Chicago Jun 23, 2015 (Thomson StreetEvents) -- Edited Transcript of Whiting Petroleum Corp presentation Tuesday, June 23, 2015 at 2:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Pete Hagist Whiting Petroleum Corp. - SVP-Planning ================================================================================ Presentation -------------------------------------------------------------------------------- Pete Hagist, Whiting Petroleum Corp. - SVP-Planning [1] -------------------------------------------------------------------------------- My name is Pete Hagist. I am the Senior Vice President of Planning for Whiting Oil and Gas. It's a real pleasure to be here and a real pleasure to bring everybody up to speed on Whiting's progress. I think, as everybody knows, this last quarter has been a challenge. Certainly a challenge for us, and I think for everybody in the industry, but as you'll see, Whiting has done exceptionally well as we've moved through this period. Our cost structure is down significantly. Our production is very strong and we've completely reengineered our balance sheet. So, as the title on this slide said, we are a stronger company and we are certainly set to prosper at current prices. Take note of our disclosure, please. So first, let me start out with a few of our achievements this last quarter. Again, we achieved a record production rate of 167,000 net BOEs per day, which exceeded the high end of our guidance. Most of that comes from our Bakken and Three Forks production, 133,000 net BOEs per day. We are seeing continued improvement in performance, a 51% increase in our productivity at Pronghorn. Our Kodiak acquisition last year remains -- continues to be very, very good. We've got strong rates from three of the former acreage positions. And we have now been confirmed as the top Three Forks and Bakken recordholder for initial IPs. Our Niobrara area in the Redtail field continues to ramp up pretty nicely, 13,000 BOEs per day which was up 28% over Q4 2014. The Codell/Fort Hays has been a real surprise and a pleasant surprise for us. We've now got trending on a 400 MBOE type curve and we think that this potential exists across the entire acreage position. We just initiated sales on our new fixed differential oil contract, which is $4.75 per BOE. As I said, we've reengineered our balance sheet and today, roughly $4.5 billion of borrowing base, which has been reaffirmed in our current lower bank cases. And then, we continue to move forward on selective asset sales. I mentioned that we've done a lot of work on our balance sheet, adjusting over the last quarter. This top slide shows our total liquidity, cash reserves of almost $106 million and then you add on the existing result -- revolver, plus the uncommitted borrowing base, which brings us up to $4.6 billion. So, lots and lots of liquidity; we feel very, very good about this. We've been also very strategic in how we timed out the maturity dates on their bonds, so that gives us a lot of flexibility going forward. As I mentioned, we are continuing to move forward with select asset sales that would further beef up the balance sheet. But we feel very good with what we've done already. We are a very, very focused company. 91% of our production now is coming from our unconventional plays in the Niobrara and the Bakken and the Williston Basin. Roughly 77% is coming from our West Texas, North Fort Estes CO2 flood. This slide shows the tremendous growth we've seen in both reserves and production. We've broken out by the Whiting acreage and the Kodiak acreage just to show you that both have been growing steadily. It's a very oil-focused portfolio and, currently, roughly 82% is oil. The budget for this year is $2 billion. Again, 90% of that is focused on our northern Rockies and central Rockies, Niobrara and Bakken production. We've achieved roughly 50% reduction CapEx from last year. If you combine the CapEx from both companies, it came out at almost $4 billion in 2014. So we've dropped it about 50% and yet we are still able to achieve our production -- our expected production rates for 2015. So obviously our growth rate has moderated somewhat from last year, but we are very comfortable we are going to be at or above our production targets for this year and still having achieved those kind of cost reductions. And most of that has come from not only efficiency gains but also concessions by all of our vendors. And I really have to complement all the vendors for contributing to that. They all stepped forward in giving us significant concession on cost. I will talk a little bit more about that later. Switching or focusing over on the Williston basin, this slide shows the real concentration of our acreage in what we consider the sweet spots of the Williston basin. I'll explain this map a little bit. The red shading in this map is the Whiting acreage position and the black dots are all wells drilled in the Williston basin that have exceeded 50 MBOEs in 90 days, so they are an indicator of the best production in the basin. And you can see that our acreage position overlays these premium performing areas very, very well. So we consider a lot of our acreage right in the middle of the sweet spot of the basin. In total, 774,000 net acres with almost 7,600 future gross drilling locations in both the Bakken and the Three Forks. Again, I will mention that we feel very good about our ability to continually drive performance improvements. I will illustrate some of those a little bit later. But we've been a real technology leader in both