Whiting Petroleum Corporation Common Stock (New)

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 speaker's 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, Whiting's Investor Relations Manager. Please go ahead.

Thank you, Andrea. Good morning, everyone. This is Brandon Day, Whiting's Investor Relations Manager. Thank you for joining us to discuss Whiting's third quarter results for the period ended September 30th, 2021. With me today is Whiting's CEO, Lynn Peterson. Also available to answer questions during the Q&A session will be our CFO, Jimmy Henderson, COO, Chip Reimer, and VP Commercial, Joanne 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 risk 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 may provide 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 this morning. Good morning, and thanks for everybody joining us. I'm sure you have all thoroughly read and enjoyed our 10Q 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 gap 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 properties in the previously announced investiture, we had adjusted net income of $142 million or $3.57 per diluted share as compared to $118 million or $3.01 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 the barrels of the oil equivalent remained relatively flat quarter over quarter, averaging 92.1 thousand BOE compared to second quarter production of 92.6 thousand BOE. Oil production for the third quarter averaged 51.8 thousand barrels of oil, which was down from the second quarter of 53.4 million barrels of oil. 1,000 barrels of oil. Most of the wells turned in line during the quarter were in our Saanich field, which typically come on with lower initial production rates but experience a 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 base in production level that remained 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 resulted in a wider differential reflected in our financials. We expect our four-year oil differentials to land within the low end of our stated guidance. Additionally, with the majority of our GNP agreements structured on a fixed fee, we've 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 9.1 net wells onto production, and we drilled 10 gross 5.6 net operated wells. We ended the quarter with 25 gross 14.3 net drilled uncompleted wells. The company currently has a rig running in the Saanich Field and a second rig in our Cassandra area that commenced drilling operation at the end of September. We have just released the completion crew this week, and we expect them to return in mid-December. Lease operating expenses were $57 million, or $6.68 per BOE, for the third quarter of 2021. LOE benefited from less operating expense workovers during the quarter. General administrative expenses of $12 million, or $1.41 per BOE, was similar quarter over quarter. In September, we completed the previously announced acquisition assets in North Dakota and divested our red-till assets located in Colorado. The assets in the Williston Basin overlap our Saanich Field and expand our inventory by over 60 gross locations. The acquisition also included five drilled uncompleted wells. The acquired assets will allow us to maximize lateral length across several DSUs, allow us to develop stranded resources, and eliminate costs for Fract Protect as acreage is developed. We plan to issue our 2020 sustainability report later this quarter. I'm 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, the 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 2022 to be similar to what we saw here in 2021, where 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 22, both from an operated standpoint, as shown from our second drilling rig that we brought in during September, but also non-operated properties as we've seen our peers increase activity during the year. 2021 has been somewhat of an anomaly for us in that the company shut down operations during its restructuring in 20, and therefore, 21 has been a rebuilding year. Our corporate decline rate increased during 21 as we brought on new wells, and therefore we will need some additional activity level to replace that production. Second, we do believe we will be dealing with some inflationary costs, and 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 22. We are hoping to see some relief with supply chain issues and perhaps some rollover with steel prices in the back half of 22. And finally, we have some infrastructure to build out next year, particularly in the Saanich build for new well connections and to alleviate flaring and or curtailment of production. Some of these costs were deferred in 21 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 Whiting's competitive position in the Williston Basin, including boat on opportunities that create synergies with Whiting's 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.