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Edited Transcript of WLL earnings conference call or presentation 27-Feb-19 4:00pm GMT

Q4 2018 Whiting Petroleum Corp Earnings Call

Denver Mar 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Whiting Petroleum Corp earnings conference call or presentation Wednesday, February 27, 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

* Charles J. Rimer

Whiting Petroleum Corporation - COO

* Eric K. Hagen

Whiting Petroleum Corporation - SVP of IR

* Jason Finch

Whiting Petroleum Corporation - VP of Planning

* Michael J. Stevens

Whiting Petroleum Corporation - Senior VP & CFO

* Timothy M. Sulser

Whiting Petroleum Corporation - Chief Corporate Development & Strategy Officer

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Conference Call Participants

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* Gail Amanda Nicholson Dodds

Stephens Inc., Research Division - MD & Analyst

* Jeffrey Leon Campbell

Tuohy Brothers Investment Research, Inc. - Senior Analyst of Exploration & Production and Oil Services

* John Christopher Freeman

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

* Leo Paul Mariani

KeyBanc Capital Markets Inc., Research Division - Analyst

* Marshall Hampton Carver

Heikkinen Energy Advisors, LLC - Founding Partner and Director of Research

* Michael Dugan Kelly

Seaport Global Securities LLC, Research Division - MD and Head of Exploration & Production Research

* Neal David Dingmann

SunTrust Robinson Humphrey, Inc., Research Division - MD

* Paul William Grigel

Macquarie Research - Analyst

* Timothy A. Rezvan

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

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Presentation

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Operator [1]

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Good morning, my name is Keith, and I will be your conference facilitator today. Welcome, everyone, to the Whiting Petroleum Corporation Fourth Quarter 2018 Financial and Operating Results Conference Call. (Operator Instructions) I will now turn the call over to Eric Hagen, Whiting's Senior Vice President of Investor Relations.

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Eric K. Hagen, Whiting Petroleum Corporation - SVP of IR [2]

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Well, thank you very much, Keith. Good morning, and welcome to Whiting Petroleum Corporation's Fourth Quarter 2018 Earnings Conference Call. On the call with me is Whiting's Chairman, President and CEO, Brad Holly; CFO, Mike Stevens; our newly arrived COO, Chip Rimer; Chief Corporate Development and Strategy Officer, Tim Sulser; and Senior Vice President of Engineering, Pete Hagist.

During the call, we'll review our results for the fourth quarter 2018, and then discuss the outlook for full year 2019. This conference call is being recorded and will also be available on our website at www.whiting.com. To access the presentation slide, please click on the Investor Relations box on the menu, and then click on the Presentations and Events link. 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 from those in the forward-looking statements.

Additional information concerning these risks are set forth on Slide #2 and in our earnings release. Our Form 10-K for the year ended December 31, 2018, is expected to be filed later today.

And with that, I'll turn the call over to our Chairman, President and Chief Executive Officer, Brad Holly.

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

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Thank you, Eric. I would like to start off by thanking the Whiting team for their hard work in 2018. We achieved 5 major goals during the year.

The first goal was introducing a compelling business strategy for unconventional resource development. We were one of the first mid-cap E&Ps to adopt a strategic plan that focused on free cash flow over growth.

Our second goal was to get the right leadership team in place. We made breakthrough progress in strengthening our executive team in 2018, which I will detail shortly.

Goal #3 was to deliver material free cash flow. In 2018, we generated $280 million of free cash flow. This includes the fourth quarter where we generated $19 million of free cash flow despite numerous challenges. Whiting's free cash flow power is what separates us from our peers and allows us to compete for capital in any industry.

Goal #4 was to pay down debt. During the year, we reduced debt and other long-term liabilities by $100 million.

And finally, goal #5 was to increase top-tier inventory. In the Williston Basin, we added or upgraded over 450 gross locations that span our properties. An issue I want to address directly is our 2018 capital spend. High-quality, high rate of return, non-op spending came in higher than projected in the fourth quarter, and our own activity ran ahead of schedule. Also, infrastructure spending escalated during the second half of the year as we expanded our Ray Gas Plant. We conducted an extensive after-action review and have strengthened our capital planning process. Capital discipline is a top priority in 2019, and we will rigorously pursue executing on our guidance.

