Volker: Whiting Petroleum rigged to run and prosper at $50-60/bbl oil

Aug. 12, 2015
Whiting Petroleum Corp. has positioned itself to make money at $50-60/bbl oil, said James Volker, Whiting chief executive officer, adding he believes the company can prosper at current oil prices and still boost production.

Whiting Petroleum Corp. has positioned itself to make money at $50-60/bbl oil, said James Volker, Whiting chief executive officer, adding he believes the company can prosper at current oil prices and still boost production.

"We have good assets, and we are improving efficiencies through new technologies," Volker said during an interview with UOGR at Whiting's corporate "We have used geoscience, reservoir, and operations engineering to make our company work at $50-60/bbl oil. We have approximately 133,500 boe/d and 7,450 good locations in the Bakken. We were taken there by core work to be where we can produce from more than one zone. We study old vertical wells and then do core work on the new wells we drill."

Whiting's production and reserves are more than 80% light, sweet crude oil, Volker said, adding he believes the company is one of the most oil-focused independents in North America.

He attributed the company's own core lab at corporate headquarters for enabling Whiting to capture the sweet spots in the Bakken/Three Forks of North Dakota and the Niobrara in northeastern Colorado.

Core samples analyzed by Whiting's lab technicians and decisions made within 48 hr while the rig remains in the field are credited with saving thousands of dollars and eliminating the need to move rigs back and forth pending executive decisions, he said.

POINT OF VIEW
James Volker, Whiting Petroleum chairman, president, and chief executive officer

During April, Whiting sold older, conventional properties to a private buyer for $108 million. The properties spanned 4,000 wells, including several multiwell units in 187 fields across 14 states.

"The sale was consistent with our plans to sell mature properties having higher lease operating expenses (LOE) per barrel of oil equivalent than our core Bakken and Niobrara assets," Volker said. "LOE for the properties averaged $25/boe vs. $6.50/boe in the Bakken and $9/boe in our core Niobrara."

Whiting develops, acquires, and produces oil, gas, and natural gas liquids primarily in the Bakken/Three Forks plays in North Dakota, the Redtail Niobrara play in the northeastern Denver-Julesburg basin of Colorado, and an enhanced oil recovery field in the Permian basin.

Redtail is promising

Redtail field is Whiting's "economic sweet spot in the Niobrara," Volker said, adding it's about a 3-hr drive from downtown Denver to Weld County, Colo.

Whiting has assembled 184,348 gross (134,027 net) acres in Redtail with an average working interest of 73%. It has established production in four zones: the Niobrara A, B, C, and the Codell/Fort Hays formations. As of Dec. 31, 2014, the independent had a mix of 960 and 640-acre spacing units and 6,685 potential drillsites in the D-J basin oil window.

During the first quarter, Whiting's Redtail assets produced 13,000 boe/d, up 28% from its fourth-quarter 2014 results. Currently, Whiting's cost to complete a Redtail well averages $4.5 million.

Volker expects continued strong performance from Codell/Fort Hays wells, noting the Razor 25B-2551 well achieved a 200-day average rate of 355 boe/d from the Codell/Fort Hays during April. Whiting estimates its internal rate of return (IRR) at 30% for Redtail production given $55/bbl oil prices, 40% at $60/bbl, and 64% at $70/bbl.

Whiting installed freshwater pits, produced-water gathering lines, and fracturing-water lines for Redtail. Volker said pipelines move water more cheaply than trucks. He also said Whiting was evaluating recycling produced water.

Regarding midstream plans for Redtail, Whiting installed gathering systems for oil and natural gas and has agreements with Pony Express oil pipeline. The Redtail gas plant, 100% owned by Whiting, was expected to reach 70 MMcfd takeaway capacity in early July, 140 MMcfd in 2017, and 200 MMcfd in 2020.

"We sell our crude oil production from Redtail under a fixed-differential contract across a connection to the Pony Express Pipeline to Cushing, Okla.," Volker said. "We are selling 20,000 gross b/d at a $4.75/bbl discount to the NYMEX price."

That compared with a $12/bbl differential before the Pony Express connection.

Three Forks growth likely

In July 2014, Whiting announced plans to acquire Kodiak Oil & Gas Corp. in an all-stock merger worth $6 billion, including $2.2 billion in Kodiak debt. By closing in December 2014, oil prices had declined.

But Volker remains upbeat about the long-term potential of the Kodiak assets in the Williston basin, noting Whiting reports some of industry's top initial production rates there (UOGR, May/June 2015, p. 28).

First-quarter results show overall Whiting production of 167,000 net boe/d, which exceeded the company's earlier guidance numbers. That included record Bakken and Three Forks production of 133,500 net boe/d with strong initial production rates at Dunn, Polar, and Koala fields, all of which were obtained through the Kodiak acquisition.

"The Three Forks looks promising. The high rate-of-return Dunn County area includes Charging Eagle acreage," Volker said, adding he sees potential for adding reserves in the Three Forks.

He anticipates drilling 8-12 wells per drilling space unit (DSU) in the Middle Bakken and 3-6 wells per DSU in the Three Forks during 2015.

Whiting estimates its Williston basin IRR at 42% with $55/bbl oil, 54% at $60/bbl, and 82% at $70/bbl.

"People forget that when we got in the Bakken, crude was $60/bbl," Volker said. "Whiting can make money at that."

Speaking about the industry in general, Volker believes overall Williston basin production will decline. At the time of the interview, the Williston rig count was about 80. Volker said that assuming a recovery to no more than 100 rigs, he anticipates Williston production could decline 200,000 b/d by January 2017 from January 2015 levels.

Whiting's Permian assets include some conventional assets that Volker described as having higher costs than Whiting's core assets.

"We believe we are on track to have more of those lower-value property sales in the second quarter," Volker told UOGR. "Without announcing that yet, I believe our plans for additional sales are going well…. As a result, yes, there could be some of our conventional production in the Permian basin that sells."

He said he could not comment on the EOR project.

"Right now I am just talking about conventional vertical wells in smaller, older fields that extend all the way from the gulf coast through the Midcontinent up to Michigan.

Regarding industry trends, Volker said he believes US production will decline with lower rig counts.

"I think that is going to support the price even though we might see Saudi Arabia maintain production or you might see more production from Iran or Iraq on the market," Volker said.

Whiting's internal estimates call for $60/bbl for December and $62/bbl oil for December 2016.

Calling these "reasonable estimates," he told UOGR during a June 30 interview that he expects that if more crude oil were to come onto the world oil market then prices would drop below $55/bbl. Uncertainly about Iran caused prices to do exactly that within days of his comments.

James Volker serves as chairman, president, and chief executive officer, having been a director of Whiting Petroleum since 2003 and a director of Whiting Oil and Gas Corp. since 2002. He joined Whiting Oil and Gas in 1983 as vice-president of corporate development and served in that position through 1993. In 1993, he became a contract consultant to Whiting Oil and Gas and served in that capacity until 2000, at which time he became executive vice-president and chief operating officer. Volker was appointed president and chief executive officer of Whiting Oil and Gas in 2002. Volker was co-founder, vice-president, and later president of Energy Management Corp. during 1971-82. He has more than 41 years of experience in the oil and natural gas industry. Volker has a degree in finance from the University of Denver, an MBA from the University of Colorado, and has completed H. K. VanPoolen and Associates' course of study in reservoir engineering.