Thursday, July 28, 2011
Whiting Petroleum Corp.
Whiting's production in the second quarter of 2011 totaled 5.84 million barrels of oil equivalent (MMBOE), of which 4.79 million barrels were crude oil/natural gas liquids (82%) and 1.05 MMBOE was natural gas (18%). This second quarter 2011 production total equates to a daily average production rate of 64,120 barrels of oil equivalent (BOE), which compared to the 64,600 BOE average daily rate in the second quarter of 2010.
After three weeks of mostly dry weather, we are making good progress fracing new wells and returning wells to production. In the Williston Basin, we reached a new production record of 58,105 BOE per day gross (31,161 net) on July 19, 2011. Our Sanish field is also coming back strong after first half 2011 inclement weather, reaching 44,102 BOE per day gross (22,817 net) on July 19, 2011.
We currently have two full-time dedicated frac crews and one half-time frac crew working in the Williston Basin and believe they are capable of fracing approximately 18 to 20 wells per month between now and year-end 2011. Therefore, we expect to reduce our current 44-well inventory of operated wells waiting on completion to below 25 by November 30, 2011. Based on our current drilling rig count of 17 rigs working in the Williston Basin, 20 to 25 wells being prepared for completion represents a typical inventory.
We have 11 service units running in the Sanish field and are making good progress in placing back into production wells that were shut-in during the inclement weather due to muddy roads. As of July 15, 2011, we had 27 wells waiting for a service unit. We expect this inventory to be eliminated by September 30, 2011
We reported in our news release of June 8, 2011, that our Seep Ridge Gas Pipeline in Uintah County, Utah was shut-in for repairs on April 16, 2011. The pipeline was back on stream June 14, 2011 and is currently at full capacity. We are transporting 21.9 million cubic feet (MMcf) of gas per day net to Whiting's interests from the Flat Rock and Chimney Rock fields.
In addition on June 8, 2011, we reported that we were experiencing under-deliveries of CO2 contract quantities from our North Ward Estes field CO2 supplier. The shortfall was approximately 25 MMcf per day below our contracted delivery volume of 134 MMcf per day. Currently, we are receiving 122 MMcf per day and expect to resume delivery of full contract quantities by September 30, 2011. Further, we have recently signed two new CO2 supply contracts for additional quantities of CO2 that we expect to be sufficient to fully execute our development plans at North Ward Estes for several years. More details are included later in this news release.
Second Quarter 2011 Financial Results
Discretionary cash flow in the second quarter of 2011 totaled a record $313.3 million, representing an increase of 37% over the $228.2 million reported for the same period in 2010. The increase in discretionary cash flow in the second quarter of 2011 versus the comparable 2010 period was primarily the result of a 29% increase in the Company's realized oil price (net of hedging), including the price of natural gas liquids (NGLs). A reconciliation of discretionary cash flow to net cash provided by operating activities is included later in this news release.
In the second quarter of 2011, Whiting reported net income available to common shareholders of $202.9 million, or $1.73 per basic share and $1.71 per diluted share, on total revenues of $481.2 million. This compared to net income available to common shareholders of $119.9 million, or $1.18 per basic share and $1.06 per diluted share, on total revenues of $377.6 million in the second quarter of 2010.
The Company's second quarter 2011 results include after-tax unrealized derivative gains of $84.5 million, or $0.71 per diluted share. Excluding this gain and certain other items, Whiting reported second quarter 2011 adjusted net income available to common shareholders of $120.3 million, or $1.02 per basic and diluted share. This compared to second quarter 2010 adjusted net income available to common shareholders of $72.2 million, or $0.71 per basic share and $0.66 per diluted share. A reconciliation of adjusted net income available to common shareholders versus net income available to common shareholders is included later in this news release.
First Six Months 2011 Financial Results
Discretionary cash flow in the first six months of 2011 totaled $597.4 million, representing an increase of 35% over the $442.7 million reported for the same period in 2010. The increase in discretionary cash flow in the first half of 2011 versus the comparable 2010 period was primarily the result of a 23% increase in the Company's realized oil price (net of hedging), including the price of NGLs. A reconciliation of discretionary cash flow to net cash provided by operating activities is included later in this news release.
In the first six months of 2011, Whiting reported net income available to common shareholders of $222.0 million, or $1.89 per basic share and $1.87 per diluted share, on total revenues of $913.4 million. This compared to net income available to common shareholders of $201.1 million, or $1.97 per basic share and $1.79 per diluted share, on total revenues of $728.9 million in the first six months of 2010.
