WHITING PETROLEUM Unless the context otherwise requires, the terms "Whiting," "we," "us," "our" or "ours" when used in this Item refer toWhiting Petroleum Corporation , together with its consolidated subsidiaries,Whiting Oil and Gas Corporation ("Whiting Oil and Gas" or "WOG") andWhiting Programs, Inc. When the context requires, we refer to these entities separately. This document contains forward-looking statements, which give our current expectations or forecasts of future events.
Please refer to "Forward-Looking Statements" at the end of this Item for an explanation of these types of statements.
Proposed Merger with Oasis Petroleum Inc.
OnMarch 7, 2022 , we entered into an Agreement and Plan of Merger (the "Merger Agreement") with Oasis Petroleum Inc., aDelaware corporation ("Oasis"),Ohm Merger Sub Inc. , aDelaware corporation and a wholly owned subsidiary of Oasis ("Merger Sub"), andNew Ohm LLC , aDelaware limited liability company and a wholly owned subsidiary of Oasis, pursuant to which, among other things, we will merge with Merger Sub in a merger of equals (the "Merger"). The Merger is subject to customary closing conditions, including, among others, approval by Whiting and Oasis shareholders. We currently expect the Merger to close in the second half of 2022. Upon closing,Lynn A. Peterson , our President and Chief Executive Officer, will serve as Executive Chair of the Board of Directors of the combined company, andDaniel E. Brown , Oasis' Chief Executive Officer, will serve as President and Chief Executive Officer and as a member of the Board of Directors of the combined company. The foregoing summary of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety by reference to the terms and conditions of the Merger Agreement, a copy of which is attached as Exhibit 2.1 to the Company's Current Report on Form 8-K, filed onMarch 8, 2022 . Overview We are an independent oil and gas company engaged in development, production and acquisition activities primarily in theRocky Mountains region ofthe United States where we are focused on developing our large resource play in theWilliston Basin ofNorth Dakota andMontana . Since our inception, we have built a strong asset base through a combination of property acquisitions, development of proved reserves and exploration activities. We are currently focusing our capital programs on drilling and workover opportunities that we believe provide attractive well-level returns in order to maintain consistent production levels and generate free cash flow. During 2022, we are focused on high-return projects in our asset portfolio that will generate significant cash flow from operations in order to maintain and expand our shareholder capital return program and minimize our borrowings under the Credit Agreement. We continually evaluate our property portfolio and sell properties when we believe that the sales price realized will provide an above average rate of return for the property or when the property no longer matches the profile of properties we desire to own. Refer to "Recent Developments" below for more information on our recent acquisition and divestiture activity. We are committed to developing the energy resources the world needs in a safe and responsible way that allows us to protect our employees, our contractors, our vendors, the public and the environment while also meeting or exceeding regulatory requirements. We continually evolve our practices to better protect wildlife habitats and communities, to reduce freshwater use in our development process, to identify and reduce methane emissions of our operations, to encourage waste reduction programs and to promote worker safety. Additionally, we are committed to transparency in reporting our environmental, social and governance performance and to monitoring such performance through various measures, some of which are tied to our short-term incentive program for all employees. Refer to our Sustainability Report published on our website for sustainability performance highlights and additional information. Information contained in our Sustainability Report is not incorporated by reference into, and does not constitute a part of, this Quarterly Report on Form 10-Q. Concurrently, our oil and gas development and production operations are subject to stringent environmental regulations governing the release of certain materials into the environment which often require costly compliance measures that carry substantial penalties for noncompliance. However, we have not incurred any material penalties historically. Refer to "Government Regulation" in Item 1 of our Annual Report on Form 10-K, as amended, for more information. 