I want to discuss an important achievement in 2018: the reorganization of Whiting's field operations into 3 highly performing asset teams and Whiting's senior leadership structure into 4 executive pillars of responsibility. Great businesses are built by great people working together in an environment of shared values. Our priority was to establish a new business strategy that focused on value creation as measured by capital efficiency and free cash flow. To execute on this strategy, our next endeavor was to establish a culture that prizes communication and innovation. We reorganized our field operations into high-performing interconnected asset teams during the first half of 2018. The results have been excellent, as seen in multiple projects highlighted in our corporate presentation.

Next, we searched for the strongest executive talent across the industry to create 4 pillars of responsibility across our business functions. We completed this process in late 2018. COO Chip Rimer recently joined the team to lead our operations division. This includes operations, engineering, environmental health and safety and land. Chip brings 35 years of operations experience coupled with an incredible work ethic, a passion for safety and genuine care for people.

CFO Mike Stevens, our longest-serving executive, leads our financial division, which includes marketing and IT. Mike brings a wealth of experience about the Whiting culture and has navigated some challenging financial times as CFO.

Chief Strategy Officer Tim Sulser joined in September of last year and leads our strategy and planning division, which includes planning, business development and exploration. Tim began his career in reservoir engineering and understands the importance of Tier 1 rock. He also has a deep understanding of the opportunities in the Williston Basin from his experience in banking and as a successful private operator. It is my job to lead all the divisions by creating a thriving corporate culture and ensuring that we are all working together to create value for our shareholders.

We're also excited to welcome several new leaders who recently joined the team. Shane Fross serves as our new Senior Vice President of Operations. He has a passion for his people and a track record of delivering industry-leading results in the field. Kevin Kelly joins as our new Vice President of Marketing. He will provide the fundamental analysis to underpin our marketing strategy and enhance our risk management. Jason Finch joins us as Vice President of Planning. He brings a detailed planning framework to Whiting's free cash flow-driven business model. Brad Marvin joins as Vice President of Business Development. He will further strengthen our ability to optimize the value of our portfolio. And finally, Chris Edwards joins as Vice President of Exploration. He is excited by the potential of Whiting's unparalleled technical database in the Williston Basin and its industry-leading geotechnical staff.

In summary, if we get the right people in the bus and in the right seats, we can move the company from good to great. Our new organizational structure and enhanced leadership team positions Whiting to deliver even better performance as we unleash the full potential of our strong asset base and the talented people in our organization. I want to end my prepared remarks by celebrating the achievements of our asset teams in 2018. The teams are pumping some of the most innovative and effective completions in the Bakken as they execute on a proprietary development process. This has revolutionized thinking about what constitutes best practices in the Williston Basin and significantly expands the resource potential of the play. We highlight several of these in our corporate presentation. These include our northern team's success in the Cassandra area. Whiting's Periot wells are delivering core type results and are outperforming competitor wells that utilize similar proppant levels. In our Eastern area, we drilled infill wells across multiple projects that are significantly outperforming the parent wells. Not to be outdone, our southern team completed the 4-well Stenehjem pad in the Southern Hidden Bench area using generation 5.0 completions. Our previously disclosed Mallow and Loken wells in the area were tremendous, but the Stenehjem wells are outperforming them. This is what we mean by optimized or right-sized completions.

The way we're placing the proppant is driving superior results. We believe we're creating more stimulated surface area within the targeted intervals. These process innovations are a big part of why Whiting's inventory continues to expand and why Whiting is a leader in capital efficiency and free cash flow.

With that, I will hand it off to Mike Stevens to review the quarter and our 2019 outlook.

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Michael J. Stevens, Whiting Petroleum Corporation - Senior VP & CFO [4]

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Thanks, Brad. Oil production in the fourth quarter grew 3%, consistent with our expectations. Gas and NGL volumes were impacted the equivalent of 5,000 BOEs a day due to gathering delays and a gas processing outage. In aggregate, cash costs were generally in line with expectations, as lower-than-guidance G&A per BOE and production tax helped to offset slightly higher LOE per BOE stemming from the curtailed gas volumes. DD&A per BOE remained strong. Bakken differentials spiked dramatically in December, which resulted in higher-than-anticipated oil differentials. Natural gas differentials and NGL pricing were relatively strong, driven by seasonal demand. Bakken realizations have improved significantly from fourth quarter levels, and we believe they will stay in this range throughout the year.

