Eric K. Hagen - Whiting Petroleum Corp. Bradley J. Holly - Whiting Petroleum Corp. Michael J. Stevens - Whiting Petroleum Corp. Mark R. Williams - Whiting Petroleum Corp. Rick A. Ross - Whiting Petroleum Corp. Peter Hagist - Whiting Petroleum Corp..

Neal D. Dingmann - SunTrust Robinson Humphrey, Inc. Drew Venker - Morgan Stanley & Co. LLC John A. Freeman - Raymond James & Associates, Inc. John Nelson - Goldman Sachs & Co. LLC Paul Grigel - Macquarie Capital (USA), Inc. Jeanine Wai - Citigroup Global Markets, Inc. Gail Nicholson - KLR Group LLC David Earl Beard - Coker & Palmer, Inc. David A.

Deckelbaum - KeyBanc Capital Markets, Inc. Jeoffrey Restituto Lambujon - Tudor, Pickering, Holt & Co. Securities, Inc..

Good morning. My name is Keith, and I will be your conference facilitator today. Welcome, everyone, to the Whiting Petroleum Corporation's Fourth Quarter 2017 Financial and Operating Results Conference Call. This call will be limited to 45 minutes, including Q&A. Please limit your questions to one question and to one follow-up.

I will now turn the call over to Eric Hagen, the company's Vice President of Investor Relations..

All right. Thank you, Keith. Good morning, and welcome to Whiting Petroleum Corporation's fourth quarter 2017 earnings conference call.

On the call today with me is Whiting's new President and CEO, Brad Holly; Senior Vice President and CFO, Mike Stevens; Senior Vice President of Operations, Rick Ross; Senior Vice President of Exploration & Development, Mark Williams; and Senior Vice President of Planning, Pete Hagist.

During this call, we'll review our results for the fourth quarter 2017, and then discuss the outlook for 2018. This conference call is being recorded and will also be available on our website at www.whiting.com. To access the presentation slides, please click on the Investor Relations box on the menu, and then click on the Presentations & Events link.

Please note that our remarks and answers to questions include forward-looking statements that are subject to risks and could cause results to differ materially from those in the forward-looking statements. Additional information concerning these risks is set forth forward on slide number 1 and in our earnings release.

Our Form 10-K for the year ended December 31, 2017, is expected to be filed later today. And with that, I'll turn the call over to our new President and Chief Executive Officer, Brad Holly..

Thank you, Eric. I would like to thank all Whiting employees for a job well done in 2017. I would also like to thank the Board of Directors and shareholders for the opportunity I've been given to lead this company.

Before I introduce my strategic vision and 2018 initiatives for Whiting, I'll hand the call over to Mike Stevens for a brief overview of the quarter and our 2018 guidance.

Mike?.

Thanks, Brad. Earnings per share and discretionary cash flow both substantially exceeded analysts' estimates. Fourth quarter average production of just over 128,000 BOEs a day was at the high end of guidance and increased 12% over third quarter levels. Capital spending of $171 million was $38 million below guidance for the fourth quarter.

Oil differentials were significantly below the low end of guidance, and G&A was at the low end of guidance. Operating cash flow exceeded CapEx by $116 million for the quarter. This was used to pay down the revolver balance and settle a portion of our Redtail volume commitments. Whiting's capital budget is $750 million in 2018.

$600 million or 80% of the total budget will be spent on operated development activity in the Williston Basin. Production for 2018 is forecast to average 128,400 BOEs per day, a 9% increase over 2017. Williston Basin operated production is forecast to grow 14% from the fourth quarter of 2017 to the fourth quarter of 2018.

At current commodity prices and with our strong hedge position, we project approximately $200 million of free cash flow in 2018 at a $55 NYMEX oil price. I'll turn the call back over to Brad, who will outline the Whiting's vision and strategic initiatives..

Thanks, Mike. I've spent the past decade focused on driving efficiencies and unconventional reservoir development across multiple plays. Over the past 100 days, I've spoken with numerous analysts and shareholders.

