Whiting Rocks The Expedition

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WLL Operations Update; Lewis & Clark Success

Lewis & Clark Prospect Area (Golden Valley County, ND):

  • The Federal 32-4HBKCE well IP'd at 1,970 BOEpd from the Three Forks Sanish formation on the southwest side of their acreage.
  • This is the second successful TFS test for (WLL); recall the first well IP'd late last year at 1,000 BOEpd.
  • (WLL) has assembled 107K net acres in the Lewis & Clark area:

    • Note that most of the activity we normally focus on is to the north in Montrail, Dunn, and McKensie counties.
    • There are numerous existing vertical wellbores in this area that can be re-entered to save costs (casing exit opportunities). This shaves about 20% off the completed well cost.
    • (WLL) plans to add a rig for continuous drilling in the area in March 2010 and plans to drill 9 TFS wells here next year.

Bakken Area Pipeline Update:

  • (WLL)'s 65,000 bopd capacity, 17 mile pipeline, commenced operations last Friday (Dec 4), with an initial flow rate of 6,200 bopd,
  • This about 1/3 of their Sanish and Parshall gross operated producton meaning 1/3 of their trucks are now off the road. Two impacts:
    • Lower transportation costs relative to trucking oil
    • Lower differentials for the field as the area gets debottlenecked.
  • They expect to have all of their Bakken Play production moved via pipe by the end of the first quarter.

Other Drilling Update

  • Important Three Forks Test in Sanish.  The Odgen 11-3TFH well was one of the things missing from last quarter's update. The third well in the Sanish Field for (WLL) from the Three Forks Sanish, IP'd 1,479 BOEpd, a nice even step function relative to prior TFS IPs of 551 and 1,005 BOEpd at Sanish. 
  • Aside from that (WLL) announced 3 more Bakken tests from the Sanish Field with IPs averaging 2,334 BOEpd which is about 15% higher than their average completion IP.

Nutshell: More strong results from their operated Bakken wells in Sanish Field and getting the pipeline up and running on schedule (they said it would be this quarter) are good things. But the focus will be on the Lewis and Clarke well:

  • A Sanish producer with nearly a 2,000 BOEpd IP, which can be drilled from existing vertical wellbores (casing exits) for 20% under the cost of drilling a comparable well gets attention.
  • The fact that they are largely alone in the area with room to drill at least 160 locations (based on 640 acre spacing assuming they go after 1 Bakken and 1 Three Forks Sanish target per section and only half of their acreage is prospective) means the Street should find plenty to be happy about with this announcement.
  • Put 500,000 EURs on those numbers (again with the conservatism) and you have a significant boost to potential reserves here (remember that WLL has one of the smaller Bakken positions of the big players in the Williston with only 88,000 acres between Sanish and Parshall Fields combined, even if they are some of the best acres in the play). Nothing like establishing a second front to make my day.

One last thing. When I wrote the 3Q piece at the end of October I closed by writing:

Nutshell: The only things missing were a positive test in the Three Forks from the Lewis & Clark area and 2010 guidance, neither of which were expected. Market willing this probably goes higher as estimates will be coming up again for both 2009 and 2010 and the stock remains one of the cheapest names (4.5x 2010 CFPS) estimate of $12.56) levered to ramping Bakken production.

Cash Flow Per Share estimates are now $14.58 (up 16% in five weeks) and the stock is now $65, up from $59.57 at the time of that quote (hmmm, still at 4.5x 2010's number). I've since rolled my calls here a number of times and added the common shares. I see estimates rising further for 2010 and will amend the Catalyst shortly to reflect the L&C well success.

Disclosure: I own December $65 calls and the common.


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