Chord Energy Corp

NASDAQ:CHRD

Earnings Call Transcript 2020-Q3

[Operator]

Good morning. My name is Matt, and I will be your conference facilitator today. Welcome to the Whiting Petroleum Corporation's Third Quarter 2020 Conference Call. The call will be limited to 45 minutes, including Q&A. [Operator Instructions].

I will now turn the call over to Brandon Day, Whiting's Investor Relations Manager.

[Brandon Day, IR Manager]

Thank you, Matt. Good morning everyone. This is Brandon Day, Whiting's Investor Relations Manager. Thank you for joining us and discuss Whiting's third quarter results for the period ended September 30, 2020. 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 and our COO, Chip Rimer.

Please be advised that our remark today including answer to your questions includes forward-looking statements within the meaning of the Private Security Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to materially different from those currently anticipated. Those include risk 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 obligations to update these forward-looking statements. In addition, we may provide certain non-GAAP financial information in this call. Relevant definitions and GAAP reconciliations may be found in our earnings release and 10-Q, which can be found on our website at whiting.com in the Investor Relations section.

Following the prepared remarks time permitting, we will 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 at whiting.com.

I'd now like to turn the call over to our CEO of Whiting Petroleum, Mr. Lynn Peterson.

[Lynn Peterson, CEO]

Thanks Brandon. Good morning everyone and thank you for joining us today. We filed our 10-Q last evening and you can refer to it for detailed information. I'm sure there are a few you that probably thought you'd seen the last of Jimmy and myself, but here, we are again. We are excited about the opportunities that lie ahead and are delighted to work alongside Chip Rimer our Chief Operating Officer as well as the entire Whiting staff in our combined efforts to rebuild the company. We have been here just a short time, but have been impressed with a great team of employees that have helped Whiting get through this tough time. We emerged from bankruptcy on September 1 with a strong balance sheet and we intend to carry forward a very disciplined financial program during these challenging and industry conditions.

The oil gas industry continues to experience commodity volatility and is adapting to a lower price environment. As such, we have made strides to improve our cost structure and streamline operations. In addition to reducing our total workforce all officers along with a broad group of employees saw a decrease in compensation. Furthermore, we continue to refine our compensation programs to ensure alignment with our shareholder returns. These actions taken in the third quarter are expected to generate approximately $20 million in annualized savings in 2021.

We will continue to address Q&A expenses and try to make impacts wherever possible. EBITDAX for the quarter was 100 million after adjusting for non-recurring items related to the restructuring and reorganization. The free cash flow generated during the quarter went towards paying down debt resulting in the current 400 million drawn on our revolver along with 13 million in cash providing 363 million in liquidity.

I would now like to focus on operation where the team was performed at a high level. For the three months ended September 30th, 2020 production averaged 93.9 thousand barrels of oil equivalent MBOE per day of which 60% was crude oil. During this same period, we spent 10 million on capital expenditures and brought seven wells onto production. The flush production from these wells materially enhanced the quarter’s production. We anticipate spending approximately 27 million in the fourth quarter while placing five wells on production and commencing completion operations on additional wells bringing full-year capital expenditures to a midpoint guidance of $215 million.

We are estimating full-year production to be in a range of 98 to 99 MBOE per day at the same 60% oil cut mentioned earlier. However, due to the timing of these completions as well as a decline from producing wells, we expect our exit for the year at about 10% under the full-year production rate.

Our strategy for Whiting will be a continued disciplined focus on generating free cash flow along with attenuating the impact of production declines. The free cash flow generated by this business plan provides us with options to allocate capital towards opportunities that are most accretive to the value of the stock. In the near term, we will use the free-cash flow to continue paying down debt to ensure continued liquidity. Longer term however, we will look at our options of returning capital back to shareholders.

Despite the continued challenging environment for the energy sector our low level of debt combined with a moderate declining asset base gives us a strong foundation to build upon this strategy. As we move through the fourth quarter, we are continuing to refine our 2021 outlook. Under the current commodity environment, we anticipate spending approximately half of our expected EBITDAX towards drilling and completion operations and the balance would be utilized to pay down debt.

Using current consensus pricing for 2021, we see capital spending at a similar level as our 2020 expenditures providing us the opportunity to keep 2021 production relatively flat to the fourth quarter 2020 exit levels. While we understand the challenges surrounding the volatility of commodity prices this type of program would generate an attractive free cash flow yield in 2021.

Moving further downstream the appeal process related to the Dakota access pipeline is ongoing. With oral arguments taking place this past Wednesday regarding whether an EIS will be required, we are expecting a decision from the DC Circuit court of appeal by the end of the year or early Q1, 2021 as well as a decision from the District Court regarding continued operation should an EIS be required. We have and will continue searching and securing alternative market arrangements to help mitigate the potential impact of unfavorable ruling.