I've also visited our operations in the Williston Basin and at Redtail multiple times, and have met with virtually all Whiting employees in town hall and small group sessions. The following strategic vision and initiatives are a result of those interactions. Whiting plans to adopt a philosophy of balanced growth and free cash flow.

We're striving to develop a Tier 1 asset base with optimization and efficiency, while driving greater margins with a strong balance sheet. We plan to hedge more than we have historically and adopt a more balanced approach, including swaps. We are currently 70% hedged.

We are targeting net debt to EBITDAX below 2 times at a $55 NYMEX oil price as we rigorously pursue a strong balance sheet. We intend to achieve this through a combination of strong growth and free cash flow. In 2018, Whiting plans to implement an optimized completion strategy to maximize capital efficiency on a project basis.

We are focused on maximizing economic recovery in each drilling spacing unit we operate. In pursuit of this goal, we are reorganizing our Bakken teams to streamline operations and communications. These changes should enhance our efficiency and profitability as a corporation. We intend to maximize value from the sand face to the sales point.

We are going to work on all aspects of our business to achieve this goal. We are exploring the monetization of Redtail and have retained an advisor to manage the process. Our Redtail team did a superb job putting 25 wells on production during the quarter. That's a well every 3.5 days.

This is reflected in a strong production profile that has continued to grow into the first quarter. Though we believe there are many opportunities that can deliver strong returns at Redtail, it does not currently compete with our Bakken assets. It may benefit from accelerated capital to realize the field's full potential.

This morning, we posted a new corporate presentation that provides a high-graded assessment of our inventory. This new disclosure gives risk, net potential drilling locations. It provides more clarity and detail by operating area, and incorporates conservative spacing assumptions.

This represents an initial look, and our asset teams are charged with generating more Tier 1 opportunities from our 410,000 net acres in the Williston Basin. Our new presentation also provides type curves to support our core areas, which show that we are performing exceptionally well.

Whiting has done a great job to improve operations and increase our margins during the downturn. Moving forward, we intend to be laser-focused on further enhancing these margins. We are holding ourselves accountable to deliver on this plan.

The first step in maximizing corporate level performance is to ensure we only drill the highest rate of return projects. To support this, Whiting's Board of Directors has elected to add a drilling rate of return metric to the executive compensation plan.

In summary, Whiting is well-poised with an excellent core position in the Bakken that is generating strong growth and significant free cash flow. I look forward to your questions. Keith, please open up the conference call for Q&A..

Yes. Thank you. And the first question comes from Neal Dingmann with SunTrust..

Morning, all. And, Brad, congrats on the first time. Brad, question is, it seems like with talking to investors, one of the biggest concerns overall in the Bakken seems to be inventory quality. You've obviously explored all of your acreage now, it sounds like to me.

Could you just talk about how you view your inventory quality versus others that are out there?.

Sure, Neal, thanks for the question. We certainly have looked extensively at the Bakken. We feel like that we are in really the core of the core here.

We've taken a real detailed look at our position here, and feel really good about the Tier 1 acreage that we have and the opportunities that are afford us there, as well as our additional acreage that we think there's economic wells to drill, and we'll be working on using technology to drive forward to add more inventory.

With that, I'll let Mark Williams comment on that as well..

Yeah, Neal. We've taken a wholesale look at all of our acreage across the basin. As you can see, we've got on our slide in the presentation here, we've got on page 6, it shows that we've got essentially 1,100 locations at Tier 1 quality in the areas that are highlighted there.

It's essentially Polar, Hidden Bench and Sanish/Parshall, and East Missouri Breaks. So the Tier 2 areas have good quality as well. We have some ongoing growing operations, for example, in Pronghorn we think there's great opportunities, but that's a pretty thorough reassessment of what we believe is available to us.

We've got, in most of the Tier 1, we've got both Bakken and Three Forks. We've taken a good review of our wine rack here, and in Bakken, we've got six to eight locations and in Three Forks, four to eight locations, depending on where it is within the Tier 1 area..

Very good. And then just one follow-up, Brad, on M&A activity. Could you talk about – I know on your early sort of days at the Whiting, you've talked about potentially doing some sales. Could you talk about – and you've also talked about potentially even adding something out of a – maybe a new basin.

