A few quarters at $50/bbl oil could see Whiting Petroleum Corp. return to double digit production growth, management told investors during the company’s quarterly earnings call last week.
Entering the second half of 2016, the Denver-based independent exploration and production (E&P) company plans to add 16 drilled but uncompleted (DUC) well completions in the Williston Basin, where most of its current production is concentrated.
The 16 DUCs are in addition to a new 30-well participation agreement Whiting entered into for its Pronghorn area in the Williston, with the E&P planning to add a rig to start drilling that program in October.
CEO James Volker said the company is “taking deliberate steps to position ourselves for a recovery in oil prices by increasing activity in the Williston Basin” with enhanced completions, the drawdown on its DUC inventory and through strategic use of well participation agreements.
“As we begin to see the benefit of the new completions” production in the third and fourth quarters should flatten, Volker said. As wells are completed and brought online in 1H2017, Whiting will likely “see the best of those results in the second half of 2017, so really all we want to do is watch that oil price. If it stays up there, let’s say, for a quarter or two at $50 or better, why, yes, we’ll be back at it. And in my opinion, by the time we get to the end of 2017, [we’ll be] growing at our historical double-digit rates.”
To finance the increased activity, management upped Whiting’s projected 2016 capital expenditure budget by $50 million.
Whiting’s current strategy of pursuing cost-sharing by working through joint ventures (JV) to develop its Williston assets would also likely change with higher oil prices, Volker said.
These agreements help keep costs per boe low in the current price environment, he said. “We happen to have a good partner in those JVs, and we’re thinking about that all the time. Should we drill with our own money, or should we, as we’re doing now, do some of each? I would think that you can count on us going forward to do some of each, but as prices rise, we would do a little less of the JV. And eventually as oil prices, I would say, get closer to $60, I’m not sure we would be doing any.”
Production during the second quarter was down year/year at 134,240 boe/d, compared with 170,240 boe/d in the year-ago quarter. Second quarter production from the Bakken/Three Forks in the Williston averaged 114,435 boe/d, while production out of the Redtail Field area of the Niobrara/Denver-Julesburg Basin averaged 10,150 boe/d.
Total quarterly production reached 12.22 million boe, down from 15.49 million boe in the year-ago quarter. Production included 8.72 million bbl of oil, 1.69 million bbl of natural gas liquids (NGLs) and 10.81 Bcf of natural gas, compared with 12.43 million bbl, 1.3 million bbl and 10.61 Bcf, respectively, in the year-ago period.
Whiting announced in its 2Q2016 results that it closed on the sale of its North Ward Estes acreage in Ward and Winkler counties, TX, on July 27 for $300 million, with a potential $100 million contingency payment depending on West Texas Intermediate futures contract prices.
CFO Michael Stevens attributed Whiting’s less oily mix during 2Q2016 in part to the North Ward Estes sale and to an increased gas capture rate. “We’re now at 94%, up 5% from the first quarter. And right now some of our drilling operations are focused on parts of the basin that have a higher gas-to-oil ratio, some of the deeper parts,” he said. “So moving forward, we thought it would stay somewhat steady where it’s at right now. But with the North Ward Estes sale, that is a very heavy oil production field…we’d expect the gas-to-oil ratio” to shift to gas “by 1-2% when we move into the last half of the year, but then it should be stable, perhaps improve.”
In its Redtail acreage, Whiting plans to defer completions and end 2016 with approximately 117 DUCs in its inventory. “Our plan is to DUC and have as many of those DUCs out there as we’ve currently disclosed,” Volker said. “…Going forward into 2017, we’ll see where prices are as to when we complete those DUCs.”
In response to an analyst question, Volker shared his thoughts on the proposed ballot initiatives in Colorado that experts say would effectively shut down a large percentage of oil and gas activity in the state (see Shale Daily, July 15).
“At this point, we’re cautiously optimistic that either, A, they won’t make it, or B, they’ll be defeated. And then we have our own initiative…not just the oil and gas industry but industry in general has its own ballot initiative out there, which basically requires that for there to be ballot initiatives, you have to get 2% of all the voters in every county in the state,” Volker said.
“So that would be a higher bar to make sure that Colorado voters are not troubled and bothered with all these ballot initiatives, which essentially are an attempt to change the constitution of the state of Colorado for things that really ought to be handled on a regulatory basis and/or through the legislature.”
Average sales prices for the quarter, including hedging, were $39.60/bbl for oil, $9.17/bbl NGLs and $0.96/Mcf natural gas. That’s compared with $52.27/bbl, $16.86/bbl and $1.92/Mcf, respectively, in 2Q2015.
Lease operating expenses for the quarter fell to $8.61/boe from $9.25/boe in the year-ago period.
Whiting reported a quarterly net loss of $301 million (minus $1.33/share), compared with a net loss of $149.3 million (minus 73 cents/share) in the year-ago period.
For a full listing of 2Q2016 industry earnings calls, including links to NGI’s coverage of both the company and the call, please see NGI’s 2Q16 Earnings Calls List PDF.
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