The Williston Basin has had an interesting fourth quarter. There has been some bad news from the price of Bakken crude slipping to $71/barrel due to the glut at Cushing. Companies like EOG Resources (EOG) and Continental (CLR) have done a good job of keeping prices up by using different transport methods for sale. Low prices haven't slowed production as North Dakota produced over 152 million barrels of oil in 2011. This compares to 112.5 million barrels in 2010. IP rates have improved significantly year over year, with longer laterals, increased stages and directional drilling improvements being just a few reasons.
After Newfield's (NFX) poor third quarter, many investors saw value. This was a mistake as Newfield continues to have trouble controlling costs. More worrisome is Newfield's natural gas exposure. It has done a fantastic job of increasing liquids production from 30% of total production in 2010, to approximately 40% last year. Even if Newfield hits its liquids goal of 48% in 2012, it will still have significant issues with natural gas at $2.60. Earnings estimates averaged $1.01/share, but Newfield missed by six cents. After derivatives losses, Newfield's EPS shrank to 51 cents/share. Revenues were also light at $677 million versus the street's estimate of $697.41 million. This resulted in two downgrades by Citigroup and Deutsche Bank.
Given the cost issues, Newfield will have a lower capital budget in 2012, which should be in the $1.5 to $1.7 million range. It also freed up cash through an asset sale of its Catwalk Prospect in Williams County. Newfield received $276 million for approximately 23000 net acres. This included production of 300 Boe/d and 8 drilled but uncompleted wells. Newfield plans to use this capital to develop its remaining Bakken acreage. It will spend $200 million in the Williston Basin this year, after pulling 3 rigs and slowing its pace of development to save money in 2011. Of the 17 completions deferred, 8 were sold in the Catwalk Transaction.
Since the beginning of 2012 it has completed 3 of the 9 remaining for an average IP rate of 2900 Boe/d. The remaining 6 will be completed by midyear with plans to run between 2 and 4 rigs. Current production is 7500 Boe/d and Newfield estimates this will increase by 35% in 2012. Newfield may have value, but it is still gas heavy, and will be for sometime. It had difficulties making estimates when natural gas prices were significantly higher than it is now, so I am unsure how it will fare in this environment.
EOG Resources has been one of my favorite large cap plays. So far it has been proven right, as it has made very large liquids production increases in a short time frame. This quarter was as good as the last three (maybe better) as it reported a 4Q EPS of $1.15/share versus the street's estimate of $.88/share. It reported revenue of $2.77 billion versus the street's $2.5 billion. Analysts are increasing estimates for next quarter with a current 1Q EPS of $1.06/share. This has increased from $.96 just 30 days ago. For the year, EOG's liquids production increased 52% while its gas production decreased 7%.
Although overshadowed by the Eagle Ford, the Bakken continues to impress with a 13% liquids growth. EOG did address some Bakken issues, the most important being the current price of this crude. The lower price has not affected EOG as much due to its crude by rail system. EOG is also starting to supply some of its sand needs here. It is down spacing acreage here, and now is using 320 acre spacing. This change increases its Williston Basin reserves by 50 million net barrels of oil. EOG is reducing its rig count because much of its acreage is now vested. It is my opinion EOG is moving rigs to the Eagle Ford, as the Williston Basin has taken a back seat to this play, at least with respect to this company. It drilled 79 total wells in 2011 and plans 60 wells this year. Total rig count this year will be 7. I am still very high on EOG. This company is firing on all cylinders and continues to commit all of its rigs to liquids plays.
Oasis (OAS) is a company I have been high on this year. Q4 revenues were $116.8 million versus the street's estimate of $115.4 million. The street expected an EPS of $.30, but Oasis reported a loss of $.15. There were several problems reported by Oasis this quarter. Expenses were up across the board, but Oasis has big issues with costs associated with water disposal. I had spoken to several companies this past quarter and all of the smaller names are seeing these costs increase. There are three to four hour waits at disposal wells, and trucking fees are increasing. Lease operating expenses increased by 13%, and most of this is due to these issues. I am guessing this should improve as it continues to build infrastructure.
Oasis also noted Bakken oil pricing has been difficult. Increased oil production in the Williston Basin and Canada has strained pipeline capacity. There was supposed to be large increase in railroad transports, but rail cars are in short supply so it is not running at full capacity. Oasis' average sales price per barrel of oil was $86.20, for the quarter. All said, the biggest problem was a derivatives loss of $65.5 million that pushed EPS down significantly.
More of the same derivative issues dogged Continental in the fourth quarter. It had very good 4Q for revenues at $516 million versus the street's estimate of $475.1 million. Its derivatives loss was $402.5 million. EPS estimates for 4Q of 2011 was $.77 and Continental reported a loss of $.62. Continental also had a property impairment charge. This plus the derivatives loss created an EPS loss of $1.50. This would have placed its EPS at $.88 or $.11 above the street's estimates. Quarterly production increased year over year by 57%. 73% of Continental's production is crude oil. Most importantly, Continental guided 2012 production growth between 37% and 40%, from the original guidance of 26% to 28%.
In the Bakken, Continental purchased 23,161 net acres from Newfield. Continental will operate 89% of this play and most of this is held by production. It added an additional 12,000 net acres in other transactions. 4Q Bakken production increased 83% year over year. This accounted for 55% of total production in the 4Q. If the stock is down in the morning, use it as a buying opportunity.
Whiting (WLL) had a very good quarter. It reported a 4Q EPS of $1.05 versus estimates of $.96. It reported total revenues and other income of $498.6 million versus estimates of $487.7 million. Most importantly, it also increased its 2012 guidance between 28.3 to 29.7 MMBoe. Of its 4Q of 2011 production, 84% was liquids. Year over year 4Q revenues increased 21%, while EPS increased 25% over the same time frames.
In the Bakken, Whiting has current well costs of $6 million in Sanish Field. This is not as good as EOG's $5.5 million, but still excellent when compared to its competitors. Outside Sanish, well costs run between $6 and $8 million. Pad drilling is expected to save $500000/well. 21 of its 27 rigs are running in the Williston Basin. Whiting had very good well results in the Pronghorn during the fourth quarter of 2011. Of these 10 wells, an average IP rate of 2565 Boe/d was realized. Three of these wells were 3000+ Boe/d. Whiting gave an update of its Tarpon Federal 21-4H well. It has the highest recorded IP rate in the Bakken at 7009 Boe/d. As of December 31st this well was still producing 1528 Boe/d. Whiting seems to be doing quite well, and just had its best quarter in over a year. It is managing costs and received an average selling price for oil and natural gas liquids of $84.09.
In summary, all of these companies, except Newfield had very good fourth quarters. The main variable is derivatives, but these are one time losses and should have no impact on company guidance or estimates. Even with head winds from low Bakken crude pricing and rising costs, these companies continue to do well.
Disclosure: I am long OAS.
Additional disclosure: This is an overview of fourth quarter of 2011 results in the Bakken. It is not a buy recommendation.