Excluding after-tax unrealized derivative gains and losses and certain other items, Whiting reported first half 2011 adjusted net income available to common shareholders of $221.2 million, or $1.89 per basic share and $1.87 per diluted share. This compared to first half 2010 adjusted net income available to common shareholders of $134.7 million, or $1.32 per basic share and $1.23 per diluted share. A reconciliation of adjusted net income available to common shareholders versus net income available to common shareholders is included later in this news release.
James J. Volker, Whiting's Chairman and CEO, commented, "Our two recent discoveries at Redtail and Hidden Bench, our new wells at Sanish and Lewis & Clark and our encouraging results at Big Tex demonstrate our strategy and ability to develop new oil play areas for future multi-rig development while successfully executing on our existing large scale resource plays. This course of action resulted in our decision to increase our capital budget to $1.60 billion from $1.35 billion."
Mr. Volker continued, "We hold more than 680,000 net acres in the Bakken/Three Forks Hydrocarbon System that we believe will provide increased production and reserve additions. We added 76,000 net acres in the Williston Basin during the second quarter. With our planned development in these new areas and our existing core properties, we expect a strong second half in 2011."
2011 Capital Budget Increased to $1.6 Billion from $1.3 Billion
Whiting has increased its 2011 capital budget to $1,600.0 million from $1,350.0 million. Of this $250.0 million increase, we expect to invest approximately $90.0 million in additional land acquisitions. We have increased our acreage acquisition budget to $200.0 million from $110.0 million. We expect to invest the remaining $160.0 million in drilling. New plays receiving a portion of this funding in 2011 include the Hidden Bench prospect in McKenzie County, North Dakota (18 additional wells), the Cassandra prospect in Williams County, North Dakota (6 additional wells), the Starbuck prospect in Richland County, Montana (5 additional wells), and our Redtail Niobrara prospect in Weld County, Colorado (4 additional wells). The increased budget is expected to be funded through internal cash flow and bank borrowings from our line of credit.
Hidden Bench Prospect. Whiting completed the Arnegard 21-26H discovery well at its Hidden Bench prospect flowing 2,423 barrels of oil and 4,012 thousand cubic feet (Mcf) of gas or 3,092 BOE per day from an 8,913-foot lateral in the Bakken formation on June 23, 2011. The flow rate was gauged on a 48/64-inch choke with a flowing casing pressure of 900 psi. The well, which was drilled to a vertical depth of approximately 11,490 feet, was fracture stimulated in a total of 30 stages, all using sliding sleeves. Whiting owns 59,170 gross (30,905 net) acres in the Hidden Bench prospect, located in McKenzie County, North Dakota. The Company plans to drill a total of 11 operated wells in the prospect in 2011.
Also at Hidden Bench, Whiting completed the Rovelstad 21-13H flowing 1,880 barrels of oil and 3,419 Mcf of gas (2,450 BOE) per day on June 15, 2011. The well was tested on a 48/64-inch choke with a flowing casing pressure of 700 psi and was fracture stimulated in a total of 30 stages, all using sliding sleeves. The Rovelstad well is located approximately two miles northeast of the Arnegard well.
Redtail Prospect. Whiting completed the Wild Horse 16-13H discovery well at its Redtail prospect flowing 1,061 barrels of oil and 1,561 Mcf of gas (1,321 BOE) per day from the Niobrara formation at a vertical depth of 6,762 feet. The flow rate, which was taken on June 16, 2011, was gauged on a one-inch choke with a flowing casing pressure of 270 psi. The Wild Horse 16-13H was fracture stimulated in 21 stages, all using sliding sleeve technology. The well's lateral length was 4,113 feet. The Wild Horse 16-13H produced at an average rate of 454 BOE per day during its first 30 days of production. Based on the results of this well, Whiting added four wells to its 2011 drilling program at Redtail. As of July 15, 2011, Whiting had acquired 103,880 gross (75,701 net) acres in the Redtail prospect in the Denver Julesburg Basin. Our average acreage cost to date is $462 per net acre, and we have an average working interest of 73% and an average net revenue interest of 61%.
Our first three horizontal wells at Redtail, the Pawnee 16-13H, the Terrace 36-11H and the Chalk Bluffs 36-13H, were completed with initial flow rates of 141 BOE per day, 105 BOE per day and 99 BOE per day. We believe that the higher production rates exhibited at the Wild Horse well were primarily the result of changing the well orientation to a northeast azimuth from an east to west orientation and modifying our frac design, including our frac fluid. We expect our next well at Redtail, the Two Mile Creek 22-13H, to be completed by the end of July 2011.
