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Edited Transcript of WLL earnings conference call or presentation 6-Nov-19 4:00pm GMT

Q3 2019 Whiting Petroleum Corp Earnings Call

Denver Nov 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Whiting Petroleum Corp earnings conference call or presentation Wednesday, November 6, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bradley J. Holly

Whiting Petroleum Corporation - Chairman, President & CEO

* Correne S. Loeffler

Whiting Petroleum Corporation - CFO

* Eric K. Hagen

Whiting Petroleum Corporation - VP of Corporate Affairs

* Kevin A. Kelly

Whiting Petroleum Corporation - VP of Marketing

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Conference Call Participants

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* John Christopher Freeman

Raymond James & Associates, Inc., Research Division - Research Analyst

* Kashy Oladipo Harrison

Piper Jaffray Companies, Research Division - Research Analyst

* Leo Paul Mariani

KeyBanc Capital Markets Inc., Research Division - Analyst

* Michael Stephen Scialla

Stifel, Nicolaus & Company, Incorporated, Research Division - MD

* Neal David Dingmann

SunTrust Robinson Humphrey, Inc., Research Division - MD

* Noel Augustus Parks

Coker & Palmer Investment Securities, Inc., Research Division - Senior Analyst Exploration, Production and MLP’s

* Timothy A. Rezvan

Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst

* William Seabury Thompson

Barclays Bank PLC, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning. My name is Rocco, and I will be your conference facilitator today. Welcome everyone to the Whiting Petroleum Corporation Third Quarter 2019 Financial and Operating Results 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. (Operator Instructions) Please limit your questions to one question and one follow-up.

I will now turn the call over to Eric Hagen, Whiting's Vice President of Corporate Affairs.

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Eric K. Hagen, Whiting Petroleum Corporation - VP of Corporate Affairs [2]

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Thank you, Rocco. Good morning, and welcome to Whiting Petroleum Corporation's Third Quarter 2019 Earnings Conference Call. On the call with me today are Brad Holly, Chairman, President and CEO; Correne Loeffler, CFO; Chip Rimer, COO; Tim Sulser, CSO; and Kevin Kelly, our Vice President of Marketing in Midstream.

During this call, we'll review our results for the third quarter 2019. Conference call is being recorded, and will also be available on our website at www.whiting.com, under the Investor Relations section. We also posted an updated corporate presentation to our website earlier this morning. Please note that our remarks and answers to questions include forward looking statements that are subject to risks that could cause actual results to differ materially from those in the forward looking statements. Additional information concerning these risks is set forth on Slide number 2 of our corporate presentation and in our earnings release.

With that, I'll turn the call over to our Chairman, President and CEO, Brad Holly.

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [3]

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Thank you, Eric. I'm pleased to report that our production came in above the midpoint of old guidance and capital expenditures were below the low end of the guidance range. In the face of a challenging operating environment in the Williston Basin, our team delivered solid results. We were beginning to see the positive effects of our recently implemented strategic reorganization. This was demonstrated by the coordination and positive results produced by our team in the field. While we have a lot of work to do, the Whiting team has energized in its commitment to becoming a leading value based EMP that can maximize cash flow.

During the quarter, we faced weather challenges, including significant rain and flooding. As a result of our efforts to develop a more streamlined organization, our field employees were able to keep operations moving and had our production goal. This illustrated what is occurring all across our organization, a simpler, flatter corporate structure is driving better communication and teamwork. New planning processes, backstopped by a better use of technology, have also enhanced our capabilities. Our employees in the field and at headquarters have better access to real time data through new performance dashboards. These automated reporting tools allow for enhanced surveillance, and management of high value wells. This gives us the ability to prioritize our time and energy to enhance profitability. It also gives us greater flexibility to course correct in the face of external challenges. We have also gained greater insight into our cost structure to the expansion of real time data reporting, allowing us to advance our goal of driving down lease operating expenses by 10% to 15% in 2020. The company has a number of initiatives underway to achieve these savings.

The most impactful of these include optimization of chemical and freshwater programs, renegotiation of saltwater disposal contracts, more efficient distribution of produced water, and proof focus on run time, and effective utilization of rental equipment. Our North Polar area provides a good example of how our cost saving initiatives in the field are bearing fruit. We institute a rigorous review of our saltwater disposal program in the area. We examine everything from our contracts, to how we hold the water. By rationalizing our vendors and optimizing our logistics, we were able to eliminate approximately $2.5 million of costs annually. This equates to a 40% drop in costs to transport and dispose per barrel. We've also gained greater insight into our capital program through our performance dashboards. We can track spending on projects in greater detail, which allows us to optimize the development plan from the initial drilling of the well through our facility bill. We are expanding this to the corporate level through a rigorous supply chain analysis that implements technology to better track and evaluate our vendors. We expect these initiatives to be important long-term value drivers, as we regularly review our options to strengthen our cost structure. Whiting's corporate optimization efforts are founded on creativity and innovation in the field.