Could you talk about how that plan looks for reminder of the year? Are you still focused on selling some things? And is that what's required before you think about buying something else?.

A great question, Neal. As we just talked about, the Redtail, we have hired an advisor and we're moving forward that fairly quickly. And so that process is well on its way and will be here second quarter event. We really like our position in the Bakken. Right now, we're not currently looking at divesting core or non-core assets, but we continue to look.

Our focus here is really to drive efficiency and be recognized as the best in the Bakken, and put ourselves in a position to take advantage of the great position that we currently have in our existing basin, and continue to watch for opportunities if they surface in other places..

So you would prefer to, I guess, sell something – you would want to be rid of the Redtail before you think about adding anything else?.

We're just really focused right now, Neal, on the acreage that we have and driving efficiency into our program..

Very good, very good. Thanks so much and nice quarter..

Thanks, Neal..

Thank you. And the next question comes from Drew Venker with Morgan Stanley..

Hi. Good morning, guys. I was hoping, Brad, if you can talk about the priority for uses of free cash flow and how you think about the evolution of that free cash flow over time.

Is it something you're trying to target at a relatively steady or increasing level? Does it matter as much whether that's stable? And how are you expecting to manage the cash profile of the company going forward?.

Yeah, a great question, Drew. So, yeah, first thing, we like generating free cash flow. We think if you have a Tier 1 position, you can grow production and generate significant free cash flow. And so, we're excited to have both the people and the assets that have the ability to do that.

And we are looking forward to having a spot where we have that free cash flow. We certainly are looking at reinvesting that in additional growth, as well as using that potentially to pay down some debt to quicker achieve our objectives..

And, Brad, just as a follow-up to that on your earlier comments about marketing Redtail.

Would potential proceeds from that sale just go to the balance sheet or would that be treated like any other source of free cash flow?.

Yeah, Drew, great question. We would likely reinvest for growth, but we're not going to rule out debt reduction or share buybacks at this point..

Okay.

And any interest in adding, if there's available high quality acreage in the Bakken?.

Absolutely, Drew. We are constantly looking for both opportunities inside and outside the Bakken to see if there is a place where Whiting can use its strength to make an accretive opportunity for the company..

Okay. Thanks for the color..

Thank you. And the next question comes from John Freeman of Raymond James..

Hi, guys. Nice quarter. First question I had on the new well cost guidance, which is a good bit lower than the last update we had, if we can just sort of talk about kind of the primary drivers of that..

Sure. John, this is Rick Ross. The – excuse me – $7.1 million estimate that we've put out there really reflects what we were doing the last quarter of last year in terms of cost.

We've put a little bit of stretch in there that's related to the technology that we've put out for you on slide 11 through 13, I believe, and some of the things that we're going to be doing this year. We hope to drive some additional efficiencies in our completion as a result of the technology..

And then just the one follow-up for me. Can you all provide what the exit rate number is embedded in guidance for Redtail? We gave it – you all gave it for Bakken. I just wonder if we can get it for Redtail..

It's going to be around 15,000 BOE a day..

Great. Thanks, guys. Congrats again. Well done..

Thank you. And the next question comes from John Nelson with Goldman Sachs..

Good morning. And, Brad, congratulations again on your appointment. I really appreciate you kind of running through the vision and strategic priorities.

Could you maybe just, given it's your first time on the call, so step back and maybe say what attracted to you to the Whiting opportunity?.

Sure, John. Thanks a lot. As you know, when you're on the outside looking in, you're always trying to make that assessment. So it certainly was nerve wracking on that end. After 100 days here, though, I'm thoroughly impressed. The people of Whiting are just great men and women that they go to work every day. They have a real high desire to succeed.

And what I'm really loving about the organization, it has a high desire to change and to move in a positive direction. You couple that with just outstanding people that we have in the office, as well as in the field, and you put that with really a Tier 1 acreage position.