23 Table of Contents Our revenue, profitability, cash flows and future growth rate depend on many factors which are beyond our control, such as oil and gas prices; economic, political and regulatory developments; the financial condition of our industry partners; competition from other sources of energy; cost pressures as a result of inflation and the other items discussed under the caption "Risk Factors" in Item 1A of our Annual Report on Form 10-K for the period endedDecember 31, 2021 , as amended, and as supplemented by the additional risk factors described in Item 1A in this Quarterly Report on Form 10-Q for the three months endedMarch 31, 2022 . Oil and gas prices historically have been volatile and may fluctuate widely in the future. The following table highlights the quarterly average NYMEX price trends for crude oil and natural gas prices since the first quarter of 2020: 2020 2021 2022 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Crude oil$ 46.08 $ 27.85 $ 40.94 $ 42.67 $ 57.80 $ 66.06 $ 70.55 $ 77.17 $ 94.38 Natural gas$ 1.88 $ 1.66 $ 1.89 $ 2.51 $ 2.56 $ 2.74 $ 3.95 $ 5.13 $ 4.49
Oil prices continued to increase during the first quarter of 2022 compared to 2021, when prices were recovering from the economic effects of the coronavirus pandemic on the demand for oil and natural gas and uncertainty around output restraints on oil production agreed upon by theOrganization of Petroleum Exporting Countries ("OPEC") and other oil exporting nations. While oil, NGL and natural gas prices have increased significantly, uncertainties related to the demand for oil and natural gas products remain as (i) the Russian invasion ofUkraine has triggered significant economic sanctions and upended global commodity markets, (ii) the pandemic continues to impact the world economy, (iii)OPEC continues to negotiate appropriate production levels to balance the market and (iv) inflationary pressures in the economy disrupt commodity markets. Lower oil, NGL and natural gas prices decrease our revenues and reduce the amount of oil and natural gas that we can produce economically, which decreases our oil and gas reserve quantities. Substantial and extended declines in oil, NGL and natural gas prices have resulted, and may result, in impairments of our proved oil and gas properties or undeveloped acreage and may materially and adversely affect our future business, financial condition, cash flows, results of operations, liquidity or ability to fund planned capital expenditures. In addition, lower commodity prices may result in a reduction of the borrowing base under our Credit Agreement, which is determined at the discretion of our lenders and is based on the collateral value of our proved reserves that have been mortgaged to the lenders. Upon a redetermination, if borrowings in excess of the revised borrowing capacity were outstanding, we could be forced to immediately repay a portion of the debt outstanding under our Credit Agreement.
Alternatively, higher oil prices may result in significant mark-to-market losses being incurred on our commodity-based derivatives (such as the net derivative losses discussed below under "Results of Operations").
Recent Developments
Return of Capital. OnFebruary 8, 2022 , we announced an inaugural quarterly dividend of$0.25 per share. The first dividend totaling approximately$10 million was paid onMarch 15, 2022 to shareholders of record as ofFebruary 21, 2022 . OnApril 14, 2022 , we announced our second quarterly dividend of$0.25 per share to be paid onJune 1, 2022 to shareholders of record as ofMay 20, 2022 .Williston Basin Acquisitions. OnSeptember 14, 2021 , we completed the acquisition of interests in oil and gas properties located inMountrail County, North Dakota for an aggregate purchase price of$271 million (before closing adjustments). This transaction was funded primarily with borrowings under our Credit Agreement, which have subsequently been repaid.
On
OnMarch 17, 2022 , we completed the acquisition of additional interests in oil and gas properties located inMountrail County, North Dakota for an aggregate unadjusted purchase price of$240 million . This transaction was funded with cash on hand and borrowings under our Credit Agreement. On a combined basis, our recentWilliston Basin acquisitions included interests in 76 new gross producing oil and gas wells and increased interests in 527 existing gross producing wells. Overall, the acquisitions effectively added 136.2 net producing wells and included approximately 23,300 net undeveloped
acres.