In 2019, we're pursuing a program similar to 2018 in terms of capital spend and activity levels. When you back out Redtail, the Williston Basin is expected to post strong 11% growth, driven by capital efficiencies similar to 2018. Oil growth is expected to be even stronger at 15%. And our oil volumes as a percentage of total volumes are expected to remain consistent at 67%, primarily because we are drilling in areas like Sanish with a higher oil percentage. As a reminder, we have elected to run Redtail for maximum free cash flow rather than diluting corporate-level capital efficiency by investing there to chase growth. When we elected to keep the Redtail field, we expected to exit Q4 '18 at 15,000 BOEs per day. The Redtail team worked hard to shallow the decline and due to their efforts, Redtail exited the year more than 2,000 BOEs per day above our initial estimate. Redtail volumes are expected to decline 45% in 2019 and exit Q4 '19 at 9,800 BOEs a day. We plan to continue investing in infrastructure in 2019. This increases flexibility in marketing and products in order to avoid -- and marketing our products in order to avoid third-party operator bottlenecks like we experienced throughout 2018. Also, these types of investments can typically be monetized at attractive multiples as we have done in the past. We forecast that corporate LOE, DD&A, G&A per BOE and production tax should be at similar levels to 2018.

I'd like to spend a minute on our Williston Basin versus Redtail cost structure. We forecast Redtail will average 9,800 BOEs per day in the fourth quarter of 2019, which represents approximately 8% of total volumes versus Redtail averaging 14% of volumes in Q4 '18. Redtail deficiency payments added $1.47 to our oil differential in Q4 '18. Redtail LOE is $8 per BOE versus $6.80 in the Bakken other words, as we progress through 2019 and enter 2020, the full growth potential and cash flow power of our Williston Basin assets should become evident.

I'd like to finish by elaborating on what Brad said about our teams. Whiting is not focused solely on free cash flow generation. We are also a resource discoverer in the Williston Basin. New approaches to development pioneered by our asset teams have created significant development opportunities for Whiting. In 2018, we can see these results in our project in Southern Hidden Bench, North Polar and the McNamara project at Sanish. In 2019, we should have results from about one new initiative each quarter. This quarter, we highlighted Cassandra. As the year progresses, we will see results from Wildrose in the north, Foreman Butte in the south and Pod 9 in the east. Whiting is leading the way in expanding the Bakken corridor.

Operator, please open up the conference call for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question comes from Neal Dingmann with SunTrust.

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

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Brad, my first question for you and the team, just philosophically, how do you think about just as far as free cash flow versus growth? Do you sort of envision both of those working in conjunction as you all continue to accelerate? Or given what price is doing, do you have to focus on one versus the other?

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

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Sure, Neal. That's something that we debate all the time and we're clearly focused on free cash flow generation. Our capital efficiency and value creation is our top priority and we will grow and continue to generate free cash flow to the extent that we can remain -- maintain that strong capital efficiency and high returns.

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Neal David Dingmann, SunTrust Robinson Humphrey, Inc., Research Division - MD [4]

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Very good. And then just secondly, in the release, you speak about converting some of your acreage to core -- to the core areas. Will you continue to -- my question is really going forward, will this continue to be a focus or -- on delineation like this? Or will your Bakken program become more virtually all developmental soon?

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [5]

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Yes, great question, Neal. I think our philosophy even up to a year ago was that the halo would expand in the Bakken, that it had been contracted just due to low commodity prices. And as we stepped out in these areas, we saw really good subsurface geologic features and mapping and we really felt like generation 4.0 and now 5.0 completions can unlock those areas. Everywhere that we've stepped out so far, we've seen very positive results. Very positive results versus the parent wells, very positive results versus the offset wells from older generations. And so we're very excited about what we're seeing in all the areas that we've tested so far and we feel like that those areas that we used to call Tier 2 have kind of moved into our core development areas.

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Neal David Dingmann, SunTrust Robinson Humphrey, Inc., Research Division - MD [6]

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Okay, and then if I can just sneak one last one, just on the weather on the recent update, if that had any impact.

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [7]

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Yes, I'm going to let Chip Rimer take that one.

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Charles J. Rimer, Whiting Petroleum Corporation - COO [8]

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Neal, yes, the average temperature in February had been about minus 6 degrees. In fact, Brad and I were up there in minus 34 degrees just earlier this month, and I'll tell you I'm astonished and amazed at how our folks up there work our operations. I've seen very little to no impact. These guys, it hasn't been their first rodeo on having low temperatures.

