Oasis Petroleum Inc
Q1 2021 Earnings Call Transcript

Published: 6 May 2021

[Operator:]

Good morning. My name is Ian, and I'll be your conference facilitator today. Welcome to Whiting Petroleum's First 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 speakers' remarks, there will be a question and answer period. I will now turn the call over to Brandon Day, Whiting's Investors Relations Manager. Please proceed.

[Brandon Day:]

Thank you, Ian. Good morning everyone. This is Brandon Day, Whiting's Investor Relations Manager. Thank you for joining us to discuss Whiting's first quarter results for the period ended March 31, 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 Rimer; and VP of Commercial, Jo Ann 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 risks and uncertainties that could cause actual results to be materially different from those currently anticipated.

[Lynn Peterson:]

Thanks Brandon. Good morning everyone and thanks for joining us today. We followed our 10-Q yesterday and you can refer to it for detailed information. This morning's prepared remarks will be relatively short as the quarter went pretty much as planned and our expectations were achieved across the board. I wanted to thank our staff for their work done during the quarter and our progress today. The work that was put into our planning and budgeting process late last year was executed very well by our field team despite difficult and adverse conditions caused by the winter weather. One constant that we have working in North Dakota is acknowledged that winter will return each year. Bringing our production levels at the top of our guidance for the first quarter sets the company up for continued success through remainder of the year. As I look back on the past eight months, it's striking how quickly the industry has changed as oil prices have increased significantly. Now that oil has been trading in the range of $65 per barrel, financial conditions have risen across the board. To reflect the impact of this change on our company, we chose a conservative $55 per barrel crude price to reset our outlook. Using that price for oil, we now expect Whiting to generate approximately $550 million in EBITDAX and approximately $300 million in free cash flow in 2021, we choosing our current market cap results in an approximate 20% free cash flow yield. Keep in mind that this is after the effect of hedges that we're required to execute upon emergence that are now obviously out of the bunny. To put some context around those numbers, we reported $39 million hedging loss for the first quarter and project over $180 million for the full year at current oil prices.

[Operator:]

Our first question comes from David Deckelbaum of Cowen. Please proceed.

[David Deckelbaum:]

Good morning, Lynn and everyone. Thanks for taking my questions.

[Lynn Peterson:]

Hi, David.

[David Deckelbaum:]

The last comment you probably going to get the most feedback on today, as we look out here you mentioned obviously you're going to be debt-free by the end of the year. The strip sort of as you guys earning your entire enterprise value in five years? How do you kind of square that with the types of opportunities you should be looking at vis-à-vis M&A. Obviously there's been several deals in the bucket and transaction values are moving higher. What sort of has this sort of secret sauce or recipe changed versus what you would have been looking at when you guys took over the company?

[Lynn Peterson:]

Yes. David, without a doubt I think things have changed dramatically. I mean, when you think back eight months ago we were in a $35, $40 environment and I think there was several opportunities to combine our clean balance sheet with maybe somebody had some debt whereas prices moved up, people have been able to improve their balance sheets, and so you've seen a change there. I think what we continue to look for is really some type of transformational acquisition that will bring not only PDP production, but also inventory. I think, the Bakken was one of the more mature players out there. And I think all companies are kind of facing this for the most part and so this is what we continue to focus our attention on. I think the transaction that was announced earlier this week was interesting, and I think when we read through that thing for equity, I think this is what was interesting to me. As you can see from our most recent Q, we have over 3 times the production from a barrel of oil, from a barrels of oil equivalent, certainly a much greater runway of inventory, yet when you look at 3 times the price that was paid in cash and compare that to our current market-cap, you can see a significant implied upside to our share price. So, I mean, these are some of the things that we're trying to work through as we look at opportunities here.

[David Deckelbaum:]

So telling me you picked-up the phone and offered the company up for sale?

[Lynn Peterson:]

No. Didn't said that. I said you can see the implied ups, right to our share.