Our drilling department continues to lead the way in terms of drilling cycle times in the Williston Basin, as depicted on Slide 10 and our third quarter slide deck. Our drilling engineers also continued to be leaders in pioneering new technology. They successfully implemented a brand based drilling foot system in the Sanish area that resulted in a 25% reduction in rig hours for the vertical section of the curve. The team has also designed and implemented new bet technology that is estimated to increase the rate of penetration by over 10%. On the completion side, our engineers are also delivering industry leading results. As depicted in our presentation on Slide 11, Whiting is a leader in the basin and stages completed her crew in 2019. This achievement was driven by increased surface efficiency through detailed planning and reduced downtime during the completion process. This allows Whiting to deliver wells to production faster, and at a lower cost than our peers.

I would now like to highlight 2 major areas where we have new results this quarter that set up years of profitable drilling for Whiting: Sanish and Foreman Butte. These core properties continue to deliver positive incremental results setting the stage for expanded future drilling and maximizing cash flow. As depicted on Slide 6, we have completed 4 infill pilots that span our Sanish Field. These were characterized by a significant uplift in child well performance and a positive interaction between the parent and the child wells. Our latest result was significant production history, the Pod 9 project further builds on our strong track record at Sanish. Our new wells there are beginning to outperform the parent wells, which are producing above their prior trend. According to third-party analysis, we are a leading operator and generate the highest returns in the area because of experienced reservoir management. Sanish is an attractive area to operate. In addition to the strong recent drilling results, we have better infrastructure availability here than in the center of the basin. When we sold our plant in the area, we retained firm processing rights. We have been strategically -- we've been gathering lines to utilize this capacity and improve gas capture. On the other side of the basin, at Foreman Butte, we're also experiencing strong results. Today we have drilled 17 wells that delineates the acreage. They have produced at 2.5x greater than the initial wells drilled in the unit. These wells are 82% oil. Our completion success stems from applying newer generation technology that incorporates higher profit loads, increased stages and additional perforation clusters. Foreman Butte chose our ability to successfully execute on an attractive acquisition that we expect will provide multiple years of profitable drilling. This demonstrates our core competency and infill development, highlighting that our operations team is one of the best and unlocking value in mature place.

Heading into 2020, we are shifting some activity to Sanish and Foreman Butte. This is to capitalize on the strong results we generate there and because we have higher confidence and infrastructure availability in both areas. Again at Sanish, we spent money to maximize our access to firm capacity through line looping into the Robinson Lake plant, and at Foreman Butte, we are coordinating with third-party midstream providers to build our infrastructure that sets us up for full scale development.

I'd like to end by highlighting our growing ESG program, and discuss our thinking around 2020 plan. We published our 2018 sustainability report on our website this morning. This is our second annual formal report and represent significant progress. We have systematically increased transparency, while indexing to the primary ESG frameworks. Throughout 2019, we continue to improve in our reporting and selected 4 areas to focus on: supply chain, greenhouse gas emissions, health and safety and diversity and inclusion. We're very proud of our progress in this area and remain committed to achieving pure leading status on the ES&G front.

Regarding the 2020 outlook, we don't intend to provide detailed guidance until our fourth quarter call, but wanted to give you a little color. We remained focus on maximizing capital efficiency to enhance cash flow. Production is an output of this equation. Consistent with other operators at current commodity prices, we won't prioritize production growth. Whiting shareholder value should be enhanced, as we execute on our cost reduction initiatives, and continue to drive capital efficiency by reducing our drilling and completion cycle times. This should lead to expanded margins, lower CapEx trends and maximizing cash flow.

In addition, we have some cash flow tailwinds helping us. First, we have $50 million of cost savings from our reorganization that takes full effect in 2020. Second, our Redtail old deficiencies roll-off in April, which translates into about $20 million of additional cash flow each quarter. Finally, as Correne will detail, we have established a goal to achieve $35 million to $50 million of additional LOE savings in 2020. I would now like to introduce you to our new CFO, Correne Loeffler, who joined the Whiting team in August. It has been a pleasure having her on Board. She has a strong background in corporate finance, and a keen understanding of the oil and gas industry that complements our management team very well. I look forward to continuing our work of driving financial and operational improvements.