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Operator [9]

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And the next question comes from Jeffrey Campbell of Tuohy Brothers Investment Research.

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Jeffrey Leon Campbell, Tuohy Brothers Investment Research, Inc. - Senior Analyst of Exploration & Production and Oil Services [10]

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First question, thinking of Slide 10 and also taking in the Redtail decline that you detailed in the call. What do you expect the corporate decline to be in 2019? And what might that slow to in 2020?

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

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Yes, the corporate -- let's hand it off to Jason Finch, our Vice President of Planning.

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Jason Finch, Whiting Petroleum Corporation - VP of Planning [12]

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Yes. Thanks, Jeffrey. Corporate decline -- the corporate decline overall in 2019 is going to be really roughly flat overall. If you're asking about PDP, we're looking at 36% roughly. You can see in Slide 10 there, it's really competitive versus our peer group, and it's something that helps us generate a higher -- part of what helps us generate a higher free cash flow potential throughout the year and in the future.

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Jeffrey Leon Campbell, Tuohy Brothers Investment Research, Inc. - Senior Analyst of Exploration & Production and Oil Services [13]

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And sort of to that point, it sounds like 2019 is going to be the big year of decline in Redtail and then that's going to taper off after 2019. Is that fair?

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Jason Finch, Whiting Petroleum Corporation - VP of Planning [14]

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Yes, that is fair. We do see quite a decline in Redtail. The team is out there working really hard on minimizing that decline. We see just under 40% probably as we look at that and we're optimistic on what we can do out there. But as we get into 2020, that level's out, come up [wedge] well that we put on in 2018 so it becomes much less of an influence, and we get to focus on the value that we can create in the Williston Basin.

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Jeffrey Leon Campbell, Tuohy Brothers Investment Research, Inc. - Senior Analyst of Exploration & Production and Oil Services [15]

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Okay, right. Well, that's helpful. My other question was just we're starting to -- and by the way, I meant to compliment you on the increased transparency of these slides, Slide 15, 17 and 21 with all the detail on CapEx and the various areas is really helpful. We're starting to see more Gen 5 sneaking up in the slides. So I'm just wondering, is that a completion that's leveraged to certain specific production areas? Or is that going to probably become the new norm for most future completions?

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Charles J. Rimer, Whiting Petroleum Corporation - COO [16]

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Jeffrey, this is Chip Primer. Yes, I see this as a potential optimization going forward. As we continue to tweak our completions, we're looking for capital efficiency and value creation. So this is not a -- it's not a story that's just one recipe. It is another one thing that we do across-the-board. We're going to use it area by area and zone by zone. We're going to achieve that through what I would call a multistep process with multidisciplined teams working together. If you look at it, you're looking at technology models, we're putting all that together and then you're creating -- the data you're receiving and then you're tweaking it. And so as you do that, you're creating and generating capital efficiency that separates us from others. If I think about it, our flexibility to be able to do that, our culture of innovation that we have here in technology and the history and knowledge that we have in these basins really allows us to create that value and that success.

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Jeffrey Leon Campbell, Tuohy Brothers Investment Research, Inc. - Senior Analyst of Exploration & Production and Oil Services [17]

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All right. Well, I think the uplift in the Tier 2 areas is really pretty remarkable. So keep up the good work.

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Eric K. Hagen, Whiting Petroleum Corporation - SVP of IR [18]

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If I can just follow up on Chip's answer. It's Eric. And I'd point you to Slide 16 as well, where you can see that we're outperforming our peers in the same geological footprint using -- and these are actually Generation 4 fracs, but we're using similar amounts of proppant but getting better results. So I think that's a really good evidence of the effectiveness of our completion methodology, Jeff. And thanks for the compliments on the presentation. Appreciate it.

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

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Jeff, this is Brad. We're trying to build an internal philosophy that we never get a cookie-cutter approach. And so we're not after a Gen 5 secret sauce, but we're after using technology and innovation and continuing to improve. So we know we can always get better, and we're trying to drive that improvement. And every time we invest capital dollars in these wells, we're trying to drive that to get improved efficiency.

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Operator [20]

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And the next question comes from Leo Mariani with KeyBanc.