[David Deckelbaum:]

There's an arbitrage for sure. I guess, you mentioned inventory as well. Is this commodity environment, causing you guys to kind of pick-up the magnifying glass a bit more, about what you have organically right now either looking at including, perhaps more secondary zones are we testing some concepts, or do you feel like everything under the hood is pretty well-fed at this point?

[Lynn Peterson:]

Well, I think one of the things maybe different jump in here with me, but one of the things we're looking as longer laterals in some of our areas that maybe are not quite our top tier one or two type anchorage, like we're doing some of those things. Chip, you want to comment?

[Chip Rimer:]

Yes. That’s Lynn. We're looking at those some three-mile laterals versus your typical two miles. We're tweaking some of our completions and seeing what that does for us in some of our areas especially in the Foreman Butte areas and so additional sand and water. We'll see how those turn out this year. So we're tweaking a few things and hopefully get some upside, especially in these prices.

[David Deckelbaum:]

Thanks for the answers guys. Best of luck, Lynn.

[Lynn Peterson:]

Yes. Thanks, David. I think we want to reiterate again. Our Board is totally focused here where we've had a lot of discussions. I think there will be a dividend or a stock buyback combination of both as we look to the – exit the year here. Again, we're just trying to comply with our revolver, but stay tuned I'd say, I think you'll be pleased.

[David Deckelbaum:]

Thank you, Lynn.

[Lynn Peterson:]

Thank you.

[Operator:]

Your next question comes from Neal Dingmann of Truist. Neal, please proceed.

[Neal Dingmann:]

Knowing your inventory, I'm just wondering, could you walk through that again? It seems like you still have a long runway. I'm just wondering, could you talk about current inventory including the ducts as it sits today?

[Lynn Peterson:]

Yes. I think if you look back at the presentation on our website, we show over 400 locations at a $55 level. And again, we kind of keep conservative at that $55 range, but I think you can see as we look the next three years, it's highly focused in the Sanish area? Chip, do you want to add anything to that?

[Chip Rimer:]

No, that's correct. We've got probably three quarters those are Bakken in the Sanish area. Quarter of those are three quarters, so we'll continue to focus on that area, that's our best area. We know that area very well, and we're seeing great results from that. And then there is stuff down at the point of view areas that we think also make that level and looking forward to getting some of those areas to get better than what we've seen in the past. And so like I said before, we're tweaking some of our completions. We're looking at three-mile, I think we regret some great value out of some of those areas that we have explored before in the past.

[Neal Dingmann:]

Great details, and Lynn, just that kind of brought up my follow-up. What Chip was saying for you or chip? Are you doing, I guess going forward, I don’t know either Sanish going forward more co-development you obviously have some other zones you mentioned besides Bakken and a lot of that. So is today or in the future you'd be doing more co-development we're thinking about that?

[Lynn Peterson:]

I mean, it's more Bakken and that's majority of our – that we're chasing right now.

[Neal Dingmann:]

Okay. And if I could take one last one and Lynn just on service costs today, any inflation yet up in the North?

[Lynn Peterson:]

We're starting to see some pressures. We've been able to hold them pretty much to bay right down. But I think if we look at the second half of the year, we've talked about this. I think you can see and I wouldn't be surprised to see a 5% to 8% increase over time, you know.

[Jimmy Henderson:]

Yes, I really appreciate what our team has done, our supply chain or operations folks, they've locked in contracts and service providers. We've done a lot of strategic partnership to allow our prices to stay pretty constant, like Lynn said, through the first three quarters may seal upside pressure on the back side. You're seeing a little bit on fuel side. You're seeing a little bit on the steel side. We've locked our steel in a little bit on the labor, but I think you're right, Lynn. It will be single digit.

[Lynn Peterson:]

But to the team's spread, I mean, we actually try to think through this when we were doing our budgeting, I think a lot of this has been built-in. I mean, you're never perfect on these things, but I think we've actually thought through that pretty clearly. So I don't think we'll have any big surprises as we go down the year here.

[Neal Dingmann:]

Thanks guys.