With that said, Correne will talk more about our quarterly results and provide an update on our initiatives to strengthen the balance sheet.

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Correne S. Loeffler, Whiting Petroleum Corporation - CFO [4]

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Thank you, Brad. Good morning, everyone. It’s my pleasure to be here speaking with you today. As Brad mentioned, our goal is to become a leading value-based producer focused on maximizing cash flow. To do this, we need a strong financial foundation. I'm going to start by reviewing the progress we have made to strengthen our balance sheet, provide some additional detail on the quarter, and finish by providing further insight into the ongoing initiatives around optimizing Whiting's cost structure.

In August and September, we took the initial steps to address our near-term maturities. During that time, we have made progress in 4 areas. First, in September, we secured an amendment to our credit facility, which allows us to use over $1.4 billion of the facility to repurchase Whiting senior notes. Second, we successfully tendered for $300 million of our 2020 convertible notes at a slight discount. Third, we repurchased $100 million of our 2021 senior notes, again at a slight discount. Finally, we've recently completed our fall borrowing base review, where we reaffirmed our commitment of $1.75 billion, and only slightly decreased our borrowing base to just over $2 billion. With these steps, we are positioning ourselves for a successful refinancing. We are diligently evaluating multiple financing alternatives despite the challenging backdrop of the capital markets we are confident in our ability to manage our near-term maturities. On the production front, we are maintaining a full year forecast. I want to add my appreciation to the team in the field for their hard work and determination. They kept the production flowing despite challenging conditions within the basin. This really speaks to how the team has come together and is focused on executing the program as we promised [Indecipherable].

Heading into the fourth quarter, we expect production to remain relatively flat despite a seasonal drop in activity. We are also tightening our full year guidance range for Capex. The range in plays we'll spend approximately $134 million to $154 million in the fourth quarter. Given the team's ability to track and monitor well across in greater detail, the team is comfortable narrowing in our Capex range. Going into the fourth quarter, we are running 4 rigs, but have dropped down to one frac crew. One crew is typical for this time of year, as we reduce activity going into the winter. During the quarter, we plan to put on production a backlog of wells that were completed and largely accrued for in the third quarter, which leaves us with roughly 50 DUCs as we exit the year.

Moving to our cost structure, LOE was slightly elevated due to several onetime expenses that added approximately $0.30 per BOE to LOE for the quarter. We expect these costs to normalize in the fourth quarter as our cost savings began to take hold.

Now turning to G&A. For the quarter, our G&A included $8 million of onetime charges related to the reorganization. We expect G&A related expenses to decrease to $1.95 for BOE, which is the midpoint of our range in the fourth quarter as the savings from the reorganization take effect.

Looking at differentials, our old differentials were higher than expected. This is the cause of a narrowing Brent-WTI spread. It reduced the value of the barrels on the rail. Additionally, the delay of the Enbridge Line 3 pipeline is expected to weaken differentials into the fourth quarter. The ladder increased the number of Canadian barrels flowing south that competed with our Williston Basin barrels. These factors are amplified by normal seasonal decline in demand, which is largely due to refining turnaround. Therefore, we are moving up our oil differential guidance for the remainder of the year.

Moving on to natural gas -- natural gas and NGL pricing. At a macro level gas and NGL through gas and NGL system is congested on both the processing side and pipeline capacity of the basin. This is leading to lower realized pricing. The expansion of select gathering system, several new gas processing plants and the addition of the Elk Creek NGL pipeline should provide flow assurance and improve our pricing.

I'd like to finish by elaborating on our cost structure initiatives. We are focused on improving our cash margin, which were significantly enhanced by streamlining our organization. This led to an estimated $50 million of annual cost savings, most of which will be realized in G&A expense. During the third quarter we have focused on implementing a number of rigorous programs to further optimize our cost structure across the board. As Brad mentioned earlier, the team is targeting a goal of reducing our absolute LOE by 10% to 15% in 2020, when compared to 2019 levels. This translates into approximately $35 million to $50 million of the annual cost savings. Further, we believe there is more work to be done on the non-payroll G&A front. Some of the larger G&A initiatives include optimizing the size of our fleet program, and maximizing the value of the dollars we spent on our IT software and subscriptions. We expect these initiatives will begin to materialize in the fourth quarter, but we expect to see an even greater impact in 2020. However, this is only the start. We continue to continue driving these types of initiatives as we move forward on our plan of becoming a leading value based E&P producer.

Operator, with that, we'd like to open up the call for Q&A.