Big Tex Prospect. Whiting fraced its first horizontal well at the Big Tex prospect the first week of July 2011. The Bissett 9701, located in the Delaware Basin in Pecos County, Texas, produced 788 BOE per day (92% oil) from the Wolfbone on July 25, 2011. The well is still cleaning up after frac. The well's 3,610-foot lateral was fracture stimulated in a total of 16 stages, all using sliding sleeves.
As of July 15, 2011, Whiting had accumulated 116,494 gross (88,062 net) acres in our Big Tex prospect area in Pecos, Reeves and Ward Counties, Texas in the Delaware Basin. Our average acreage cost to date is $540 per net acre, and we have an average working interest of 76% and an average net revenue interest of 57%.
Big Island Prospect. At our Big Island prospect in Golden Valley County, North Dakota, we completed the Maus 23-22 pumping 282 barrels of oil per day from the Red River formation at a depth of approximately 12,450 feet. This is a conventional vertical well that we believe sets up four more tests of adjacent Red River prospects. We estimate EURs in this area at 400,000 BOE for a completed well cost of only approximately $3.8 million.
Operations Update - Core Development Areas
Bakken and Three Forks Development
Lewis & Clark Prospect. Whiting completed the Clemens 34-9TFH in the Three Forks formation flowing 1,919 barrels of oil and 1,137 Mcf of gas (2,108 BOE) per day on June 29, 2011. The well was tested on a 48/64-inch choke with a flowing casing pressure of 544 psi. The Clemens well, which was drilled on the north-central portion of the Lewis & Clark prospect in Billings County, North Dakota, was fracture stimulated in a total of 30 stages. The new producer was drilled approximately five miles east of the Federal 32-4TFH discovery well, which was completed in the Three Forks formation flowing 1,970 BOE per day on November 25, 2009.
Also at Lewis & Clark, Whiting completed the Richard 21-15TFH in the Sanish Sand flowing 865 barrels of oil and 977 Mcf of gas (1,028 BOE) per day on May 22, 2011. The well was tested on a 20/64-inch choke with a flowing casing pressure of 483 psi. The Richard well, which was drilled on the southeast side of the prospect in Stark County, North Dakota, was fracture stimulated in a total of 30 stages.
We own 387,351 gross (254,818 net) acres in the Lewis & Clark prospect, which is more than three and a half times larger than our Sanish field. At Lewis & Clark, Whiting has a controlling interest in 164 1,280-acre spacing units with an average working interest of 64%. Based on production to date at Lewis & Clark, it appears that these wells have a relatively shallow decline rate. Therefore, we continue to believe that our wells at Lewis & Clark will have Estimated Ultimate Recoveries (EURs) in the 300,000 to 500,000 BOE range.
Whiting's net production from the Lewis & Clark prospect averaged 2,640 BOE per day in the second quarter of 2011, up 93% from the 1,370 BOE per day average in the first quarter of 2011. From April 15 through July 15, 2011, Whiting completed 10 new wells at Lewis & Clark, bringing the total number of producing operated wells to 26. The average initial production rate for the 10 new wells came to 647 BOE per day. As of July 15, 2011, there were nine wells being completed or awaiting completion and six wells were being drilled. We currently have six drilling rigs operating in this project, and we expect to average eight rigs working from September through December. Based on well results to date, we plan to step up activity in the Stark County and Billings County portions of the prospect in the second half of 2011.
New Pronghorn Gas Plant. In early April 2011, Whiting broke ground on the construction of a gas processing plant at Lewis & Clark. The Pronghorn Gas Plant, formally named the Belfield Gas Plant, is located near Belfield, North Dakota. The Pronghorn Gas Plant will have an initial inlet capacity of 30 MMcf of gas per day and is expected to be completed by November 2011.
Whiting's net production from the Middle Bakken and Three Forks formations in the Sanish and Parshall fields of Mountrail County, North Dakota averaged 24,350 BOE per day in the second quarter of 2011 in the face of extreme weather, a decrease of 6% from the 26,010 BOE average daily rate in the first quarter of 2011.
In the Sanish field, we completed the Nesheim 11-24XH flowing 3,502 barrels of oil and 1,500 Mcf of gas (3,752 BOE) per day on July 14, 2011. The cross-unit well flowed on a 48/64-inch choke with a flowing casing pressure of 720 psi. The well was fracture stimulated in a total of 30 stages, all using sliding sleeve technology. The new producer was drilled on the east-central side of the Sanish field.
Also in the Sanish field, Whiting completed the Brookbank State 41-16XH flowing 2,503 barrels of oil and 1,990 Mcf of gas (2,835 BOE) per day on June 10, 2011. This cross-unit well flowed on a 52/64-inch choke with a flowing casing pressure of 700 psi. The well was fracture stimulated in a total of 21 stages, all using the plug & perf method.