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2022 Highlights and Future Considerations
Operational Highlights
Our properties in theWilliston Basin ofNorth Dakota andMontana target the Bakken andThree Forks formations. Net production fromNorth Dakota andMontana averaged 86.6 MBOE/d for the first quarter of 2022, representing a 5% decrease from the fourth quarter of 2021. Across our acreage in theWilliston Basin , we have implemented completion designs specifically tailored to unique reservoir conditions to increase well performance while reducing cost. We continued to focus on reducing time-on-location and total well cost while maximizing our lateral footage through drilling best practices including utilizing top tier drilling rigs, advanced downhole motor and drill bit technology and our custom drilling fluid system. During the second half of 2021 and first quarter of 2022, we completed several acquisitions of additional oil and gas properties in theWilliston Basin . Refer to "Recent Developments" above for additional details. During the first quarter of 2022, we averaged two drilling rigs and one active completion crew in theWilliston Basin . We plan to maintain this level of activity throughout the remainder of 2022. We drilled 17 gross (12.4 net) operated wells and TIL 11 gross (6.6 net) operated wells in this area during the quarter. As ofMarch 31, 2022 , we have 32 gross (22.8 net) operated drilled uncompleted wells. Under our current 2022 capital program, we expect to TIL approximately 68 gross (43.4 net) operated wells in this area during the year. As discussed in "Proposed Merger with Oasis Petroleum Inc." above, onMarch 7, 2022 we entered into a Merger Agreement that could result in significant changes to the current 2022 capital program should the transaction close during the year.
Financing Highlights
We entered into an agreement with the lenders of the Credit Agreement to defer the regularly scheduledApril 1, 2022 borrowing base redetermination untilSeptember 1, 2022 , which leaves the borrowing base under the Credit Agreement unchanged at$750 million until the next redetermination. Refer to the "Long-Term Debt" footnote in the notes to the condensed consolidated financial statements for more information.
Dakota Access Pipeline
In early 2020, theU.S. Army Corps of Engineers was ordered by theU.S. District Court for D.C . to prepare an environmental impact statement for the Dakota Access Pipeline ("DAPL"), the result of which could lead to future shutdowns of the pipeline. Refer to the Dakota Access Pipeline discussion in "Risk Factors" in Item 1A and "2021 Highlights and Future Considerations" in Item 7 of our Annual Report on Form 10-K for the year endedDecember 31, 2021 , as amended, for more information. The potential disruption of transportation as a result of the DAPL being shut down or the anticipation of the DAPL being shut down could negatively impact our ability to achieve the most favorable prices for our crude oil production, which could have an adverse effect on our business, financial condition, results of operations and cash flows. To help mitigate the potential impact of an unfavorable outcome, we have coordinated with our midstream partners and downstream markets to source transportation alternatives. 25 Table of Contents Results of Operations Three Months EndedMarch 31, 2022 Compared to Three Months EndedDecember 31, 2021 Three Months Ended March 31, December 31, 2022 2021 Net production Oil (MMBbl) 4.7 4.9 NGLs (MMBbl) 1.7 1.9 Natural gas (Bcf) 9.6 10.3 Total production (MMBOE) 8.0 8.5 Net sales (in millions) (1) Oil $ 429.7 $ 369.0 NGLs 58.2 55.9 Natural gas 32.3 37.9
Total oil, NGL and natural gas sales $ 520.2 $ 462.8 Average sales prices Oil (per Bbl) (1) $ 91.05 $ 75.75 Effect of oil hedges on average price (per Bbl) (26.73)
(20.38)
Oil after the effect of hedging (per Bbl) $ 64.32 $ 55.37 Weighted average NYMEX price (per Bbl) (2) $ 94.52 $ 77.00 NGLs (per Bbl) (1) $ 34.40 $ 28.74 Effect of NGL hedges on average price (per Bbl) (1.67) (2.08) NGLs after the effect of hedging (per Bbl) $ 32.73 $ 26.66 Natural gas (per Mcf) (1) $ 3.37 $ 3.68 Effect of natural gas hedges on average price (per Mcf) (1.31) (2.15) Natural gas after the effect of hedging (per Mcf) $ 2.06 $ 1.53 Weighted average NYMEX price (per MMBtu) (2) $ 4.49 $ 5.13 Costs and expenses (per BOE) Lease operating expenses $ 9.05 $ 7.31 Transportation, gathering, compression and other $ 0.84 $ 0.80 Production and ad valorem taxes $ 4.73 $ 3.74 Depreciation, depletion and amortization $ 6.15
$ 5.76 General and administrative $ 2.32 $ 1.79
(1) Before consideration of hedging transactions.