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Questions and Answers

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Operator [1]

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Thank you. We will now begin the question and answer session. (Operator Instructions) Today's first question comes from Neal Dingmann of SunTrust.

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Neal David Dingmann, SunTrust Robinson Humphrey, Inc., Research Division - MD [2]

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Morning all, thanks for the details. Brad, could you -- to one of the folks there, and looking particularly at Slide 9, just talking maybe a little bit more on the infrastructure constraints, could you -- maybe expand just, I guess, 2 fronts there: one, it does look like you're shifting to what I would call it just as it says on the slide, higher competence areas, maybe talk around that. Secondly, just your confidence, I know, there's been, obviously, a couple quarters with some constraints here. Just your confidence of between now and year-end, and as we get into 2020. Just the confidence of things coming online that will alleviate this?

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [3]

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Sure, Neal. I'll take the first part of that question. I'll turn it over to Kevin Kelly to give you a little more detail. We do see infrastructure coming on. It appears to be largely on time, and so we're watching the startup of those systems. What's that's led us to do though in 2020 is in the first part of the year really move our activity to Sanish and form we talked about, because we have real confidence and full insurance there. As the systems become operational and get the bugs worked out in 2020 will have some development back into the center of the -- center of our acres position here.

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Kevin A. Kelly, Whiting Petroleum Corporation - VP of Marketing [4]

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And Neal, this is Kevin Kelly. So on the processing or basin side of the equation, we are confident in the new processing additions. We've seen multiple plants coming up in this third quarter and in the fourth quarter. And on the NGL takeaway side, I want to reaffirm during their call last week that they were already building flying capacity line field into the new Elk Creek pipeline. So from a basin standpoint, we're feeling more confident there. And as Brad elaborated on the shifting to Sanish and Foreman Butte, what we addressed in our remarks, was it more confidence in our firm takeaway in those areas or building firm capacity to control our destination whether it'd be Sanish or Foreman Butte.

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Neal David Dingmann, SunTrust Robinson Humphrey, Inc., Research Division - MD [5]

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Great details guys. Excuse me. And then just one follow up, just -- Brad you are confident just on -- as you look at the inventory going into 2020, you're obviously like -- what is it -- your Slide 8 shows, moving to the full field development in Foreman Butte. So I'm just wanting to -- could you just talk about the confidence in core inventory overall? I know that seems to be an issue not for just you all, but for a lot of the companies out there. I just wonder if you could talk about the confidence around that?

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [6]

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Sure, Neal. Thanks for the question. Now we talked about ours a lot -- we probably refer you to multiple sell-side and vendor reports that show kind of 7 to 10 years of inventory on our acreage. I'll tell you that we kind of target at 30% IRR on our projects, and that's consistent with our current program. Currently, we have about 250 locations to drill in Sanish, 75 of which of those are Bakken wells. And we continue with the cost structure that we've talked about by taking significant dollars out of our cost structure, and our excellent performance from our Capex teams on drilling and completions. We're working on moving stuff that might be mid-20s, or teens up into what we would call that 30% IRR kind of project. So if you notice the curve on Foreman Butte, the separation between the parent wells and the child wells was continuing to increase we're at about 70 days now, 2.5 times better. But watching that closely, and every day that those walls perform, we get more and more confident in the economics around form of view.

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Operator [7]

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Our next question today comes from William Thompson with Barclays.

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William Seabury Thompson, Barclays Bank PLC, Research Division - Research Analyst [8]

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So North Dakota is indicated gas recovery recapture rates in July and August were 81% below the 88% threshold. I know Whiting has made a point of being above that threshold. And just curious how much that was weighed on your on your price realizations this quarter? And then given increasing EORs over time and continue basin production, curious if you believe the gas processing capacity additions are sufficient to meet the November 2020 deadline increase [Indecipherable] of 91.

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [9]

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Yes William, thanks a lot for the question. We had a slide in our deck recently that we presented at Barclays that really showed since 2015, Whiting has been totally committed to meeting the gas capture requirements in the state. We think that's what a prudent operator does, and we think it's very important to meet those standards. So you're correct. We spent millions of dollars in processing capacity and committing our volumes to make sure that we can meet those standards. So we are working toward the November 2020, increase in requirements, and feel confident that Whiting will be able to deliver and achieve on that. And as Kevin mentioned earlier, I think, there's significant gas processing come into the basin. And by our Slide on Page 9, we're showing that we do think there'll be ample capacity in the short you bring up a great point though we have seen better well results in the Balkans, we've seen more gas, especially in the center of the basin, and we'll continue to try to make better and better wells and make more gas, but right now we feel confident about the infrastructure that's coming into place to handle that.

