Whiting Petroleum Corp. (NYSE: WLL) shimmied up to the $400 million mark in asset sales in the third quarter of 2015, but its spending could put it more than $140 million over its capex budget.
The company also officially wrote off the expected efficiency gains it had hoped to achieve through its $6 billion Kodiak acquisition in 2014. Up next for divestiture may be Whiting’s midstream assets, said James Volker, chairman, president and CEO, in an Oct. 29 earnings call. That includes newly expanded facilities in the Niobrara.
Since the second quarter of 2015, Whiting said it has divested another $100 million of assets.
Most recently, Whiting entered into an agreement to sell its interests in a package of older, conventional, operated and nonoperated properties located in the Rockies, Permian and Gulf Coast for $52 million. The buyer was not disclosed.
The deal has an effective date of Oct. 1, with remaining 2015 production estimated at 2,500 barrels of oil equivalent per day (boe/d).
So far in 2015, Whiting has completed roughly $400 million of noncore asset sales at a production cost of about 11.6 Mboe/d. Third quarter production of 160.6 Mboe/d missed the company’s guidance of 162 Mboe/d.
Whiting had hoped to divest up to $1 billion, though it will likely need to sell a midstream asset to reach the goal by the end of 2015.
Volker said the company has sold assets with an eye toward lowering lease operating expenses (LOE). So far in 2015, LOEs have fallen 26% year-over-year to $8.50 per boe.
Whiting has worked to reduce LOE elsewhere, including the North Ward Estes in the Permian Basin, Volker said. The asset’s production rose to 9,375 boe/d in the third quarter of 2015 from 2,500 boe/d.
Volker said the Ward Estes is another potential divestiture, though he conceded “I have liked that particular property for a long period of time.”
However, the company is not spending additional capex in the play and will consider reasonable offers.
Whiting has reduced LOE there by producing a minimum amount of CO2 to meet contractual obligations.
Volker said that with reduced LOE, it’s possible for the company to “retain it or sell it, but in either case it will improve our metrics.”
The World, The Tail
Whiting’s plans aside, the company again spent much more than anticipated in the third quarter of 2015.
Some spending was related to unexpected costs for facilities and plants—midstream assets Volker said are now ready for “harvest time.”
Mike Kelly, senior analyst with Seaport Global, said Whiting’s capex is now at $1.99 billion. In the fourth quarter of 2015, the company expects to spend an additional $300 million.
Kelly said that puts Whiting at about 6.5% more—$2.29 billion—than its guidance of $2.15 billion.
Whiting is “well ahead of its $2.15 billion guidance it laid out with second quarter earnings,” Kelly said in an Oct. 29 note. However, “we think the majority of third-quarter's outspend was driven by higher than expected nonop activity, which is forgivable, in our opinion.”
Whiting spent $403.4 million on wells in the third quarter of 2015.
Whiting’s expenses increased, in part, to finish its Redtail Niobrara gas plant construction early. Completion of the plant increased costs to $50 million per day.
Now, the company plans to sell it.
Whiting’s phase two Redtail gas plant expansion increases the plant’s inlet capacity to 50 million cubic feet per day (MMcf/d) from 20 MMcf/d.
“Going forward, we’re focusing on the midstream and that includes the sale of our water distribution at Redtail,” Volker said. “We have strong interests in all of our midstream assets. We want to sell them for a good price and most importantly we want a good partner in there.”
Volker said that so far, the company has received strong interest in the assets.
Kodiak
Whiting also revisited its blockbuster 2014 deal in which it acquired Kodiak Oil & Gas and a dominant position in the Bakken.
The company recognized $870 million in goodwill from the transaction. The goodwill was based on presumed operational and financial synergies from the acquisition, including the employment of optimized completion techniques on Kodiak's undrilled acreage, savings in drilling and well completion costs and the acquisition of experienced oil and gas technical personnel.
During the third quarter of 2015, the company determined that the goodwill recognized as a result of the Kodiak acquisition had become “fully impaired” and wrote its value down to zero.
Darren Barbee can be reached at dbarbee@hartenergy.com.
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