(2) Average NYMEX pricing weighted for monthly production volumes.
Oil, NGL and Natural Gas Sales. Our oil, NGL and natural gas sales revenue increased$57 million to$520 million when comparing the first quarter of 2022 to the fourth quarter of 2021. Changes in sales revenue between periods are due to changes in production sold and changes in average commodity prices realized (excluding the impacts of hedging). When comparing the first quarter of 2022 to the fourth quarter of 2021, increases in oil and NGL prices realized between periods accounted for a$82 million increase in revenue, which was partially offset by a decrease in total production and natural gas prices realized between periods that accounted for$22 million and$3 million decreases in revenue, respectively. Our oil, NGL and natural gas volumes decreased by 3%, 13% and 7%, respectively, between periods. The overall volume decrease between periods was primarily driven by normal field production decline and fewer production days during the first quarter of 2022 compared to the fourth quarter of 2021, partially offset by new wells drilled and completed during the first quarter of 2022 in theWilliston Basin . Additionally, NGL volumes decreased between periods due to lower NGL yields. 26 Table of Contents Our average price for oil and NGLs (before the effects of hedging) increased 20% each between periods and our average price for natural gas (before the effects of hedging) decreased 8% between periods. Our average realized price for oil and NGLs primarily increased as a result of favorable movements in applicable benchmark indices between periods. The decrease in average price for natural gas was primarily a result of unfavorable movements in the applicable benchmark indices, partially offset by improved natural gas average realized price differentials to NYMEX as a result of stronger regional pricing in theWilliston Basin during the first quarter of 2022. Lease Operating Expenses. Our lease operating expenses ("LOE") during the first quarter of 2022 were$73 million , a$10 million increase over the fourth quarter of 2021. This increase between periods was primarily due to a$4 million increase in well workover costs as a result of higher expenses per workover job completed, a$2 million increase in gas facility expenses, a$2 million increase in company and contract labor expenses and a$1 million increase in the cost of oil field goods and services. Our lease operating expenses on a BOE basis also increased when comparing the first quarter of 2022 to the fourth quarter of 2021. LOE per BOE amounted to$9.05 during the first quarter of 2022, which represents an increase of$1.74 per BOE (or 24%) from the fourth quarter of 2021. This increase was mainly due to the overall increase in LOE discussed above as well as lower overall production volumes between periods.
Transportation, Gathering, Compression and Other. Our transportation,
gathering, compression and other ("TGC") expenses during the first quarter of
2022 were
TGC per BOE, however, slightly increased when comparing the first quarter of 2022 to the fourth quarter of 2021. TGC per BOE amounted to$0.84 per BOE during the first quarter of 2022, which represents an increase of$0.04 per BOE (or 5%) from the fourth quarter of 2021. This increase was mainly due to the lower overall production volumes between periods discussed above. Production and Ad Valorem Taxes. Our production and ad valorem taxes during the first quarter of 2022 totaled$38 million , a$6 million increase over the fourth quarter of 2021, which was primarily due to higher sales revenue between periods. Our production taxes, however, are generally calculated as a percentage of net oil, NGL and natural gas sales revenue before the effects of hedging, and this percentage on a company-wide basis was 7.4% and 6.8% for the first quarter of 2022 and the fourth quarter of 2021, respectively. This production tax percentage increase between periods is primarily due to severance tax refunds received in the fourth quarter of 2021. Depreciation, Depletion and Amortization. The components of our depletion, depreciation and amortization ("DD&A") expense were as follows (in thousands): Three Months Ended March 31, December 31, 2022 2021 Depletion$ 46,379 $ 46,482 Accretion of asset retirement obligations 2,129 1,996 Depreciation 725 723 Total$ 49,233 $ 49,201 DD&A expense was consistent between periods. On a BOE basis, our overall DD&A rate was$6.15 per BOE for the first quarter of 2022, which represents an increase of$0.39 per BOE (or 7%) from the fourth quarter of 2021. The primary factors contributing to this higher DD&A rate were our recent acquisitions in theWilliston Basin as described in "Recent Developments" above, as well as increased drilling and completion activity between periods, partially offset by upward revisions to proved reserves due to higher commodity prices between
periods.