And so, as I've traveled to North Dakota, I've been very impressed both with our people and our assets, and the way Whiting goes about doing business. And so, I am much more excited today than I was on November 1, and really look forward to working with this organization to move it forward..

That's helpful. And then just on the 14% expected 4Q to 4Q Bakken operated growth, we've seen some sanctioning of additional gas processing capacity recently.

Can you just speak to kind of the – have you been in touch with your midstream providers, and do you feel comfortable that kind of there's the capacity to execute that growth plan that you've laid out?.

Sure. That's a great question, John. I'll let Pete Hagist address that..

Yeah. Hi, John. We're in constant communication with our gas providers. They do have plans in progress. We're taking a longer outlook in terms of our planning cycle. So I feel very confident we'll be able to meet our takeaway needs..

And I would just point out, add to that, John, that as the gas capture percentage in North Dakota rises over time, Whiting has been very forward-looking on that and we've gotten out in front of that. And so, we generally capture significantly more gas on a daily basis than what is currently required..

Yeah. That's a good point. And then just last one, kind of a housekeeping. I just wasn't clear on the reorganization of the Bakken team point.

Is that more just from an operational personnel, kind of the org chart, or are you signaling that there could be a workforce reduction with that comment?.

No, John. Really, what I'm signaling there, as we divest of the Redtail, we're solely focused in North Dakota, and that gives us a real opportunity to take a highly technical team and really not be distracted by anything other than working on the Bakken.

And so we're going to put more resources on our Bakken assets, and we're also going to work really hard to work across discipline lines. And so, when I say from the time that the molecule starts to move at the sand face, until we release it at the sales point, we're going to go to work on optimizing that entire operation.

And so it's getting drilling and completions and land and the field, and the operations engineers all working together in a team-based environment to really drive efficiencies and drive optimization in that program..

That's a helpful clarification. Thanks for taking my questions and congrats again..

Thanks, John..

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

Hi, good morning. Brad, just wanted to focus back in on the leverage comment. You guys were at the fifth rig halfway through the year. You had focused on kind of two types.

How should we be thinking about gross debt reduction as kind of the numerator going down versus EBITDA growing to get to below two times in the balance of that and the priority within that?.

We're really going to try to do both. That's really the plan here. We can grow inside of cash flow, and we grow especially at crude oil prices. We're going to be generating a lot more cash flow, a lot more EBITDAX. Secondly, the free cash flow that we're going to generate, we can use to pay down debt. So, it's really a combination of both..

Okay. And then I guess maybe, Mike, you can talk about it, too. Just on the hedging position, a bit of a change there on going more than 12 to 24 months forward.

Can you walk through the thoughts on having a stronger hedge position going forward, the details around that?.

Well, you can see, we did layer on 400,000 barrels of swaps here in 2018, got ourself up to 70%. That's really the plan going forward. We're going to be probably between 60% and 70% hedged. We got a start on 2019. We got some hedges, did collars there protecting the $50 floor, where we can still grow within cash flow, and got $65 plus ceilings.

So we like where we're at. We're going to keep layering them on and keep moving that 2019 position up higher..

And is that on the basis of trying to protect the free cash flow position more so more aggressively?.

Yes..

Okay. And then one last one, if I could.

Do you guys have any detail on the drilling rate of return metrics that you're adding to the comp plan? And has there been any discussion on over time adding a corporate rate of return metric or something similar?.

Yeah. There's been lots of discussion on all that. The comp committee really took a long time making their decisions. They set the metric, the target metric at a 30% internal rate of return. We feel strongly that we'll be able to meet that. And with all the changes that's going on in the organization, we're going to drive efficiencies.

I think we're in the right direction..

Thank you very much..

Thank you. And the next question comes from Jeanine Wai with Citi..

Hi. Good morning, everyone..

Hi, Jeanine..

Hi. So my question is on free cash flow and growth. And we noticed in the presentation, you talked about a multi-year plan on that. Those two items are always a tradeoff.

Can you talk about what metric you anchorage your multi-year growth and free cash flow commentary on? So is it, for example, a certain free cash flow yield that looks attractive from your conversations with investors or is it a minimum production growth rate that you think is attractive versus a peer group? Just wondering since you mentioned reinvesting the free cash flow for growth as well..