production and reserve growth. This is what we call our wine rack. It simply shows our development strategy and really what I want to emphasize here is that the multizone potential across our acreage in the Williston basin, and particularly can see the Middle Bakken is consistent across all our acreage. And then we've got good potential in the Three Forks benches, both one and two, and a number of our areas across the basin. We've continued to see performance improvements. We are constantly trying to innovate, trying to find better ways to do things. This slide illustrates the performance we saw from 2013 to 2014, which was primarily driven by the switch back to cemented liers with a plug and perf technology. What we learned there was, with that technology we've got much more effective fracks and that allowed us to improve the IPs. You can see this 30% increase in initial production performance from 2013 to 2014. We see more potential. The slickwater technology, which is on this slide, is also something that we are experimenting with now. We've seen a 51% increase in initialized IPs when we switched from cross-link our completions to slick water completions. It's not a pervasive technology. It doesn't work everywhere. But we've seen strong results in our Sanish area, Polar area and Pronghorn area. So the point being is, we are continually finding ways to make these wells produce more efficiently, produce with stronger results. I skipped one slide here and I will go back to it. The slide 10 illustrates the strong results we are seeing from our Kodiak acquisition. These are three areas -- Dunn, Polar and Koala area, that were former Kodiak acreage. So the Kodiak acquisition has now been more or less been completely absorbed into Whiting. From the operational perspectives, the accounting perspectives, it's completely integrated. But we are very, very happy with the performance of that acreage. We think it was some of the best acreage in the basin. And when you combined it with the synergies that Whiting offered, we are very happy with the way it's performing. And these are very, very strong results that we are seeing out of that acreage. This is our average production profile for the Williston Basin and this reflects the wells that we expect to drill in 2015. So, total EUR of 700 MBOEs, total CapEx of $6.5 million, that's down in 2014 from $8.5 million. Where did all that come from? Well, some of it is efficiency gains. We are doing things a little bit smarter. We are timing things, the logistics, etc. That is being done a little bit smarter. But a lot of it is coming from concessions out of our vendors. They stepped up very quickly in January and February. The notice went out that we had to make changes quickly and they came forward and gave us those concessions. And we think a lot of this stuff is sustainable. The example I like to use in the Permian, which I'm very familiar with, we had a lot of, for instance, trucks down there, just idling on standby 24/7, waiting for a phone call. We are not doing that anymore. We are working the logistics so those trucks are arriving on locations. They go back to their own base. They don't sit and idle. So it's inefficiencies like that that are being driven out of the system as a result of the changes we're making in this last quarter. So, I think a lot of this is sustainable. But with $6.5 million CapEx and a production curve that looks like this, we are still achieving very, very good economics on these wells. So, we feel very, very good about this. So, jumping over to Colorado, the map shows the outline of the Colorado Mineral Belt. This is the lower Wattenberg area down near Denver, which is sitting right down in here. The significance of that outline is we think it controls -- is a major contributor to the productivity in this area. Our acreage position is highlighted up here in the Northeast part of Weld County. And the difference in this trend is, as you come from the -- move to the Northeast, it moves from gassier production down here in Wattenberg up to oil-prone production here in the Northeast part of the basin. And that is as you're coming up out of the basin, the deeper part of the basin, you get more oil. We've got a terrific position there, 184,000 gross acres, 134,000 net acres and we've got potential in four zones. And we're testing a densification project right now, sprucing of the A, B and C. We don't have the results on that yet. We hope to report that probably next quarter, so it's looking good. The surprise for us has been the Codell and Fort Hays. We've got one well, our Razor 25B, that has achieved a 200-day average rate of 355 BOEs per day. And when we look at the Codell/Fort Hays, it's a very pervasive zone. If we can trace that zone across more or less our entire acreage position, so we think that has tremendous potential. So when you look at all of our locations in all four zones, almost 6,700 locations, so almost similar to the potential we have up in North Dakota. And again, the production here has been very strong, up 28% from 4Q 2014 to 13,000 BOEs per day in Q1 of this year. Production continues to increase, so I think we will look forward to some nice production increases this next quarter. This is the type curve for the Niobrara. Again, we've seen significant CapEx reductions, $4.5 billion down from $6.5 billion, similar type reasons for the production or the CapEx reductions. So at $60 oil, again we are generating very good returns for these wells. This particular type curve is 450 MBOEs. And this is the average