Zman's  Instablog

Pre Call Note Key Points:

• 3Q09 Production above the upper end of guidance
  
• Production guidance raised
  
• Biggest IP for a Bakken well in company history (> 4,700 BOEpd)

The 3Q Numbers:

• Production of 5.13 MMBOE (55,761 BOEpd), above guidance 4.8 to 5.0 MMBOE
• Revenue of $269.3 vs $239 mm expected.
  
• EPS of $0.59 vs $0.28 expected
• CFPS of $2.92 vs $2.52 expected, another big cash flow beat for them

Guidance: Volumes Going Up.

• 2009 goes from a range of 10 to 12% YoY growth to a range of 14 to 16% YoY growth.
  • range was 19.2 to 19.6 MMBOE
  • now 20 to 20.3 MMBOE … so you can see they upped number more than enough to account for this past quarter’s beat.
    
  • This implies a 4Q number of 5.0 to 5.2 MMBOE (straddling the 3Q results)
• 2010 – as is standard for them, we’ll have to wait for next year’s guidance until a later call.
• Costs trending lower on a per unit basis
  

Balance Sheet & Capital Plans

• WLL paid down $70 mm of bank debt during the quarter out of free cash flow.
• 25.2 debt to cap vs 27% last of last quarter.
• They have $150 mm outstanding on their bank line leaving them with $950 mm of liquidity.
• They upped their budget by $30mm to $470mm for the year, well within cash flow and it sounds like they plan on staying that way.

Operations Update:

• Sanish Field:  (their big Bakken operated money maker)
  
  • Net field production of 10,470 BOEpd (19% of total)
    
  • Maki 11-27H with IP of 4,761 BOEpd from the Bakken (largest well I have seen out of them)
    • 18 stage frac, northeast Sanish Field
  • Tollefson 44-10H with IP of 2,636 BOEpd from the Bakken in the opposite corner of the Sanish Field
    
  • Kannnianen 11-5H, IP of 1,998 BOEpd from the Bakken, in the center of Sanish Field. Notably, this is roughly in line with the average WLL Bakken IP.
    
  • Ogden 11-3TFH – third Three Forks Sanish test, 24 stage sliding sleeves, about to frac.
    

Rig count there just here from 5 to 6 rigs and will go to 9 rigs by early 2010.

Completed well costs sound like they are now coming in at about $5 mm, down from a recent range of $5 to $5.5 mm.

Pipeline Update: The 65,000 bopd pipeline they had previously mentioned as under construction appears be complete with an in service date some time this quarter. Should help with costs and differentials.

• Parshall Field (their non-operated Bakken interest, where EOG runs the show)
  
  • Net field production of 6,830 BOEpd (12% of total)
  • No rigs, just non-operated working interests.

Enhanced Oil Recovery – volume upswing continues:

WLL’s two EOR projects don’t get a lot of attention but they continue to rally volumes at both via low cost workover activity. While big Bakken wells are the sexy part of the story, the water and CO2 flood projects provide a stable base of production and cash flow and WLL’s latest efforts in both plays continue to bear fruit:

• Postle Field (Texas County, OK):
  • 8,670 net BOEpd in 3Q (16% of production)
  • September 2009 saw average production of 9,000 BOEpd, a 33 year high for the field.

• North Ward Estes (Ward and Winkler Counties, Tx):
  • 6,415 net BOEpd in 3Q (12% of production).

Catalyst Watch:

• Lewis & Clark Prospect: Second well at TD, not yet fraced (first well was completed in the Three Forks for 1,000 BOEpd). Expect to hear more questions on the call on this one.
  • Three Forks Well in Golden Valley County, North Dakota
  • See county map here.
  • WLL has assembled 107K net acres in this area
    
    • Note that most of the activity we normally focus on is to the north in Montrail, Dunn, 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.   
  • Results expected mid November (8,550 foot lateral with 16 stage frac)

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.

Conference Call: Thursday, 11 am EST.

I continue to hold November calls here.