Yeah. Great question. I think that's one thing that makes running a company fun. And we're going to constantly – those are our intention and we're going to constantly – I don't think we're managing to any particular metric.

We're going to watch everything, how our performance does, how our commodity prices do, what our position is, and we'll try to work on both of this in balance..

Okay. And then my follow-up is, what type of sensitivities do you run on the multi-year plan? It seems to be predicated on $55 oil.

Do you have any other details about the assumptions behind that?.

I mean, we've ran it at all kinds – I mean, as you can appreciate, we probably ran that at all kinds of different scenarios, and tried to look at what we look like sub-$50 and what we look like over $60.

And so, they have different outcomes, and we're certainly trying to manage the organization to where we're very robust and we're very strong at any potential commodity prices that could come our way..

Okay. Thank you for taking my questions..

Thank you. And the next question comes from Gail Nicholson with KLR Group..

Good morning. You guys have done a phenomenal job of driving down costs from the expense structure standpoint.

When you look at 2018 forward, where do you think you can still target to further reduce the expense structure? And then what does kind of the expense structure look potentially at Redtail?.

Hi, Gail, thanks for noticing. That's something I'm very proud of the company for doing. I really like those slides. They've done an outstanding job, and we have a lot of opportunities on what we're going to do going forward. I'll let Rick Ross address that..

Yeah. Thanks for the question. We're pretty excited about what we've done so far. And we've put the slide in on page 15 to describe some of our accomplishments so far. One of our focuses going forward is to continue to drive down some of our largest categories in lease operating expenses, one of them which is disposal of produced water.

We made good headway, I think we've got some room to run there. Another area that we're focusing on and having good success is increasing our uptime or reducing any downhole failures that we would have.

A benefit of that – and we've made very good progress there, I think there is room to run, but the benefit of that is that it does two things; it increases production because you're up more, and number two, it reduces your lease operating expenses.

So those are a couple of our focuses, but certainly, we're going to look across the board and continue to try and push that down..

And then just looking, drilling efficiencies continue to improve, it amazes me that you're still taking days off on an annual basis in 2017 versus 2016.

When you look at the completion side, how many – where are you today from the number of frac stages you can do in a day versus you – in the 2016-2015 timeframe? And then do you feel like that the optimization program that you're going to be initiating could further improve kind of the efficiency on the completion standpoint?.

Yeah. I would say on the pumping efficiency, we continue to make progress. And probably not going to quote on accurate stages per day, but I know we've continued to make headway on that. But what I will comment on is some of the new technology that we will be implementing this year on our completions and are actually already in the midst of that.

We'll increase our efficiency and reduce the pump time. And it really relates to applying the diverter to the formation, putting the diverter into the frac job. In the past, we had to slow down during that time.

And I think we're going to reduce that inefficiency and make some pretty good gains, as well as we've got some technology that I think will help in terms of fracture intensity, fracture complexity near wellbore that we're already implementing this year.

So, I think we've got a lot of good initiatives on the completion side this year, as well as we've been able to hold our costs flat as well on completions, and lock in for the year, a good portion of our frac ticket. And I think that'll all contribute to what we're trying to accomplish that Brad discussed earlier..

Great. Thank you so much..

Thank you. And the next question comes from David Beard with Coker & Palmer..

Appreciate the time. This just follows on Drew Venker's questions. Would you have any color just relative to the level of cash you'd like on the balance sheet or level of debt, or what you're comfortable operating going forward? Any color would be helpful. Thank you..

I mean, we've been, I think we've been pretty clear that we're trying to get our leverage down below two times. And we can do that with our current plan by the end of 2019 with the excess cash flow we'll generate at $55. At $60, there's even more cash there, which means we have more opportunities what we can do with it.

We can use it to reinvest for growth. We talked about potential share buybacks. There's lots of things you can do with your excess cash. So we're just going to see what happens when we get there. We'll see what prices do. We'll see how much cash we generate, and we'll try to make the best decision at that time..

Okay. Thank you..