type curve for the wells we expect to drill next year. This is a map of the infrastructure in our Redtail area. It is an excellent place to develop an oil field. It's right in the middle of major interstate oil, gas and NGL pipelines. You can see these annotated on the map. This is our Redtail area. So we've got absolutely no problem with takeaway capacity on any of our products. The one project that is of real significance is on our gas plant. Obviously in Colorado, air emissions is a big deal. The regs in Colorado are very stringent, so we are very mindful of that and have been on time with developing our gas processing capacity. Train 1 is online now, performing very well. Train 2 is progressing extremely well. Our facilities group has done an excellent job of bringing that along in a timely manner. So we think that will be online by the end of 2Q and that will bring our total capacity up to roughly 70,000,000 a day, which would -- there would be no issues as far as bottlenecks on gas processing. So we are very happy with how this is developing. I also might add, we just implemented our injection system up there, which is the light line in here. I don't think we have all the lines on here, but that has eliminated a significant part of our OpEx that we were spending trucking water over to disposal wells. So again, we are finding ways to cut costs and do things more efficiently. This is a plot showing how our costs have been dropping from Q1 2014 to Q1 2015. I highlight LOE. That is down 13% year-over-year. That is a result, again, similar to capital, we've had all the various vendors -- the trucking companies, the very service companies associated with LOE, they've all stepped forward and contributed to these reductions. Our G&A is down and then finally our DD&A is also down and that is due to lower cost and then also due to the reserve increases that we are seeing, so, very, very happy with this. So, why Whiting? Well, we are consistently very top producer in the Williston Basin with one of the lowest cost structures and one of the highest acreage positions. We are a very oil focused and one of the most oil focused independent E&Ps in North America. Our reserve base is over 80% light sweet crude oil. The Williston Basin itself is one of the most oil weighted horizontal plays in North America and then our Niobrara acreage is located in the oil window of the Niobrara play, unlike the Wattenberg area, which would be more gassy. We are technology leaders, so we see continuous improvement in the performance of these wells and we expect more performance and I highlighted the slickwater frack technology we think has more potential. And then we have in total when you combine both areas over 14,000 potential gross locations in the two core areas. So that is the end of my prepared slides and I think we've got probably 10 minutes for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Unidentified Audience Member [1] -------------------------------------------------------------------------------- Yes, a question about costs; so they have come down like 10% to 20%. You talked a little bit about the trucks, they would just sit idle but now they're going back to (inaudible). What other kinds of things are you experiencing out of these guys? And if oil prices do start coming back, what percentage of these costs savings do you think you'll hang onto? -------------------------------------------------------------------------------- Pete Hagist, Whiting Petroleum Corp. - SVP-Planning [2] -------------------------------------------------------------------------------- You know I did an interesting comparison. I took one of our drilling AVs in the Williston Basin, $6.5 million which we are seeing very consistently now, then I took one from 2Q 2014 and then I did a line item comparison. And by and large, we are seeing more like 25% reduction, line item by line item. So, for instance, the Halliburtons and the Schlumbergers, those are those big numbers. The trucking companies are a bit less, say 15%. The Schlumbergers and the Halliburtons, you would argue that as prices go right back up, that goes up. There is going to be a certain -- and we expect -- we would certainly share as prices go up, but we do see some efficiency gains that they are driving. They are doing things more efficiently. They are timing their trucks better. So I don't -- for instance on those large items, I would see us, if we have achieved a 25% reduction there, I would see us -- if we went back up to $95 oil, I think we would end with a 15% reduction, so maybe half, okay? The water haulers and the truckers, I think as long as the price of oil comes up in a manageable fashion, you will not see us -- we will try to hold on to those logistic gains that I talked about. We are just doing things smarter. And we've done this before. At $100 oil, you let trucks go on standby. But when you can manage it up, you can limit all that. So overall I think if we get back up to $95 oil, we will be down by 15% from where we were, okay? So in your models I would run things back to that range. -------------------------------------------------------------------------------- Unidentified Audience Member [3] -------------------------------------------------------------------------------- Did you anticipate a strategy change at all in the rig count? -------------------------------------------------------------------------------- Pete Hagist, Whiting Petroleum Corp. - SVP-Planning [4] -------------------------------------------------------------------------------- It