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Leo Paul Mariani, KeyBanc Capital Markets Inc., Research Division - Analyst [21]

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Just wanted to follow up a little bit on the Wildrose area. I guess you guys indicated this could be a catalyst for the next release. Where are you guys at there? I guess I thought you guys were kind of fracking some wells there kind of late in 2018. Do you have any update that you can kind of share in terms of where you're at on progress there?

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Charles J. Rimer, Whiting Petroleum Corporation - COO [22]

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Yes. I appreciate the question. Yes, the wells are performing very well as of right now but it's pretty early. We just started turning the wells on back just prior to the 1st of the year. So give us a little time and we'll give you more updates as we go.

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Leo Paul Mariani, KeyBanc Capital Markets Inc., Research Division - Analyst [23]

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Okay, that's helpful. And I guess just clearly you guys have a belief that you're having success in terms of expanding the core of the play and converting some of these Tier 2 areas to Tier 1. If I heard you right, I think you guys said that largely all the step-outs in the past year or so have kind of been successful with the new frac technology. And I guess the question would be is as you guys have success there, is the plan to kind of continue to pick up new acreage in those areas? And what's kind of the availability of that acreage over the next year or so and what's Whiting's appetite for that?

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Timothy M. Sulser, Whiting Petroleum Corporation - Chief Corporate Development & Strategy Officer [24]

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Yes, Leo, this is Tim Sulser, and we're absolutely focused on the Bakken and in that value creation in the -- as the play continues to expand. So we will certainly look at opportunities to increase our footprint. I think I'd also mention though on the Gen 4 and 5 completion techniques, it's also important to understand that the core of our play will continue to improve as well. As we mentioned in our call that we've added or high-graded about 450 locations. So again, those Gen 4 completions and Gen 5 completions and really that rightsizing completion will continue to make our highest quality acreage even better too, so.

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Leo Paul Mariani, KeyBanc Capital Markets Inc., Research Division - Analyst [25]

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Okay. I guess any thoughts around kind of picking up new acreage in some of these areas where you're having success on the step-ups?

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Timothy M. Sulser, Whiting Petroleum Corporation - Chief Corporate Development & Strategy Officer [26]

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Yes, we're continuing to look and continue to try to expand our footprint at the right costs.

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Leo Paul Mariani, KeyBanc Capital Markets Inc., Research Division - Analyst [27]

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Okay. And I guess can you guys also just discuss kind of production cadence in 2019? It certainly looks like your POP schedule is much more weighted away from the first quarter. I mean, should we just assume that kind of production growth in the Bakken kind of follows the POP schedule, and in 2019 where maybe you don't really have any growth in 1Q and it really kind of starts in 2Q? How do we think about that as the year progresses?

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Charles J. Rimer, Whiting Petroleum Corporation - COO [28]

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Yes, I think you'd see production pretty flat as we start. But you're right, those POPs will make the difference and I think you'll see a little bit more production in Q2 and Q3. That is correct.

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Operator [29]

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

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John Christopher Freeman, Raymond James & Associates, Inc., Research Division - Research Analyst [30]

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When I'm looking at the '19 plan, and obviously, the considerable uplift you all are seeing from the Gen 5 completions, can you just give sort of a ballpark kind of estimate on what percentage of the planned completed wells in '19 would be Gen 5 completions?

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Charles J. Rimer, Whiting Petroleum Corporation - COO [31]

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Yes, this is Chip Primer. Thanks for the question. Yes, I think majority of them will be Gen 5. Of course, like I said before, we're always trying to grow and tweak and we'll continue to look at every area that we're working depending on zones or areas to get the best value out of our wells.

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John Christopher Freeman, Raymond James & Associates, Inc., Research Division - Research Analyst [32]

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Okay, and I guess if I combine I guess that question on sort of the productivity uplift you're seeing on the Gen 5s with the details that you all give on Slide 14 in terms of some of the efficiency targets on the cost side, are those already embedded in the '19 guidance?

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Charles J. Rimer, Whiting Petroleum Corporation - COO [33]

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Yes.

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Michael J. Stevens, Whiting Petroleum Corporation - Senior VP & CFO [34]

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Yes, they're already embedded.

