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Shale Giant Goes To Ground

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Shale Giant Goes To Ground
whiting petroleum

Whiting Petroleum Corp, the largest drilling company in North Dakota, has announced that by it will stop all fracking and drilling operations in the state by April 1.  Whiting CEO Jim Voelker announced that the company would also reduce spending by 80% compared to last year. This follows a 46% reduction in capital spending in the third quarter of 2015.

A giant in the Bakken shale fields, Whiting controls over 20 drilling sites in North Dakota and Montana. According to the company website, these sites total 454,782 net acres, with an estimated 6,052 viable drilling locations.

Most of the new 2016 budget of $500 million will be used in the first half of the year to mothball existing wells and suspend planned drilling operations. The company plans to spend only $160 million in the last half of the year, including maintenance of idle wells. Whiting said it expects to end the year with an inventory of 73 drilled, uncompleted wells in the Bakken and 95 drilled, uncompleted wells in the Niobrara shale fields of Colorado.

Tumbleweeds in the Oil Patch

abandoned-gas-well-oil

As of March 1, there are only 35 active oil wells in the entire state of North Dakota, down from 119 this time last year. Three of those 35 producing wells belong to Whiting. There is an estimated 1,000 incomplete shale wells in North Dakota, waiting for a reprieve in oil prices.

The latest information from the Baker Hughes weekly rig count seems to verify the Energy Information Agency's prediction that oil production in the continental United States, ex-Gulf of Mexico, will drop 11% this year.  The February 26th report of widely-watched oil rig tally showed 12 fewer active rigs compared to last week, but an eye-popping 765 fewer than this time last year.

Baker-Hughes-2014-feb2016

Whiting Not Alone In Mothballing Plans

The #2 shale company in North Dakota, Continental Resources Inc., also shut down its fracking fracking operations in the Bakken shale fields, after posting its first annual loss since the company went public in 2007.

Four of the 35 active shale oil wells in North Dakota are owned by Continental, but the company said that it had no crews on site, i.e. the wells were mothballed. It also said that it last completed a Bakken well in the third quarter of 2015, and had no plans to begin drilling until crude prices recovered. Like Whiting, Continental is hunkering down to preserve capital under conditions improve. The companyl also announced a large drop in expenses, saying it would cut spending by 73% in 2016, to $920 million.

Lying In Wait (Like A Spider)

oil-pump

Whiting has said that it is positioned to rapidly ramp up production, should oil return to $40-$45 a barrel. The April futures contract for West Texas Intermediate crude is in the $34 range, showing how thin the line between profit and loss is.

Whiting sold $512 million in non-core assets last year, giving it $2.7 billion in cash to start 2016. One bright spot is that its debt doesn't start maturing until 2019.

CEO Jim Voelker told investors in a letter, "We believe this conservative strategy should help us to maintain our liquidity position and leave us well positioned to capitalize on a rebound in oil prices."

“Our 2016 plan is designed to maximize current and future returns and preserve balance sheet strength. We're decreasing CapEx by 80 percent from 2015 levels and adjusting our activity levels to four rigs versus our monthly average of 11 in 2015 and our high of 25 rigs in 2014,” he said.

The Financial Times quotes a note from analyst Brad Carpenter of Cantor Fitzgerald, saying that Whiting’s moves were “exactly what a company viewed as over-levered needs to do in this environment, that is, hunker down, spend within (or less than) cash flow, and wait out the storm”.

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product

About the Author

Everett Millman

Steven Cochran

Precious Metals Market Analyst
BS University of South Florida (2002)

A published writer, Steven's coverage of precious metals goes beyond the daily news to explain how ancillary factors affect the market.

Steven specializes in market analysis with an emphasis on stocks, corporate bonds, and government debt. He writes a monthly review of the precious metals markets for SurvivalBlog.com.

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