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William Seabury Thompson, Barclays Bank PLC, Research Division - Research Analyst [10]

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Thanks for that. And then I -- it sounds like the 10% to 15% reduction on LOEs on an absolute dollar value irrespective of the sort of production volumes. Where are you in terms of optimizing those costs and renegotiating some of those contracts?

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [11]

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Yes, thanks William. That -- appreciate the question. Chip Rimer and our operations team has just done a phenomenal job. It wasn't a new thing that we woke up and started in the third quarter, they actually started it in the first quarter. And as you can appreciate it, probably it takes a lot of momentum because it has a lot of moving parts. The current team has over 75 individual initiatives that they are working on to drive those costs out of the system, and we meet weekly to discuss this. And so every week, we hear of small wins, some weeks bigger than others, but they are literally going through absolutely every dollar that we spend on the LOE front, and how we can do that better. And so, we've got some momentum internally, it's exciting to watch week over week what they're doing. And so it's in process, but as Correne mentioned, we'll plan to see part of it here in the fourth quarter, you'll start to see it. And then we expect that to roll through 2020.

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Operator [12]

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Our next question today comes from my Mike Scialla of Stifel.

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Michael Stephen Scialla, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [13]

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Your Slides 10 and 11 shows some significant gains in capital city. I'm just wondering if you have some well costs that you can share along with those in terms of year-over-year type foot savings you're saying, I know, it varies by area, but the thing that gives us a sense of what kind of well costs you have now, and where you see those trending?

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [14]

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Yes, thanks Mike for the question. I appreciate that, and thanks for noticing. This is really a -- this is a -- these slides are very, very hard to actually achieve. And it comes from real dedication inside the teams to work proactively with our partners. And we actually listed our partners on Slide 10 there, that is year over year over year relationships with those drilling contractors. As you can see, there's 3 drilling contractors producing those results. So it's not just one particular fleet. It is really listening to our partners, trying new things. We have a culture where we want them to try new things. That's the only way we're going to make significant innovation and process improvements. And so, they are not developing our wealth from a defensive position, or we're scared to overspend. They are trying to implement new technology every day, and you're seeing big wins in that. And that's the only way you get a 20% reduction from 2018, which was very good at 10 miles per day. And so we're right in the middle of RFQs [Indecipherable] on all of our Capex for next year. So we are talking to absolutely all of our vendors from pipe to completion to the rigs right now, and working on what we think the costs will come out in 2020. So we're seeing good progress on that. We're seeing the market soften. And there's going to be 2 components to the 2020 Capex program. It's going to be the innovative work of our team to drive those costs down as well as we think a softer market that will help that as well. And so, right in the middle of that Mike give us a little bit more time to lock that in, and we'll be out with those costs.

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Michael Stephen Scialla, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [15]

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Okay, fair enough. And imagine you're a bit reluctant to talk on 2020 given you haven't put the formal plan together yet, but just trying to get a sense of it. You're down to one completion crew now and realize you'd be like to go slower during the winter months. But given the some of these constraints on processing and NGL takeaway are coming off, how do you see say even like first quarter of 2020, would you most likely stay at that one crew? Or would you take advantage of the constraints coming off and start to ramp back up?

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [16]

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Yes, Mike. Sorry. Great question and exactly what we're debating internally. I mean, costs are higher in the winter, which impacts our capital efficiency, and so going to one completion crew is not abnormal. We think it's the best use of really the capital efficiency metric right now. We do not plan to stay at one crew long term, that will be ramping those back up, and based on the factors that you said the winter conditions, the capacity that's available of the DUC inventory that our drilling organization builds for us, we'll get back at those completions as early in the new year as practical. And so, I think what you've seen from us, Mike, as you haven't seen us deviate a lot on activity. We truly believe to be -- our core competency to be a great developer of assets. We've got to have a fairly stable program to be able to drive these efficiencies into the program. So when all ran up in 2018, you didn't see us run out and that lad a lot of rigs, in fact, we did zero. And so, in the last 2 years, we've been really stable kind of on our drilling and completion front, and I would expect to see something very similar from us in the future.

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Operator [17]

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Our next question today comes from Leo Mariani of KeyBanc.

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Leo Paul Mariani, KeyBanc Capital Markets Inc., Research Division - Analyst [18]

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Just wanted to get a sense of whether or not you guys were still seeing significant loss volumes or shut-ins due to a lack of processing capacity in the basin here in 3Q, and Do you see that persisting into 4Q, and do you think that that just improves dramatically as we get into 1Q? Just trying to get a little bit more of the quantification around the midstream benefits you guys might have seen?