Thank you. And the next question comes from David Deckelbaum with KeyBanc..

Morning everyone..

Morning, David..

Just wanted to confirm some of the comments you made on the asset sales side, one, that the Redtail process includes both upstream and midstream, and they being marketed as separate packages. And then, two, that I that know you all had previously talked about perhaps divesting some non-operated Bakken producing assets.

And that's currently off the table right now?.

Yeah, David, great question. Thanks for the clarification. We really see that the Redtail asset is a really nice setup with the upstream and the midstream joined together. We've certainly benefited from having that midstream plant right in the middle of the field. And so we see them going together.

We see that there's better value in the sum of the parts. And so, we are looking for a complete and total divestiture of that, and hopefully the midstream and the upstream goes together in that process. We're pretty happy with the Bakken and what we've seen. We're certainly happy with the performance that we're seeing out of it.

We think the basin has gotten significantly better with improved efficiency in the well results. We like commodity price. We like the netbacks or the D-DUCs that we're seeing out of the Bakken. And so, we're relatively happy with that at this point. So, we're currently not marketing any kind of Bakken assets..

I appreciate the clarification.

And I guess just on, as you've commented, Brad, and kind of looked at the portfolio, are you seeing any real opportunities in the Bakken that kind of expand the footprint beyond what you have that would kind of offset some acceleration developmentally in future years or how are you thinking about sort of the inventory management now, especially as you kind of look to delever here and look to monetize Redtail?.

Yeah, David, when I look at the Bakken or when I travel up there, I get very excited. I get real excited about our four offices up there and our field staff. They've been in the Bakken for a long time. They know it really well. And that is a competitive advantage for us. And we're going to put our people to work on the entire Bakken.

We're going to continue to develop ours with efficiency and optimization, but our goal is to move to the head of the pack and to work on all of those opportunities. So someone else's Bakken position would be more valuable in our hands.

If we get to that point, then we have the opportunity to make that call whether that's the right move for the company or not. But in all cases, we want to move ourselves to that position and give ourselves that opportunity..

It's a good answer. Thank you..

Thank you. And the next question comes from Jeoffrey Lambujon with Tudor, Pickering, Holt..

Good morning. Thanks for taking my questions. Just some on the 2018 program, maybe first focusing on Q1 here, just want to make sure we've got the trajectory right through the quarter.

Is there a range, or is the range there just based on risking for seasonality or are completions weighted to the later part of the quarter?.

A little bit of both. I think you're talking about first quarter being down just a little bit, right around 1%. And we know we're coming off a pretty big increase in production in the fourth quarter, and we're only putting on 16 wells in the Williston Basin of the 123 we put in the press release, so that and somewhat the winter season is the reason..

Got it.

And then, I guess bigger picture for the year, can you give some more color in the Williston on where the rigs will kind of focus as you move through the year? Should we anticipate a split kind of similar to what you show on the slide or will those move around a bit?.

Yeah. This is Mark Williams. The rigs that we have right now, we've got four. We're considering adding a fifth here late spring, early summer. They're pretty much in the areas that we traditionally drill. We're – they're fairly spread out across the Basin; so Polar, Walleye, Tarpon are going to be the primary areas of focus.

Then we've got more going on in Sanish a little later, and towards the end of the year, we'll have a couple of Missouri Breaks wells as well..

Thank you..

Thank you. As there are no more questions at the present time, I would like to turn the call to Eric Hagen for any closing remarks..

Okay. Thanks, Keith. Whiting's going to be presenting at the Raymond James Investor Conference, Tuesday, March 6, at 8:05 A.M. Eastern time. That's our CEO, Brad Holly, and Whiting will also be presenting at the Scotia Howard Weil Energy Conference on Wednesday, March 28, at 9:40 A.M. Central Time.

We'll also be presenting at the IPAA Oil and Gas Investment Symposium the week of April 9. And I will now turn the call over to Brad Holly for closing remarks..

So in closing, I would like to once again thank Whiting's Board of Directors, employees and shareholders for your support. I look forward to working together to make Whiting Petroleum an enduring great company..

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