.

We are hoping to see some relief with supply chain issues and perhaps some rollover was steel prices in the back half of 'twenty two.

And finally, we have some infrastructure to build out next year, particularly in the Sanish build for new well connections and to alleviate flaring <unk> curtailment of production.

Some of these costs were deferred in 'twenty, one due to the lower commodity price environment at the beginning of the year.

Most importantly, the company is in a desirable financial position as we exit 2021 and move into 2022.

Many of the derivatives that were linked to much lower prices rolled off during 2021, and we now have a much more attractive hedge portfolio and commodity prices continue to benefit the bottom line, increasing our free cash flow.

With the free cash flow, we expect to generate from operations, we will continue to pursue acquisitions, which enhance <unk> competitive position in the Williston basin.

Including bolt on opportunities that create synergies with whitings existing asset base.

While we continue to believe that we will have attractive opportunities to create value through investments in our operation management and the board also understands the importance of returning capital to shareholders.

Now that we have the company in a solid financial position, we expect to initiate a return of capital to shareholders in some form commencing in the first quarter of 2022 at a level that is competitive with our peers.

With that I will turn it back to the operator and any Q&A we might have.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing the keys.

With your question. Please press Star then two.

Please limit yourself to one question and one follow up.

If you have further questions you may reenter the question queue.

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

And our first question will come from William Howell of Stifel. Please go ahead.

Yeah.

Good morning, guys and congrats on the quarter. My question is around how you see the M&A market right. Now if you could talk about that a little bit are you willing to look outside the Williston and if so any profit so loan basis.

Good morning, and thank you for calling in.

We continue to look at a lot of opportunities we've been remain focused in the Williston basin, we think that's where our expertise is.

I think.

During a period of rising volatility in commodity prices. Some of these acquisitions are a challenge. So I think if we remain patient here.

Think things will come to us I mean, we are delighted to get our.

Our acquisition done here in the third quarter.

We're looking at some smaller things right now looking at some large things as well so.

<unk>.

We're actually.

We're anxious to see what unfolds here in the next few months. So stay tuned I guess is what I'd say.

Great. Thanks, My other question is really around oilfield services.

Inflation.

If you can talk a little bit about the extent to which youre seeing that and maybe how much of that you might be able to offset with efficiency improvements.

Yeah, I'll start and I'll turn it over to chip here, a little better you know obviously steel prices have been the one that's really ratcheted up for US we think labor issues are something that we're certainly concerned about.

But chip maybe give your thoughts of what we're seeing in the field, yes, Thanks, Lynn and good morning William.

I think we're in pretty good shape with supply chain. Our guys have really worked really hard to lock in contracts and services and final supplies like.

Casing $2 billion, we've had additional staff flight.

Pump units, we bought this year that carried into last year, but I think the big thing is our partnership Lynn and I, both believe in having partnerships as <unk>.

Providers and using those partnership to make sure we have access to all the commodities all of the things that we need going forward. So.

Along with that you then have less nonproductive time typically when you have partnerships and you can build in efficiencies. So we're continue to look at efficiencies continuing to try to reduce the cycle time to create capital efficiency.

Yeah again, we don't know what it is with you at that high single digit low double digit.

We built some inflation into the end of 'twenty, one and so I think we're in a pretty reasonable.

<unk> here.

Got it thanks, guys and congrats again on the quarter Alright appreciate it. Thank you.

Our next question comes from Bertrand <unk> of Truest. Please go ahead.

Hi, good morning, Jimmy.

Great Great news on the shareholder initiatives.

Question is.

Which bucket you guys youre going to focus more on.

We've seen some other peers try to try to push shareholder share repurchases, a little too hard it's not working and now they are kind of breaking Matt back towards a variable dividend just where do you guys Paul.

Yeah, and I applaud our board for taken a very balanced approach to this I mean, we've obviously taken a little bit of time trying to get to where we want to be I think I'm going to still push you off to the first quarter.

We are looking at.

Some type of fixed dividend, possibly some the buybacks I think a lot of or share your opinion there.

I think we're also looking at.

Yeah.

Continued investment in our business here, because I think in so many ways. That's the best return, we can give to our shareholders. So.

Everything is still being discussed.

Again, we.

We feel like we're approaching that point, where we need to do something and so we'll we'll lay that out as we get into the first quarter of 2022.

That makes sense and then just a follow up not to beat a dead horse, but on the M&A front.

Are you only looking at a transformational deal or is there may be the possibility that you line up two or three small deals in a row and that'll still accomplish what youre looking for.

Again, I'm kind of looking at everything.

Clearly we've done some of the bolt on things the last one we did here in the third quarter was not transformational but it was very good in inventory to us in our area that we think we understand very well.

So we're looking at everything and.

And whatever we think creates the best value for our shareholders, we will try to pursue.

Net sign and then and then this one is really just a housekeeping you didn't explicitly update the guidance I mean, you just did it I wasn't sure. If we should you just wait for the end of the year to update full year 'twenty, two or if we should read into something with.

No official update.

I think we're in pretty good shape and Jimmy do you want to kind of walk through I mean, we think we're going to be the high end and some low ends of others and maybe just kind of walk through and trying to take the words out of my mouth Bertrand.

Really.

Give you guys credit that you can kind of trend and see where the trends going for the <unk>.

Last quarter of the year and that we're trending towards kind of a high end on our production measures.

Oh and on deaths and so kind of everything going in the right direction and we just didn't feel like we needed to slightly adjust anything that you guys.

Do you work in.

I think youll get to the right point that looks pretty good for the year, we're real happy about where we're at through three quarters.

Kudos to the team throughout throughout the company and being able to predict the outcome for the year and be in a position, where we can slightly increase it as we've gone through the year and.

Have very predictable results.

We want to be how unethical that what Jimmy said I mean, the team has done an excellent job. We came together about a year ago, a little over a year ago.

Certainties in the environment, where we're dealing with the commodity environment and.

To put out numbers and be able to meet these for the last three quarters spot on I feel very good about the team in <unk>.

Congratulate them on their efforts.

And I know, it's been said before but what a what a what a year can make so I appreciate it.

That's a fact, thank you appreciate it.

Ladies and gentlemen, there are no further questions at this time I will turn the floor back to management for closing remarks.

Okay. Thank you.

And I just want to thank our shareholders for their continued and growing faith in our program.

I look forward to continued dialogue and I want to thank our staff for their continued effort dedication we.

We can all take pride that we have performed at or above expectations for three straight quarters in 2021 with production and cost metrics.

As a complement to the work done by our team both in the field and in the office I want to thank everybody on our side.

<unk> will be 10, some conferences here over the next few weeks months.

And look forward to talking to many of you in these events and with that I'd like to thank you for joining US. This morning and wish you a wonderful day. Thank you very much.

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