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [19]

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Yes, thanks for the question, Leo. And we don't see a lot of production shut-ins. I think, on the second quarter, we slowed our completion activity and we changed our guidance to try to account for what we saw going forward. So I would say that our activity and our availability out of the basin was largely in line with how we saw at a quarter ago, and we continue to work to build the field that in the most cost effective way. I would say that what was really amazing in the -- in September, we had over 8 inches of rain in the Williston area, and the county roads in that area were shut for a third of the month. And yet, when the county roads are shut, you can't run any oil or water trucks, any hauling. And our team did an amazing job out and fill, as you can see in the slide deck, to have a very short downtime, and to get us ramp right back up on rate, and tremendous amount of work and effort that went into that. But we were able to deliver, and we anticipate full anticipation that will continue to be able to deliver going forward.

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Leo Paul Mariani, KeyBanc Capital Markets Inc., Research Division - Analyst [20]

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Okay, that's helpful. I guess, I certainly appreciate the fact you guys don't have 2020 guidance out yet. But just to follow-up on a comment that you made, you've talked about how production growth would be an output next year. So just wanted to, philosophically kind of get an understanding of what you are trying to prioritize and maximize here. I really just trying to maximize free cash flow yield in 2020. Is that sort of the overarching theme? Or how would you sort of kind of characterize the priorities?

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [21]

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Yes, thanks, Leo. I think, we are -- we've got a real high priority on paying down debt, and remaining capital discipline, and that's how we're looking at it. And so we really believe that through innovation and technology, we can drive better margins. And so we are looking at internal rates of return that we can generate from our drilling program and really looking at driving cash margin into our business. And so that is what we're focused on in driving and trying to maximize.

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Leo Paul Mariani, KeyBanc Capital Markets Inc., Research Division - Analyst [22]

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Okay, that's helpful color. And I guess, obviously, on oil differentials, certainly, a bit disappointing to see those kind of widened out here. Do you have any kind of foresight is to when those might improve? Do you think those can kind of get a lot better early next year? What are your thoughts on Bakken this year?

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [23]

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Yes, let me turn that over to Kevin Kelly.

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Kevin A. Kelly, Whiting Petroleum Corporation - VP of Marketing [24]

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Yes. Hey, Leo. So, yes, and the oil guidance, the widening out that we saw was a combination of couple things we touched on in the prepared remarks. One WTI-Brent spread, and then as well as reliance more on, and that influence the rail, and then as well as the line through delay. We do expect to continue to rely on rail into 2020. We don't expect see new pipeline capacity additions until late in 2020, or the beginning of 2021, at that point, we start to see some relief. Obviously, your view of what plays into the production profile of the Basin can influence it. But those are the drivers that we've seen going into widening into the fourth quarter and expect that to somewhat play out into the early parts of 2020.

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Operator [25]

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Our next question comes from Kashy Harrison of Simmons Energy.

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Kashy Oladipo Harrison, Piper Jaffray Companies, Research Division - Research Analyst [26]

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So building on an earlier question surrounding well costs, I was wondering if you could just give us a sense of where operated Capex per rig, what that looks like just on your leading edge cost structure?

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Correne S. Loeffler, Whiting Petroleum Corporation - CFO [27]

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Well, just looking at Capex, in general, we do expect Capex to be coming down from the current levels, just given infrastructure spending -- that onetime infrastructure spend that we are needing within 2019. And now we're also being able to see some of the efficiencies that we've talked about that will overall, whether it's the efficiencies on the completion size, drilling size or just overall costs that we are seeing. So I think, going into next year, you're going to see just a lower level of CapEx, just with those in mind.

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Kashy Oladipo Harrison, Piper Jaffray Companies, Research Division - Research Analyst [28]

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Okay. And then you made a commentary that was a good segue into my next one. Earlier, I think, Brad was talking about some infrastructure spend in the Foreman Butte area entering 2020. Should we be thinking about that as similar to the Ray Gas Plant -- should we be thinking about the amount of spend that's similar to the Ray Gas Plant spend? Or is it, last, just trying to get a -- trying to understand the evolution of infrastructure spend between 2019 and 2020?

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Correne S. Loeffler, Whiting Petroleum Corporation - CFO [29]

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Yes, the infrastructure spend that we're currently looking like is very minimal amount in 2020. We expect it to be down from less than kind of the infrastructure same with the Ray Gas Plant in 2019.