Ultimately, as we continue to experience volatility in commodity pricing as well uncertainties around the net backs of our products, we have multiple levers that we can utilize to de-accelerate activity if we do not like the economic outcome.

Consolidation within our industry continues to be one of the most significant discussion points with the investors. We have seen this recently occur within the larger market cap companies and we need to see this trend continue in this mid and small cap universe. It is our endeavor to be a part of this future discussions and progressions as we continue to redefine the industry.

Before we jump into Q&A I would like to welcome Scott Regan as our new General Council. Scott has been with company over five years and will provide a seamless transition. We like to also thank Bruce [Indiscernible] for his long service at Whiting and wish him the best for his retirement as we look forward to working on his call and join his family.

With that we would like to open it up for questions. Thank you.

[Operator]

We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from Neal Dingmann with Truit Securities. Please of ahead.

[Neal Dingmann, Truit Securities]

Morning Lynn and Jim. My question Lynn you have been pretty straightforward to that free cash flow being the sort of primary metric that you are looking at. I am just wondering is that going to be the determinant on when and if you would bring the rig back and looking at activities. I am just wondering if you could talk a little bit about how when you and Jim are looking at the plan for next year kind of what is going into that?

[Lynn Peterson, CEO]

Yes. Clearly we are all focused on doing the right thing here from financial discipline manner. Clearly we would like to bring rig back. We hope commodity prices will allow that as we get into 2021. I think if you look consensus pricing again, we are in that area right now. So yes, we are very optimistic that we move forward in that direction, while we kind of try to lay out some gold posture while we are thinking about 2021. We will go through the fourth quarter and get this out to you later this year and be more definite on our plans.

[Neal Dingmann, Truit Securities]

Okay and I know you have been always very clear about doing much best for shareholder with this company. I know your past company got the job with that is with that said right now you had a lot that has been chattered as far as would you look to add in the consolidator, would you guys consider obviously if somebody purchase - type of de-lever asset for somebody and just wondering if you think about M&A from either side of that how should we think about it?

[Lynn Peterson, CEO]

All above the all. I mean, we are here. We work with shareholders and we are going to try to do the right thing. We have tried to do that in the past. We are going to do it here. We are excited about the opportunities. Give us some time here, but we certainly want to move forward in that direction and again I think, we will always be focused on shareholder value here.

[Neal Dingmann, Truit Securities]

Great to hear. Thanks Lynn.

[Lynn Peterson, CEO]

Good to hear you Neal.

[Operator]

Our next question comes from Leo Mariani with Keybanc. Please go ahead.

[Leo Mariani, Keybanc]

Yes hi guys just a two follow-up on the M&A question. I guess Neal advanced that looks likely that Whiting can be a consolidator. Do you guys see out there in the landscape good opportunities in the Bakken or are there stressed assets or assets that may become stressed down the road that you guys think you might be moved to get out there and hopefully buy maybe an attractive price and what could be a low point in the old price cycle here.

[Lynn Peterson, CEO]

Yes look Leo, I came here for a reason I try to grow this company. We are going to look at all opportunities. We are going to evaluate them at the time. We're very familiar with the Williston obviously. So we just need a little bit of time here to get everything moving in the right direction. Obviously, we need some for with oil prices commodity prices here. But, yes we're going to try to evaluate everything possible here and I will tell you right now our team is working diligently in that regard.

[Leo Mariani, Keybanc]

Okay. Great. And just with respect to the 21 outlook and now it's not from [Indiscernible] this point, but trying to hold production flat here 21 verses exit rate. Just trying to get a sense is that kind of fabricated on certain oil price, do you guys just look at strip and say hey, if you know strip, which I guess is probably close to 40 next year. That's the type of price we need to see for that outlooks. Any color you can provide around that would be helpful.

[Lynn Peterson, CEO]

Yes. Maybe I will let Jimmy comment that if you don't mind. Jimmy?

[Jimmy Henderson, CFO]

Yes. I think you're generally right Leo, when we look at what's the strip or consensus is right now for the next year. That's what our plan is based on we have multiple levers to pull as we go through the years. So we're going to be flexible with that and kind of see how things go and when Lynn discussed our rig activity earlier, I think the real important thing is the cadence of completions and Jeff and team have done a really good job of knowing down those costs and focusing on being really cost-efficient on that side. So I think that's probably the biggest lever that we have is when we pull the trigger on a completing wells as we go through the year. So that's that will be highly dependent on the pricing environment as we've seen hedge , and he see our hedge book is pretty robust right now coming out of bankruptcy process. So we take that into consideration too. So all that comes together to really define our decision-making on a real-time basis. Any comments Chip. Any additional color there?

[Chip Rimer, COO]

No I agree 100% with Jimmy. It's the cadence you want to have that cadence be able to do that [Indiscerible] and other things and I think we've done a great job in identifying those and I extremely proud of our team what we've done over the last year of managing cost.

