WLL Beats Street, Guides Production Up, Costs Down

This is what I wrote for the Wednesday post before WLL reported:

Other WLL Comments:

• The name is cheap at 6.1x 2009 and 3.8x 2010 CFPS.
• WLL has drilled some of the biggest IP rate wells in the Bakken to date with some over the 3,000 BOEpd and one well at 3,889 BOEpd (Rigel State 11-16Hand another at 4,570 BOEpd (Richardson Federal 11-9H) in its portion of the Sanish field.
  • Average EUR 850,000 BOE
  • Completed cost: $5.5 to $6 mm as drilling days have fallen from 60 to 41 in the latest wells. Expect this to continue to fall on an apples to apples basis (maybe not on absolute but new wells may have longer laterals and more frac stages).
• WLL should be close to completing a 65,000 bopd line out of the Sanish, they’ve had a gas line in place since last summer.
• March production was 54.5 MBOE per day vs 54.3 MBOE pd in 1Q
• They had a number of outside operated wells that the operator had deferred completion on in the first quarter, many of which should have been completed in 2Q.
• Earnings out after the close today, conference call tomorrow at 11 am EST.

And here are comments following their 2Q earnings release:

WLL Reports Beats; Guides Production Higher, Costs Lower

The 2Q Numbers:

• Production of 5.033 MMBOE came in above the top end of the guidance range of 4.8 to 5.0 MMBOE.
  • This up 3% from 1Q09's production of 4.89 MMBOE and
  • 25% from 2Q08 levels. Note also that oil production was up 35% yoy so they are getting oilier at the right time.
• Revenue of $230 mm vs $192 mm expected
  • Company wide differentials improved from 1Q09
• Cash Costs: Slightly better than expected
  • LOE of $11.44 per BOE vs $12.20 per BOE guidance and $12.47 in 1Q09
• EPS of ($1.83) reported but this includes a non cash loss of $1.89 vs ($0.27) expected
• CFPS of $2.16 vs $1.74 expected

Guidance:

• Production:
  • 3Q09: Initiated at 4.8 to 5.0 million barrels of oil equivalent (MMBOE)
  • 2009: Increased from a range of 18.90 to 19.30 MMBOE to a range of 19.20 to 19.60 MMBOE. Essentially this means what was 8 to 10% growth for 2009 is now 10 to 12% growth.
• Pricing:
  • differentials for both oil and natural gas seen improving over prior guidance
• Costs:
  • Lease Operating Expense (LOE) falls from prior '09 guidance of $12 to $12.30 / BOE to a range of $11.70 to $12 / BOE.
  • Other cash and non cash (DD&A) costs fall as well
• Capital Budget: Going up. Planned spending goes from $420 to $440 mm. Extra cash to be spent in their extended oil recovery plays.

Operational Highlights:

•  Williston Basin:
  • Sanish Field:
    • Announced completion of two nice middle Bakken completions at rates of 2,528 BOEpd and 2,376 BOEpd. These would be just north of WLL's average well drilled to date.
    • Announced a Three Forks Sanish well in the southwestern portion of the field with an IP of 551 BOEpd - this is the second TFS well in the Sanish Field drilled by WLL
    • WLL commented that it has offsetting acreage just to the north of the Sanish field adjacent to BEXP's recent 2,000+ BOEpd TFS well.
  • Parshall Field -
    • In mid June, field operator EOG began completing 16 previously drilled middle Bakken wells in which WLL has an interest. 10 have been completed and the other 6 should be completed in the next 4 weeks. EOG's has routinely brought on some of the biggest wells in the play with numerous wells coming on north of 3,000 BOEpd in Parshall.
  • General comments on Williston:
    • CWC continue to fall; now estimated to cost $5 to $5.5 mm per well from $5.5 to $6.0 mm per well just last month.
    • Despite rising total capex for the firm, the $ number for the Williston actually shrank lightly in their new budget as they are getting that much more drilled for their buck.
    • The one nit to the quarter may be the slightly slower than expected completion of their 65,000 bopd oil line which would connect their oil to Enbridge and from there to markets in the midwest (reducing transportation costs greatly). Previously mentioned as a Q3 event, now Q4,
• Enhanced Oil Recover Plays
  • Continue to see strong production growth in both plays. Both fields are growing via workovers alone but at higher prices, WLL would be likely to add new injector and production wells.

Balance Sheet: Better at 27 debt to cap, down from 40% at year end. They mentioned in the press release a willingness to live within cash flow in 2H09 which sounds like no more deals soon which would be a welcome change.

Nutshell: Production guidance increased with cost guidance coming down is rarely a bad thing. An improved balance sheet and increasingly oily mix mean that WLL will have the firepower when prices improve to accelerate operations in both its the Bakken and EOR areas. Meanwhile, the stock is relatively cheap at 5.8x 2009 estimated CFPS of $7.34, a number that will be rising by at least $1 to take into account this quarter's outperformance and the lower costs in the second half of the year.  As to 2010, the Street is already looking for the first half acceleration of activity management alluded to in the press release and is already forecasting a stout $11.60 CFPS target.

Conference Call: Today, 11 am EST.

I'll add the notes from the CC to the bottom of this page following the call. This page will be archived on the reports tab.