Denver-based Whiting Petroleum Co. says that should U.S. oil prices tumble another $10 to $15 per barrel, the company will still have the wherewithal to maintain a strong growth profile without becoming overly dependent on capital markets and other outside financial options available to finance projects.
It’s doable largely because of cost savings built into the organization through drilling and other operational efficiencies, which the company said have allowed Whiting to remain flexible and to pay for projects with the help of its own discretionary cash flow.
“We think … that’s the right thing to be doing so that we don’t face what I would call the fiscal cliff that is out there,” James Volker, Whiting’s chairman and chief executive officer, said in a July 26 conference call on Whiting’s 2012 second-quarter earnings.
“And as a result of the efficiencies that our drilling department and our operations department have been able to execute for us, we really see the ability to grow without having to take too many, what I would say, capital markets or sale or joint venture moves.”
Like other producers during this year’s second quarter, Whiting felt the pressure of declining oil prices. The company reported a realized price of $66.13 per barrel compared to $78.45 per barrel for the same three months period in 2011, a 16 percent drop on an oil equivalent basis. And with well over half of its business coming from the transportation-strapped Williston basin of North Dakota and Montana, Whiting production during the recent quarter also was subject to large price discounts, or differentials that plague the region.
Moreover, while Whiting’s revenue for the second quarter totaled $502.2 million versus $481.2 million, a modest 4 percent increase, adjusted net income plummeted 28 percent to $86.8 million from $120.3 million for last year’s second quarter.
Boosts liquids output by 26% to 80,700 boe
Still, Whiting was able to boost second-quarter liquids output by a hefty 26 percent to an average 80,700 barrels of oil equivalent per day from 60,120 barrels per day for the same period last year, a move that helped offset low prices, while keeping the company’s all-important discretionary cash flow at a comfortable $310.5 million.
“We think that we can stay at or very close to our discretionary cash flow for the next two years, continue to grow at somewhere like our growth rate this year and not have to use the capital markets or sell some assets other than perhaps … consider some of the interest that’s been shown in joint venturing on some of our properties,” Volker said. “That decision will, of course, be subject to what we see on oil price. So I think we’ve got the ultimate flexibility here.”
Based on continued good results from its properties, including those outside the Williston, Whiting said it is increasing its 2012 production growth guidance to 20-to 23 percent from 17-to 22 percent and revising upward the company’s capital budget to $1.9 billion from $1.8 billion.
At current oil prices, cash flow, the recent WHZ Trust unit and Belfield gas processing plant sales “will substantially” pay for Whiting’s $1.9 billion capital program this year, the company said.
Outside Williston basin
“We continue to experience success in emerging development areas such as Big Tex (Pecos County, Texas) and build solid acreage positions in new exploration areas at attractive prices and attractive net revenue interests,” Volker said.
In addition to Big Tex, where the company holds 117,521 gross acres (87,017 net acres), Whiting development areas outside the Williston include the Redtail Niobrara prospect in Weld County, Colorado, where Whiting has 106,889 gross acres (79,256 net acres) under lease.
Whiting said it plans to continue monitoring oil prices and has the flexibility to change its rig contracts, if necessary. Of its 29 contracted rigs, 13 have contracts that can be terminated without penalty by Dec. 31, 2012 and another seven have contracts that can be terminated without penalty by Dec. 31, 2013.
Plan to drop 3 less efficient Williston rigs
Current plans call for the release of three rigs — one in Sanish in early September, one in Hidden Bench in late August and one in Pronghorn in late August. The Sanish field, with a net average of 31,530 barrels of oil equivalent per day during the second quarter, is by far Whiting’s biggest producer in the Williston.
“These are generally less efficient rigs when compared to others we have under contract,” Volker said. “Due to the efficiency of the rigs we will retain under contract, we anticipate no reduction in the number of wells we intend to drill in 2012.
Whiting’s plan to drill 257 gross wells (160 net wells) throughout the company’s core areas remains unchanged by high-grading its drilling fleet using pad drilling, white sand for fracking and sliding sleeve completions.
“With further drilling in our new development areas and our established core properties, we expect a strong second half in 2012,” Volker said. “We plan to efficiently reach our 2012 drilling goals.”
Whiting also added more than 10,500 net acres to its Williston basin acreage position in the second quarter and now holds more than 712,000 net acres in the basin. Whiting is among the largest operators in the region.