[Lynn Peterson, CEO]

Team has done a really good job. We've got a good go forward with that's what excites all of us.

[Leo Mariani, Keybanc]

Yes. That's helpful color for sure and I guess Lynn obviously company emerged from bankruptcy very recently you and your team kind of came in very recently certainly looks like you guys made some staff changes and some G&A improvements really rapidly. Just kind of looking ahead or any other sort of larger changes that you're looking at whether or not it's on the operating cost side or potentially drilling costs or any other things you think you can do to the organization to maybe bring some improvements going forward.

[Lynn Peterson, CEO]

Again Leo, our goal here is really grow the company. We are not looking to be a blow down situation. I'm more focused on what opportunities lay ahead and we will always continue to tweak our team here and you always strive to improve no matter what you do. So, I think that's just the part of our progression, but we're about trying to grow this company and trying to do the right thing for shareholders here. So we're going to stay focused in that regard and I think the rest plays out.

[Leo Mariani, Keybanc]

Okay. Thanks.

[Operator]

[Operator Instructions] Our next question comes from David Deckelbaum with Cowen. Please go ahead.

[David Deckelbaum, Cowen]

Morning Lynn and Jimmy and gang welcome back.

[Lynn Peterson, CEO]

Hey David good to hear from you.

[Chip Rimer, COO]

You thought we were done David.

[David Deckelbaum, Cowen]

You thought you were done too. Lynn I'm curious just I know a lot of people have asked I think, in the documents and subsequent, press releases. You're obviously brought in the grow this company I know Leo asked about the deals that are out there as you try to set aside a free cash generation production stabilization. When you look at your inventories, do you see yourself more likely to add undeveloped locations at this point or do you think it makes sense in this new paradigm where things feeds us some more PDP heavy deals to help on the leverage free cash accretion?

[Lynn Peterson, CEO]

I think if you look at people are trading at current strip price I mean you can add PDP at a pretty robust price in my opinion. So I think anything we're going to do is going to be a combination. I'd love to get a hold of some undeveloped acres so we can continue to work on our inventory levels. But again, I guess we're trying to look at this very unbiased and look at every opportunity and some will probably more PDP heavy and I hope we'll find a few that will have more opportunities for inventory. But we also got to recognize the Bakkens been around for a number of years here. There is not a great deal of remaining inventory for anyone. So these are all challenges that we have and we're going to dress as we go forward here.

[David Deckelbaum, Cowen]

Do you sense given those comments are you at the point where you can be agnostic where your operations are as long as the returns make sense?,

[Lynn Peterson, CEO]

I think we got to be open to that. Again I kind of goes back to the maturity of the Basin and so, I think, we do have a very-very solid operating team here and I think we can handle some things. I don't mean that as we're going to jump to another Basin tomorrow by any means, but we're trying to look at every opportunity that lies out there and see what's best for shareholder.

[David Deckelbaum, Cowen]

I appreciate that. Just the last one for me. If you have a plan obviously by maintaining the volumes now in 21 theoretically I guess 22 we're on a track to generate free cash and each year at $40 and perhaps below, when you look at $400 million and debt balance right now how do you think about sort of free cash flow? How quickly do you want to pay that down? I know that you have leverage metric targets out there, but do you feel like you're in a world now where it should be an absolute target of zero dollars debt and is that the priority or is this a balanced plan where you'd like to show maybe somewhat of a return of capital may be some share buybacks or are we trying to say this down as quickly as possible?

[Lynn Peterson, CEO]

No. right now we're paying debt down because that's one avenue for look pretty, but no we clearly want to return some of the shareholders here. And what's right that level it's probably that one to one half range. We're pretty comfortable where we are today even we're in great shape. So I mean this is all going to be part of doing the right thing with our program. And I hope we can use part of that too for opportunity that rise and then I hope we can return a portion of that shareholders here down the road. So we just laid out our media plan to paying down debt because that's focus today, but I mean as this thing moves into 2021 and beyond we certainly want to continue to focus on returns to shareholders here.

[David Deckelbaum, Cowen]

I don't know. Nobody else has question with it. But thank you guys and welcome back.

[Lynn Peterson, CEO]

I appreciate it David. Good to hear from 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.

[Lynn Peterson, CEO]

All right, thanks, Matt. Again, thank you all of you for attending this morning and I'd like to give a shout-out to The Whiting staff for your efforts and dedication during this trying time. Our team has lived with the company money value of safety first and even though I know at times they were distracted by the restrictions process and living through the COVID pandemic. I look forward to working with us team to build a company that we can all be proud of and bring value to our shareholders. We will be attending a few virtual conferences over the coming quarters.

More importantly we look forward to speaking with our investors directly and thank you for your time. You got any questions, please feel free to reach out to Brandon, and we'll try to address those. Thank you very much. Have a great weekend. Appreciate your interest.

[Operator]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.