Denver-based E&P independent Whiting Petroleum Corp. is finding it difficult convincing investors that the company is not running out of suitable places to drill.
“The knock against Whiting is that you guys don’t have any inventory and in three years you’re going to be done,” James T. Brown, Whiting’s president and chief operating officer, told industry analysts Feb. 6 at the Credit Suisse 2013 Energy Summit in Vail, Colo.
The lack-of-inventory perception seems to be particularly acute when it comes to finding new targets in Whiting’s flagship Sanish field in North Dakota’s Williston Basin, which accounts for around 30,000 barrels per day, or nearly 40 percent of the company’s roughly 80,000 barrels per day of production.
By the end of 2012, a total of about 300 production wells had been drilled in the Sanish field, with at least another 200 to be drilled and completed.
“It seems that when we get to the end of every year, we have two-and-half to three years of drilling left in Sanish,” Brown countered. “And we keep finding additional things to drill in there.”
Five billion barrels of oilIn fact, he added, the Sanish and adjacent Parshall field hold an estimated 5 billion barrels of in-place oil, only 10 percent of which can be recovered using current technology.
“So that means there is 90 percent of that target sitting there,” Brown said. “We know where it is. Can we figure out how to get it out of the ground? We’ve got a fairly significant effort going on at Whiting right now to see if some of the smart guys in the back room can figure out how to get some more of this oil.”
He said Whiting is working with a number of “institutions” across the country, including the University of Wyoming, to see whether enhanced oil recovery, such as water flooding, or any other “technique” the company has not yet thought of, can be employed “to go after that huge oil target we have at Sanish.”
Whiting’s down-spacing planMoreover, to strengthen production in the Sanish, Whiting is formulating a well down-spacing plan that will be submitted to the North Dakota Industrial Commission for approval, Brown said, noting that it could take to year-end for the plan to clear the regulatory process, “drill something” and bring it on line.
“We continue to see production increase in Sanish,” he added. “So we expect to have that continue as we get through 2013.
Over the past few years, however, Whiting has been shifting its drilling focus in the Williston Basin to fields located west and southwest of Sanish, including Hidden Bench, Pronghorn, Cassandra, Missouri Breaks and Big Island. Whiting currently runs just six rigs in the Sanish compared to 14 rigs elsewhere in the Williston.
“So the predominance of our drilling has been and will continue to be outside Sanish field,” Brown said. “And what we can show you … are that the wells we are drilling outside of Sanish right now are producing at rates that are exceeding what we’re drilling in Sanish.”
2,500 drilling locations citedWhiting has identified 2,500 locations to drill in the northern Rockies alone, and drills about 250 of these locations a year, Brown said. Other operations are situated in the Permian Basin, Mid-continent, Gulf Coast and Michigan regions of the United States.
“At our current rate we have about a 10-year inventory sitting in front of us right now,” Brown said. “We feel we have a very strong portfolio of locations to drill in front of us. We plan to be around for awhile.”
In addition to the “misconception” in the investment community that “these guys don’t have anything to drill,” Brown said, there is “the issue we have at Whiting (that) we don’t have enough capital to drill all the things we have.”
“So I think we need to mesh those two perceptions of Whiting. If you look at Whiting’s history as an acquirer, and I’m going to say even back when we were an acquisitions company when we first went public, and then how we acquire land to develop these projects, we’re not somebody that goes out and pays top dollar. So I think if there is any fear that we are going to go out and pay multi-thousand dollars per acre for some huge project just to get some more to drill, that’s not been our history, and I expect that will be what we do going forward.”
Whiting considers $1.8 billion budgetWhiting has yet to release its 2013 capital budget, or its 2012 fourth-quarter and year-end financial results, including reserves and production for 2012 versus 2011, all of which it plans to do Feb. 27.
Whiting’s reported proved reserves as of Dec. 31, 2011, totaled 345.2 million barrels of oil equivalent, which represents a 13.2 percent increase over the 304.9 million boe of proved reserves at year-end 2010. In total, the company replaced 274 percent of its 2011 production of 24.8 million boe.
Company production in 2011 totaled 67,890 boe per day, compared to 64,650 boe day in 2010. Browning said at the Credit Suisse Energy Summit that 2012 production likely averaged in the “mid-80,000” boe per day, or roughly a 25 percent increase over the prior year.
Brown said Whiting’s budget for 2013 should be about the same as 2012, with the possibility of additional money being funneled into the company’s Permian operations in Texas, due to encouraging drilling results and an “uptick” in commodity prices.
“But right now what we’ve talked about is in the $1.8 billion range,” he added. “Where we are going to allocate those funds in 2013 is going to look very similar to where they were spent in 2012. The one exception right now is the Permian.”
Rigs may be releasedHowever, with a $1.8 billion budget, Brown said Whiting likely would release “a couple” of rigs from the Williston Basin, in large part because of new rig technologies that allow operators to drill more wells.
“Because of the efficiencies we’re starting to see, we drilled more wells than we thought we were going to drill in 2012,” he said. “We’re starting to drill more wells per year than what we had historically experienced.”
Nonetheless, should Whiting decide to sell its Postle Field in Oklahoma, a significant chunk of the proceeds would be applied to drilling, Brown said, noting that the company would expect to pocket $800 million-$1 billion from a sale.
“If you took the low range, we would probably take about half of that or $400 million and look to accelerate drilling in 2013,” he said. “So what we probably would do is just keep those rigs running where they are — keep our program going in the Williston Basin.”