[Lynn Peterson:]

Thanks, Neal.

[Operator:]

And our next question comes from Noel Parks of Tuohy Brothers. Please proceed.

[Noel Parks:]

Good morning.

[Lynn Peterson:]

Good morning, Noel.

[Jimmy Henderson:]

Good morning, Noel.

[Noel Parks:]

I just wanted to get your thoughts on sort of just the basin as a whole with different deal activity and so forth. It seems like it's kind of a glass half – full glass, half empty, you look at some parts of the basin and it seems like it's maturing not a lot of running room left, look at other parts and there is still more, more inventory out there. And I guess if – could you just talk a little bit about the – I guess unevenness that their basin has been developed at, of course, you're being early in the Sanish area. And just what you think might be revisited from early vintage drilling out there that with your scale could maybe offer you an advantage that like a smaller operator or a smaller consolidator might not be able to match.

[Lynn Peterson:]

Yes, I would say, as you look at the basin, a lot of the remaining inventories are in the hands of the bigger companies, the majors. I think as the pace of activity think back over the last 10 years of our industry, companies were driven for growth, that's what everybody wanted. So there was a lot of drilling by the independents where the majors, I think, took a different pace. So I think when we sit there and look today that's where we see a lot of the remaining inventory. These things change over time. And I guess we're aware. We know what we want to do, but we can be patient doing it. We don't have to a knee jerk here by any means. I think we're in really good shape. And we just got to keep pushing forward here and try to find some of those areas where we can peel off some inventory. So…

[Noel Parks:]

And just to follow up, I am sorry.

[Lynn Peterson:]

No, I'm just going to ask Chip, have you got any other thoughts in that regard?

[Chip Rimer:]

No, I think you're right. I think you're right, spun-on.

[Noel Parks:]

And, and just sort of explain the discussion to include the midstream part of the equation. We – with the pipeline and the sort of federal issues, that's kind of a different uncertainty introduced into the mix. But it is on the spectrum of further investment in midstream versus trying to consider – well, I guess, consolidate up or consider spinning off your assets. Just where do you think the – where do the best hands for the midstream operations to be in these days would you say? And does that play into your thoughts about consolidation?

[Lynn Peterson:]

I think when we look at the infrastructure, the basin, I think we're in pretty good shape. I think you'll continue to see some consolidation on that side of it. We've always set ourselves up to be operators of the E&P side of it and stayed out of the midstream. We do have some gas plants and stuff like that that we'll continue to evaluate and operate. But I think our whole industry whether it's upstream or midstream, it's going to go through some additional consolidation here. Jo Ann, do you have any thoughts on that that you're hearing in the field or anything?

[Jo Ann Stockton:]

Hearing anything differently, I mean, I think as you alluded to we're going to evaluate it on a situational basis as it relates to, for example, the specific plants and what our plans are layered on top of that.

[Lynn Peterson:]

Jimmy, you got any comments?

[Jimmy Henderson:]

No, I think that's – your initial question about is the glass half full or half empty in a matured basin like this. I think that you could say that's one of the positive things as you do have good infrastructure in place, especially at production levels that a basin is currently experiencing. We're in really good shape. As Jo Ann has talked before about where we are with DAPL down and how that turns out based on production levels in this – in the basin, generally, we're in a good shape. And I think you'll continue to see gathering, put in the ground to service our operations, but for the most part, we've got some – we've got pretty good level of service providers and good partners that we work with on that side up there.

[Noel Parks:]

Great. Thanks a lot for the perspective.

[Lynn Peterson:]

Well, thank you.

[Operator:]

Thank you, ladies and gentlemen. There are no further questions at this time. I'll turn the floor back to management for closing remarks. Thank you.

[Lynn Peterson:]

All right. Thank you. Again, I'd like to thank everyone for joining us this morning and your interest in Whiting Petroleum. We'll be attending some virtual conferences over the coming quarter and look forward to seeing many of you in those events. And we look forward to meeting soon in person. So thank you very much for your time. Have a great day.