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Kashy Oladipo Harrison, Piper Jaffray Companies, Research Division - Research Analyst [30]

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Okay, got you. And then just one final one for me. I think there was some discussion last quarter on potentially monetizing nonop to further reduce leverage. Can you just give us an update on just where that -- where are you today and what the path for the nonop monetizations look like?

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [31]

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Yes, Kashy, thanks for the question. We're always active in the divestiture market. We believe it price prudent not to provide specific details. But I'll tell you we're active in that. But I guess our commitment that we will not divest assets that are credit dilutive. And right now, we haven't executed on any of those, but our noncore, nonop stuff is certainly something we continue to look at and are willing to divest to those if we get acceptable that's on us.

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Operator [32]

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Our next question comes from Tim Rezvan of Oppenheimer.

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Timothy A. Rezvan, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [33]

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I'm trying to understand the interest expense impact of moving the convert onto your revolver given it has a low coupon, right now. Can you quantify what the interest expense would be a set full 562 goes on the rover next spring. Just trying to understand the delta between one in the quarter?

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Correne S. Loeffler, Whiting Petroleum Corporation - CFO [34]

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Yes, I don't have the exact numbers in front of me, but you're absolutely right. So 2020 converts are one in the quarter. Our credit facility has a LIBOR pricing grid based on it. So you can call it somewhere around kind of 4.5%. So it is a slight uptick to overall interest expense. We were comfortable going ahead and putting a portion of it underneath our credit facility because we're really setting ourselves up for our refinancing in the future. We don't need to put all of it on the facility at the time given the fact as you highlighted, it is a lower interest rate in our credit facility. So that's more about just getting ourselves prepared for that successful refinancing in the coming months.

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Timothy A. Rezvan, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [35]

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Okay. Okay. Thanks for that. And then just a follow-up on that same theme, I appreciate that the comments on the work that Chip Rimer and his team are doing in this field, but you're talking to equity investors, the elephant in the room is that $1.3 billion of debt maturing by the spring of 2021. And I appreciate your company comments current on -- you think you're positioned for successful refinancing. Can you give any more color of details to kind of give some comfort to the equity investors out there? Do you feel confident that a secured debt deal can get done? Or what can you say out there to kind of maybe ease concern?

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Correne S. Loeffler, Whiting Petroleum Corporation - CFO [36]

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Sure, and I appreciate the question, and I understand the concern. I mean, as we have kind of shown within a short period of time, we have taken several initial steps to position ourselves for this refinancing. Yes, we've shown that our willingness to use a portion of our credit facility to repurchase the outstanding senior notesand addition as we kind of talked about we are continuing to evaluate several creative noncore asset sales. Therefore, the total amount we're actually trying to refinance is much smaller. And then for the refinancing, we're continuing to evaluate a multiple alternatives that have a broad range of structures with them. Ultimately, we can't talk about specific deals, but we are focused on finding the best alternative to strengthen our balance sheet going forward in the coming months.

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Operator [37]

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Our next question comes from Noel Parks of Coker & Palmer Institutional.

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Noel Augustus Parks, Coker & Palmer Investment Securities, Inc., Research Division - Senior Analyst Exploration, Production and MLP’s [38]

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Just had a couple questions. Thinking about the Sanish area, are there any other participants in the region that have also been looking to increase their capital investment there in the next year or so? Or is it pretty much just you guys standing alone?

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [39]

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Noel, thanks for the question. I mean there is -- Slide 7 shows some peers that have been active in the area. There's a small map on the left hand side that it's a little hard to read, but it gives a lot of sticks on the map of wellbores that have been operated in that direct immediate area in the recent past.

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Noel Augustus Parks, Coker & Palmer Investment Securities, Inc., Research Division - Senior Analyst Exploration, Production and MLP’s [40]

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Great. And I was just wondering, as you do the shift in focus towards Foreman Butte and then back towards Sanish, does that have any implications for sort of managing the overall portfolios base decline going forward? I'm not sure if heading into this year, you were as -- you had a lot of visibility about how the capital spend might be changing from area to area?

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [41]

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Yes, Noel, we have a -- you know, we have a really large base out there of over 1,500 wells, which puts our base decline in really the upper 30s, as a way we think about it. It can vary based on how big your wedge is from the previous year. And now with that large of a base, I mean, we're pretty locked in on base decline. It doesn't change drastically moving forward. So we do have initiatives internally to shallow that decline. We have a multitude of production engineers that are in the field working hand-in-hand with our operators, and we constantly look at the base, that’s the cheapest barrel that we can go after. And so a lot of internal focus on initiative on putting the right artificial lift in place, operating these wells at their maximum efficiency, and really work to get those barrels out of the ground and touch that shallow or decline. Through the dashboards that we described earlier today with predictive analytics, we've been able to decrease our wellbore failure rate by over 30% in the field. And that has 2 big advantages, one, well doesn't go down and you're making zero production have to spend money. And so they keep the wells on longer, which generates revenue. And they run longer, which is saving money on the work over expense side. And so we think about that base decline a lot at Whiting.