is not. It is not. We've said that we would sell or try to sell $500 million to $1 billion and that is what we intend to do. We have several other asset sales working right now. We will probably make some announcements next quarter. We did announce one in Q1 of $108 million. As I said, we feel very good about the restructuring of our balance sheet. So we got a lot of liquidity. So we are being very selective in these sales. There's a lot of bargain hunters out there trying to pay $0.30, $0.50 on the dollar. We are not sure that makes sense right now for our shareholders. And certainly, if you look at the metrics of our last sale, we did excellent on that sale. We did excellent for our shareholders. So we are being selective. That strategy has not changed. -------------------------------------------------------------------------------- Unidentified Audience Member [5] -------------------------------------------------------------------------------- And then the liquidity situation so (inaudible) -------------------------------------------------------------------------------- Pete Hagist, Whiting Petroleum Corp. - SVP-Planning [6] -------------------------------------------------------------------------------- Well, we have paid down more of the debt. We can just make the balance sheet stronger. I don't think that's -- there's a number of options that we can look at. -------------------------------------------------------------------------------- Unidentified Audience Member [7] -------------------------------------------------------------------------------- (inaudible - microphone inaccessible) -------------------------------------------------------------------------------- Pete Hagist, Whiting Petroleum Corp. - SVP-Planning [8] -------------------------------------------------------------------------------- Certainly we've talked about the gas plant assets. And certainly some of the companies that are looking at those assets are MLPs. I think Whiting's desire to create an MLP is not real strong right now. -------------------------------------------------------------------------------- Unidentified Audience Member [9] -------------------------------------------------------------------------------- Can you talk a little bit about your plug and perf technology? It sounds like it's really working for you guys. And also slick water and what potential benefit (inaudible) -------------------------------------------------------------------------------- Pete Hagist, Whiting Petroleum Corp. - SVP-Planning [10] -------------------------------------------------------------------------------- Yes, when we first started out in the Williston Basin, we talked about sliding sleeves, sliding sleeves with inflatable packers and 300 feet of open annulus. The beauty of that whole thing was you could execute and stimulate for two days. The problem with all that is when you put all the energy down there and it has 300 feet of water up and down the well bore, you diminish the impact of your frack. That technology -- that is technically what was happening. So, we went back to really an older technique of spend back and forth with a lot of the intervals in it, which was a change. And that gave us a very precise placement of the frack and made a real difference in performance from 2013 to 2014. So we very much believe in that. The downside of it is we are back to spending four, five, seven, eight days completing a well. That technique is slower. So, one of the innovations that we see coming a long -- and there is a number of companies working on this -- this sliding sleeve technology in case holds. I think if you look at Schlumberger and Halliburton, you go to their websites and you will see that technology that they are trying to work. So if we can get back to that kind of effective frack and we can execute it in two days, we will get the best of both worlds. So we are very much a believer in that. The technology isn't quite there yet. So that is what gave us the bump from 2013 to 2014. The slickwater technology is a completely different technology. You're putting in very fine sand and what you're trying to do is try to get the frack job to continuously screen out and essentially create shattered glass all along the entire wellbore. So you're opening up all the surface area but it allows the wellbore to flow in. In certain areas that I highlighted, it seems to be working very well. I showed the increases there. We don't think it's pervasive. We think it has to be selectively used. It has to be matched up with the right rock divisions. And that's what I think Whiting's benefit having a state-of-the-art cool lamp we have in Denver, it's really, really paying off for us because we cut probably more core anybody in the basin. We dissect it in the lab and then can match up the right stimulation technology with the rock. So those are two examples of additional efficiency gains that I think are coming down the road. -------------------------------------------------------------------------------- Unidentified Audience Member [11] -------------------------------------------------------------------------------- (inaudible - microphone inaccessible) -------------------------------------------------------------------------------- Pete Hagist, Whiting Petroleum Corp. - SVP-Planning [12] -------------------------------------------------------------------------------- Okay, I'm sure I'll see some of you guys in the one-on-ones. Thank you very much. Appreciate it.
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