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [35]

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Yes, John, they're in there. So we think about unlocking the oil that's in the rock but it's also about how well that you can execute your program. And we're very proud of what that teams did. As you can see, we're comparing ourselves head-to-head against the average in North Dakota. And you can see what we did in '18 and then we've got targets out there that we are counting on the teams to deliver in 2019.

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Charles J. Rimer, Whiting Petroleum Corporation - COO [36]

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I would say apart from completion targets, Brad, we also have drilling targets. So across the whole operations, we have targets such as like these KPIs.

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John Christopher Freeman, Raymond James & Associates, Inc., Research Division - Research Analyst [37]

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And then if I was just following up on Neal's question earlier when we think about like the way you all lay out your strategic vision on Slide 3. Is there like a long-term sort of a debt or leverage target that you all think about?

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Michael J. Stevens, Whiting Petroleum Corporation - Senior VP & CFO [38]

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Yes, there is. We want to get leverage down below 2x. We'd feel more comfortable down at 1.5. I think in absolute debt terms, we've talked about it before, but we'd like to move our debt from $2.8 billion down to closer to $2 billion over time.

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

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John, we think about the free cash flow generation as paying down debt and pursuing Bakken bolt-ons if they make sense, as Tim said. So in the absence of really high-quality opportunities, paying down debt is our priority.

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Operator [40]

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And the next question comes from Tim Rezvan with Oppenheimer.

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Timothy A. Rezvan, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [41]

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I appreciate all the operational color that you provided but on the strategy side, investors seem to have taken a pretty negative view of the 2019 outlook as it relates to kind of maintenance CapEx on upstream and midstream intensity. So Brad, I was wondering if you can kind of explain why the board thought this was the best approach for 2019? And if at all, thoughts on curtailments impacted your plans?

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [42]

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Yes, Tim. Great question. I appreciate it. I think what you're seeing is really the power of our Bakken potential here. A little bit being overshadowed by an asset that is very oily that we're not investing any dollars in this year. So we've got the Redtail asset coming down in the 40% and so that's masking a really nice overall growth in the Bakken. So if you look at that healthy growth, we're growing oil even faster than we're growing the overall Bakken. But double-digit production growth inside of free cash flow is something that we think is very attractive, and we're just really trying to drive at that high capital efficiency as indicated by attractive rate of return and free cash flow generation. So the amount of growth versus free cash flow is an output of achieving our highest capital efficiency and returns.

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Timothy A. Rezvan, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [43]

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Okay. And then just to clarify, third-party gathering, processing issues, was that at all a factor in the budget?

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

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Yes, Tim, in 2018, we saw over 2 months of downtime with third-party gas takeaway issues at various plants. We had to overcome that quarter-over-quarter by moving our operations around, by moving our delivery points around. And it's a real advantage of having a large footprint over the entire Bakken because we can move rigs and completions and POPs around to try to take advantage of where the existing infrastructure is today. But we really felt like it was strategic to try to control our own destiny. And so that's why we went to work on expanding our Ray Gas Plant, where we could control that. And so we've got a much bigger focus on '19 on the gathering side and the delivery side to try to be able to control more of our destiny moving forward.

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Timothy A. Rezvan, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [45]

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Okay. And then just a follow-up, I know Mike mentioned monetizing the midstream is something you'll look for. How much of that factor in -- kind of given that, call it, $90 million of midstream CapEx weighs on the free cash flow generation and exacerbates the deleveraging process, how much of that in the back of your mind maybe once you get volumes through that system?

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Michael J. Stevens, Whiting Petroleum Corporation - Senior VP & CFO [46]

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Well, we've got to invest to keep the gas flowing. That's #1. We don't want to add to the debt levels obviously, we want to pay them down. So it's all kind of a balancing act but for right now, we need to invest a little bit in the infrastructure to keep the volumes moving and comply with the North Dakota requirements.

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Timothy A. Rezvan, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [47]

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Okay, and then thinking about 2020, do you see similar investment needs going forward or is this really a onetime spend for medium-term growth?

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [48]

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Today, Tim, we don't see a lot of that in 2020. We think this is our opportunity in 2019. There are some substantial infrastructure that we need to put in. But there's a lot of gas takeaway capacity that ourselves and others are putting in, in 2019, and we think this sets us up really nicely for 2020.

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Operator [49]

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And the next question comes from Gail Nicholson with Stephens.