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Operator [42]

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And our next question comes from John Freeman with Raymond James.

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John Christopher Freeman, Raymond James & Associates, Inc., Research Division - Research Analyst [43]

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You all did a good job of kind of outline all the various initiatives that you've got to try to drive LOE down. And I realized the complexity is, I think, Brad, you mentioned, there's like 75 different initiatives that are sort of being looked at. But I thought Slide 12 sort of boil it down to kind of the 6 main areas that you're focused on to kind of drive those LOE reductions. And I'm wondering it just a high level, you can kind of say what is sort of already been achieved or will be achieved by year end versus some of the areas that will maybe take a little bit more effort or work or time to kind of achieve?

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [44]

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Yes, thanks for the question, John. As you rightly outlined it's a an ongoing process, and it's a continual process. And so we've started to see some real wins, like, for instance, in our freshwater and our produced water, water winds up being one of our largest expenses. And what we found is that across Whiting's portfolio, we were paying very different water rates in very -- in different places. And so bringing that together under a combined single head of water, we have a water jar, we have a water team, and we're working with our supply chain groups to leverage Whiting size and scope in the basin to get a common water cost. And what I can tell you is that cost has come down significantly, and anywhere within Whiting's portfolio now, there's a very minute difference in what we pay for water. And so we're seeing stuff like that. Our teams have done a wonderful job, especially, in Redtail of reducing rental equipment. We had a lot of rental compressors, and they've been able to creatively produce the wells better to save, and also we continue to fill these costs back. But these are our larger -- these are our larger categories. And we just had a very successful month of work-overs. And so we prioritize our work-overs. Instead of each office prioritizing work-overs, we prioritize it across the entire region, and competed for capital, state to a budget. And we did not see production decline from that program, but we save significantly on our work-overs. So we're talking millions of dollars coming off here, John. So each of these initiatives represent millions of dollars, and we're just -- we're working to have those come out of the system as quickly as possible.

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John Christopher Freeman, Raymond James & Associates, Inc., Research Division - Research Analyst [45]

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Great. And then my follow-up with the Redtail deficiencies rolling off in April. And then you mentioned just in that there's been some other progress on some cost efforts at Redtail. Just curious if sort of the view on Redtail is changed at all, sort of in a post deficiency payment environment, or is that an asset that we should maybe think of is potentially being marketed again, without the burden of the deficiencies?

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [46]

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Yes, John, thanks for the question. What we're committed to at Whiting is an active portfolio management. And so, if the Capex, if the wells compete for capital in our program, they'll get funded. We have tons of confidence in our Redtail team. They've done a phenomenal job, and we are totally convinced that they can develop economic wells out there, and we have capacity takeaway. As you described the [Indecipherable] go down significantly after April. We have some water contracts that we can use to our advantage out there. And so that's part of our 2020 plan. We are looking at everything in our portfolio. And the active portfolio management will allow the Capex to rise to the very best stuff that we have internal to our inventory. So I can tell you we've seen some positive results in our 2018 completions at Redtail. We've also seen offset operators to the south of us drill on different spacing with a different wellbore trajectory, and it produced some really nice results. And so, as we always do we're studying Redtail intensely, and it will be funded when it competes in our portfolio for capital.

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Operator [47]

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There are no further questions. I will now turn the call over to Eric Hagen.

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Eric K. Hagen, Whiting Petroleum Corporation - VP of Corporate Affairs [48]

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Thank you, Rocco. Whiting will be presenting at the Bank of America Global Energy Conference on November 14, anticipating in the Goldman Sachs Global Energy Conference on January 7th and 8th. I will now turn the call over to Brad Holly for closing remarks.

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [49]

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Thank you, Eric. And thanks for your questions today. We remain dedicated to our strategy of focusing on margins, full cycle returns, and generating free cash flow. We remain focused on hitting our targets and strengthening our balance sheet. The new Whiting team is stronger than ever and committed to succeeding in this challenging environment. Thank you. And we look forward to seeing you at the upcoming events.

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Operator [50]

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Thank you. Today's conference has now concluded. And we thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.