Whiting recently completed its second wing well in the Sanish field. The Oppeboen 14-5WH was completed flowing 2,198 barrels of oil and 581 Mcf of gas (2,294 BOE) per day on July 15, 2011. The well's flow rate was gauged on a 20/64-inch choke with a flowing casing pressure of 1,233 psi. The well's 6,176-foot lateral was fracture stimulated in a total of 22 stages, all using sliding sleeves. Whiting has a total of up to 81 potential wing well locations in Sanish field. A wing well is normally a well drilled within a typical east-west trending 1,280-acre unit near the north or south lease line with an approximate 7,000-foot lateral.
Whiting also saw strong results from a Three Forks well in the Sanish field. The Vangen 11-3TFH was tested flowing 1,200 barrels of oil and 830 Mcf of gas (1,338 BOE) from the Three Forks formation on June 25, 2011. The flow rate was gauged on a 40/64-inch choke with a flowing casing pressure of 409 psi. The well was drilled on the south-central side of the Sanish field.
Whiting owns 106,898 gross (65,056 net) acres in the Sanish field, located in Mountrail County, North Dakota. Whiting's net production from the Sanish field in the second quarter of 2011 averaged 20,515 BOE per day, a decrease of 5% from the first quarter 2011 average rate of 21,685 BOE per day. The decrease was due to well completion delays and downtime resulting from inclement weather in North Dakota. Compared to the second quarter 2010 average rate of 20,045 BOE per day, production in the second quarter of 2011 was up 2%.
From April 15 through July 15, 2011, Whiting completed five operated Bakken wells and three operated Three Forks wells in the Sanish field. The average initial production rate for the five Bakken wells came to 2,614 BOE per day, while the initial production rates for the three Three Forks wells averaged 811 BOE per day. The eight new completions bring to 171 the number of Whiting-operated wells in the Sanish field as of July 15, 2011. Including non-operated wells, there were 243 producing wells in the Sanish field as of July 15, 2011. The Company plans to continue with its current nine operated drilling rig count in the Sanish field through 2013. In 2011, Whiting intends to drill 95 operated wells (52.7 net wells) in the field, of which 70 are planned Three Forks wells, 15 are cross-unit Bakken wells, seven are Bakken infill wells and three are wing wells. Whiting has contracted two full-time dedicated frac crews and a half-time crew that started the last week of June 2011 working in the Williston Basin that we believe are capable of fracture stimulating 18 to 20 wells per month. As of July 15, 2011, 29 operated wells and six non-operated wells were being completed or awaiting completion and eight operated wells and two non-operated wells were being drilled in the Sanish field.
The 17-mile oil line connecting the Sanish field to the Enbridge pipeline in Stanley, North Dakota is currently transporting approximately 33,000 barrels per day, which represents approximately 85% of Whiting's gross operated Sanish production. This 8-inch diameter line has a capacity of approximately 65,000 barrels of oil per day. The Company is currently saving between $1.00 and $2.00 per barrel in transportation costs for each barrel that is transported through the pipeline rather than being transported by truck.
Robinson Lake Gas Plant. During the second quarter of 2011, a fractionation facility and a second NGL train were brought online at the Robinson Lake Gas Plant. As of July 8, 2011 the plant is processing 39.6 MMcf of gas per day (gross). The plant has a processing capacity of 90 MMcf of gas per day. Currently, there is inlet compression in place to process 70 MMcf per day, and compression will be added as the processing demand increases. Whiting owns a 50% interest in the plant. The plant receives 25% of the net proceeds from natural gas and NGLs processed at the plant. As of July 8, 2011, sales from the plant were 30.9 MMcf of gas and 4,372 barrels of NGLs per day, from which Whiting was netting 3.9 MMcf of gas and 546 barrels of NGLs per day due to its 50% plant ownership.
Williston Basin Land Position. Whiting increased its acreage position in the Bakken / Three Forks Hydrocarbon System of the Williston Basin to 1,102,302 gross acres from 999,972 gross acres and to 680,137 net acres from 603,702 net acres. This includes 62,180 gross (41,332 net) acres in Richland County, Montana acreage, referred to as the Missouri Breaks prospect, which is prospective in both the Bakken and Three Forks formations. The Company expects to drill at least one well at Missouri Breaks in the second half of 2011. Whiting's average cost for its entire Williston Basin acreage is currently $419 per net acre.
In-House Core Analysis. In April 2011, Whiting installed two scanning electron microscope workstations in its Denver office. These machines enable us to perform core analyses in weeks rather than months. We believe that we are one of the few companies in the US to have this in-house capability.
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