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Gail Amanda Nicholson Dodds, Stephens Inc., Research Division - MD & Analyst [50]

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I was just wondering if you can provide some thoughts on that Sanish infrastructure project you guys are doing this year? And then the benefits post the completion of the project?

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [51]

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Gail, sorry, was that in Sanish?

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Gail Amanda Nicholson Dodds, Stephens Inc., Research Division - MD & Analyst [52]

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Yes.

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Charles J. Rimer, Whiting Petroleum Corporation - COO [53]

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Yes. We're working with our midstream provider and we're doing some looping, allowing us more access to the plants is what we're doing right now, Gail. It's Chip Rimer.

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Gail Amanda Nicholson Dodds, Stephens Inc., Research Division - MD & Analyst [54]

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Okay, great. And then looking at the presentation. On Slide 25, you guys talked about you're introducing a new initiative to reduce spud to completion cycle time. Is that predominantly driven by the goal to improve the monthly pumping hours as well as the cycle times between stages? Or is there something else in that process that you guys are targeting in '19? And just kind of, is there an internal target on the aspect of where you want those spud to completion cycle times to improve to? I mean, I'm always amazed every quarter how efficient you guys continue to get on the drilling as well as the completion side, and I was just kind of curious on where you think you are on that learning curve right now.

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [55]

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Yes, Gail. Thanks for noticing that. I think a lot of us have been involved in unconventional resource development for a decade or so. And there's a real factory-like manufacturing mentality just to get really good at it. So our real goal is from the time we spend the first $1 on a regulatory permit that we have line of sight to get that molecule all the way to the sales point. And there's a lot of optimization that can be done in that realm. I think a lot of us have with that and we are really pushing to get that very efficient. So we begin with the end in mind and we know where that molecule can be sold to before we start the process. So I'll let Chip expand on that.

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Charles J. Rimer, Whiting Petroleum Corporation - COO [56]

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Yes, Brad, I would also say that we're looking at the entire well construction process. So when we're looking at this, you're looking it from how can I get things out of critical path, how can I move it faster or how quickly I can make the cycle times? I can create a larger rate of return if I can do that. So you may have heard something called DWOP, which is drill the well on paper, and that's how our -- see our efficiencies on the drilling side, we're doing the same thing across the entire cycle of our construction here. And we're looking for huge value where we could. So a combination of the entire process, whether that's from the regulatory side all the way to the facility side. In fact, we're right now building facilities that stay on critical path. They really get onboard so we can drill a well right on the facilities immediately when it's ready to go.

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Gail Amanda Nicholson Dodds, Stephens Inc., Research Division - MD & Analyst [57]

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Great. And just kind of a point of clarification, we haven't done -- Montana hasn't seen a lot of activity recently. But back several years ago, well costs were always lower in Montana versus North Dakota. Is that still the right way to think about it even with the change in the completion design?

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Charles J. Rimer, Whiting Petroleum Corporation - COO [58]

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Yes.

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [59]

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Yes.

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Operator [60]

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And the next question comes from Paul Grigel with Macquarie Capital.

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Paul William Grigel, Macquarie Research - Analyst [61]

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Brad, maybe one for you. How do you balance the decision-making process between A&D and debt reduction with the free cash flow, given really almost a wholesome new team, except for maybe Mike there?

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [62]

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Yes, thanks for the question, Paul. I mean paying down debt is our priority. We want to get our balance sheet in order and that's always kind of the first call. And so in order to do a -- some kind of acquisition of new inventory, it really has to make high hurdles. And I could tell you, Paul, we looked at numerous things last year and only executed on one of those. And I think you can see from the work of our South team, we really thought that, that was an outstanding opportunity to pick up 55,000 acres at a very attractive price and go immediately to work on it. So full cycle rate of return is really important. If you burden an acquisition with the upfront cost to acquire it, you've got to get very active and you've got to go at it and generate that full cycle rate of return. And so we have good debates in our shop among that but there's a high hurdle to be able to go out and buy more inventory. The best way we can do it, and what we've challenged our asset teams to do, is give us more inventory on our existing acreage and they've been highly successful at doing that this year and that's generating a lot of opportunity for us. So we'll continue to look. It's very prudent for us to use all of our knowledge of the basin to understand the basin fully and to watch for opportunities where we might have information that could be advantageous. But we continue to drive at paying down the debt and we want to get that into the areas that Mike described earlier today.

