Point of View: Whiting Petroleum to increase emphasis on drilling

Whiting Petroleum Corp., Denver, has increased its base of proved oil and gas reserves through 11 acquisitions to 1.64 tcf of gas equivalent today from the 439 bcf of gas equivalent (bcfe) it held upon becoming a stand-alone, publicly traded company 2 years ago.

A holding company for Whiting Oil and Gas Corp., Whiting Petroleum boosted a 2-year inventory of drilling prospects into a 5-year inventory by acquiring Equity Oil Co., Salt Lake City, and buying properties in the Permian basin, Rocky Mountain region, the Midcontinent, and along the Gulf of Mexico coast (OGJ Online, Feb. 9, 2004).

Successful acquisitions are routine for Whiting, which began as a public company in 1983 and was sold to its former parent, Alliant Energy Corp., in 1992. Whiting separated from Alliant via an initial public offering in November 2003.

Recently, Whiting acquired oil and gas properties in Oklahoma and Texas from Celero Energy LP, Midland, in two separate agreements with a combined cash-stock value of $802 million (OGJ, Aug. 15, 2005, p. 31).

The properties include 82 million boe (492.5 bcfe) in North Ward Estes field and 40.2 million boe (241.5 bcfe) in Postle field.

James J. Volker, chairman, president, and chief executive officer, expects that drilling soon will receive a bigger share of the budget in Whiting’s three-pronged strategy of acquiring high-quality properties, developing proved reserves, and exploring.

“Acquisitions always have been Whiting’s top priority and will continue to be the company’s No. 1 strategy,” Volker said. “However, development drilling and exploratory drilling will receive more discretionary cash flow than in the past. Going into 2006 and beyond, we would like to use 60-70% of our discretionary cash flow for drilling.”

Cash flow

Whiting maintains a conservative financial policy with a debt-to-capitalization target of 40%. Historically, the company has used 50% of discretionary cash flow for drilling and 50% to reduce debt.

But Volker said robust oil and gas prices are generating enough discretionary cash flow that Whiting can invest more money in drilling while paying off debt. The company uses hedges to lock in production revenues.

Whiting’s current debt-to-capitalization ratio is 49%. It plans to reduce that to 40% in 10 months.

Volker said, “We continue to look for good accretive acquisitions that will add value to our stock” by boosting reserves and production volumes.

Whiting’s 2005 capital budget is expected to be $160-180 million, excluding acquisition costs. Full-year 2005 production is expected to be 72.9-73.9 bcfe and fourth quarter production, 22.5-23.5 bcfe.

Celero assets

The Celero assets complemented Whiting’s existing core area operations in the Permian and Anadarko basins. Of the reserves acquired, 57% are proved undeveloped reserves that Volker considers moderate risk. Whiting plans to develop the reserves and increase production.

Postle field in Texas County, Okla., includes five producing units and one lease covering 24,223 net acres. Carbon dioxide enhanced recovery was initiated on three units beginning in 1995.

Field expansion projects are under way with two drilling rigs and six workover rigs working. Postle contains 88 producing wells and 78 injection wells, completed in the Pennsylvanian Morrow zone at 6,100 ft.

Whiting owns 100% of the Dry Trails gas processing plant and expects to expand its capacity to 83 MMcfd from 43 MMcfd. The acquisition also included 60% interest in the 120-mile TransPetco CO2 pipeline. A 10-year CO2 purchase agreement is in place.

Volker foresees well reactivations for proved developed nonproducing reserves that will cost about $1 million. He also foresees waterflood and CO2 expansion projects on proved undeveloped reserves that will cost approximately $93 million.

North Ward Estes field has 580 producing wells and 180 injection wells on six base leases covering 58,000 net acres in Ward and Winkler counties, Tex. The Permian Yates formation at 2,600 ft is the primary producing pay, and there is production from Permian Queen at 3,000 ft.

Waterflooding was initiated in 1955, and an active refracturing program is under way. New stimulations have cleaned up wellbore damage and opened additional pay. More than 100 refracs were completed this year. Workover rigs continue to perform 8-10 refracs/week.

Waterflood restoration, infill drilling, and lateral extension of the Yates reservoir are under way. Five shallow rigs are working in North Ward Estes, while a sixth intermediate-depth rig is drilling to Pennsylvanian targets.

Whiting also plans to test the Ordovician Montoya and Ellenberger formations. North Ward Estes had a CO2 project that was dropped by a previous operator. Whiting plans to reinstate a CO2 flood throughout the field beginning in 2007, following field repressuring through waterflood.

Whiting estimates the refrac and waterflood project on the proved developed nonproducing reserves will cost $66 million. Infill, expansion, waterflood restoration, refract, and CO2 projects on the proved undeveloped reserves are estimated at $352 million.

Whiting has a record of raising production on acquired properties, particularly on its Big Stick and North Elkhorn Ranch fields in the northern Rockies. Production there was boosted through the use of electric submersible pumps, workovers, and drilling.

“You will see more of the same for North Elkhorn Ranch, Big Stick, and the properties that we acquired in the last 2 years,” Volker said.

Currently, Whiting’s reserves are 75% oil and 25% gas, and its production is 42% gas and 58% oil.

“We have no preference when it comes to that balance,” Volker said. “We are a rate-of-return-oriented company. Whether it is through development with the drillbit or adding reserves with the acquisition dollar, we are simply pursuing the opportunities that we believe will give us the greatest return.”

He said Whiting’s reserves might become more balanced between oil and gas within the next year.✦

Career highlights

James J. Volker was appointed chairman, president, and chief executive officer of Whiting Petroleum Corp. in 2000.

Employment