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Paul William Grigel, Macquarie Research - Analyst [63]

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Yes, that makes sense. And I guess maybe turning to flaring with you guys infrastructure spending. How should we look at your current capture rate and is there any concerns with the timing of either completions or buildout of the infrastructure side for any potential flaring issues going forward through 2019?

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Charles J. Rimer, Whiting Petroleum Corporation - COO [64]

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Yes, Paul, this is Chip Rimer. Great question. We've been able to stay above the North Dakota capture rate, which is 88% with no problems. We've also been able to take our plan and move it around. So we're in places where we can move gas out of the systems. And then as we've said before, we have the Ray Gas Plant that's going in this quarter. Also, we have the ability to take portable gas plants that we move around so we minimize the flaring going forward.

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Operator [65]

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And the next question comes from Marshall Carver with Heikkinen Energy Advisors.

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Marshall Hampton Carver, Heikkinen Energy Advisors, LLC - Founding Partner and Director of Research [66]

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Nice improvement in the Cassandra wells. Your prior presentation showed areas broken into Tier 2 and Tier 1. Do you think these positive Cassandra Wells would move in into Tier 1 and how many locations would that have added?

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [67]

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Yes, Marshall, absolutely. We're very pleased with those results. If you look at them, they're all part with our development at Polar, and north Polar, just very close. So that moves that position into our old Tier 1 inventory and we're obviously working on what the proper spacing is and how many zones we'll develop there. And so we're still real early in that process and so we're continuing to work on how many locations that adds overall.

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Marshall Hampton Carver, Heikkinen Energy Advisors, LLC - Founding Partner and Director of Research [68]

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And I guess that's a nice lead into my next question. What are your plans for future drilling there? Will you be drilling some more wells in the next year or 2?

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [69]

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Back to the process we described on Slide 25, it really is about developing a well-thought-out manufacturing process. And so we've got some early success in Cassandra. We'll do some more testing in Cassandra in 2018, and we'll put that program, a full-scale development plan, to go out and run; likely to start right at the start of 2020. And the goal is to make that entire process -- as we talked about the strategy on the front page, the real goal is to make that entire development program as capital efficient as possible. And so there are some real advantages in doing it systematically, in a well-thought-out plan. And that's what we're working on now.

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Operator [70]

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And the next question comes from Mike Kelly with Seaport Global.

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Michael Dugan Kelly, Seaport Global Securities LLC, Research Division - MD and Head of Exploration & Production Research [71]

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Brad, you mentioned the declines in Redtail are going to mask the success of the Bakken program in '19 and probably taper down the overall corporate growth to some extent. And my question is if you look out to 2020 to actually see this reverse to some extent, and I'm curious if you would compare 2020 corporate growth versus '19 on similar activity levels if we'd expect that to actually tick up a notch, just given what you laid out on Redtail?

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [72]

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Yes, Mike, I think you're thinking about that exactly right. We announced 6 months ago that we were going to keep Redtail because we thought the inherent free cash flow generation of that asset was greater than what we could move that asset for. And then we went to work on shallowing that decline. Again, our teams have done a tremendous job out there. As you saw, we were a couple of thousand barrels of oil ahead of the decline, so the goal this year for that team will be to try to continue the arrest that decline. We've got some people out there doing some really innovative things that we're proud of. But as that decline shallows and it gets smaller down to only 8% of our volume as a company, you'll see that growth rate tick up with a similar spend rate as we have this year.

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Operator [73]

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And as there are no more questions, I would now like to turn the call back over to Eric Hagen.

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Eric K. Hagen, Whiting Petroleum Corporation - SVP of IR [74]

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Thanks, Keith. Whiting will be participating at the Raymond James 40th Annual Institutional Investors Conference, March 4 and 5, and we'll also be participating at the Scotia Howard Weil 47th Annual Energy Conference, March 25 and 26. With that, I'll turn the call over to Brad Holly for closing remarks.

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Bradley J. Holly, Whiting Petroleum Corporation - Chairman, President & CEO [75]

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Thank you, Eric. I want to thank my fellow Whiting employees, the Whiting board and our shareholders. We are building a great company and getting better every day. Challenges lie ahead but with the right people in place at Whiting, the right shareholders backing us and a commitment to a business model that can compete for capital in any industry, we'll rise to the challenge. I'm excited about continued execution excellence and improving our performance in 2019.

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Operator [76]

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