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Exploration and Impairment Costs. The components of our exploration and
impairment expense, which were consistent between periods, were as follows (in
thousands):
Three Months Ended
March 31, December 31,
2022 2021
Impairment $ 1,282 $ 1,577
Exploration 918 1,089
Total $ 2,200 $ 2,666 General and Administrative Expenses. We report general and administrative ("G&A") expenses net of third-party reimbursements and internal allocations.
The components of our G&A expenses were as follows (in thousands):
Three Months Ended
March 31 , December 31,
2022 2021
General and administrative expenses, other (1)
29,111
Stock-based compensation, non-cash 4,038
3,238
Reimbursements and allocations (18,119)
(17,076)
General and administrative expenses, net (GAAP) 18,585
15,273
Less: Significant cost drivers (2) (6,140)
-
Non-GAAP general and administrative expenses less significant cost drivers (3)$ 12,445 $
15,273
General and administrative expenses, other excludes non-cash stock-based (1) compensation expense and reimbursements and allocations. We believe general
and administrative expenses, other provides useful information to compare our
expenses between periods without the impact of the aforementioned items.
Includes advisory and other third-party fees directly attributable to the (2) Merger. Additional fees will be incurred prior to the consummation of the
Merger transaction.
We believe non-GAAP general and administrative expenses less significant cost
drivers is a useful measure for investors to understand our general and
administrative expenses incurred on a recurring basis. We further believe (3) investors may utilize this non-GAAP measure to estimate future general and
administrative expenses. However, this non-GAAP measure is not a substitute
for general and administrative expenses, net (GAAP), and there can be no
assurance that any of the significant cost drivers excluded from such metric
will not be incurred again in the future.
G&A expenses, other increased
G&A expense per BOE amounted to$2.32 per BOE during the first quarter of 2022, which represents an increase of$0.53 per BOE (or 30%) from the fourth quarter of 2021. This increase was mainly due to the overall increase in G&A discussed above and lower overall production volumes between periods. G&A expense per BOE excluding significant cost drivers amounted to$1.55 per BOE during the first quarter of 2022. Derivative (Gain) Loss, Net. Our commodity derivative contracts are marked to market each quarter with fair value gains and losses recognized immediately in earnings as derivative (gain) loss, net. Cash flow, however, is only impacted to the extent that settlements under these contracts result in us making or receiving a payment to or from the counterparty. Derivative (gain) loss, net, amounted to a loss of$429 million and a gain of$5 million for the three months endedMarch 31, 2022 andDecember 31, 2021 , respectively. These gains and losses relate to our collar, swap, basis swap and differential swap commodity derivative contracts and resulted from the upward and downward shifts, respectively, in the futures curve of forecasted commodity prices for crude oil, natural gas and NGLs during those periods.
For more information on our outstanding derivatives refer to the "Derivative Financial Instruments" footnote in the notes to the condensed consolidated financial statements.
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Bargain Purchase Gain. During the first quarter of 2022, we acquired additional
interests in oil and gas properties in the Williston Basin for an estimated
adjusted purchase price of $216 million . The fair value of the assets acquired
and liabilities assumed in the transaction exceeded the purchase price as a
result of a significant increase in crude oil prices between the effective date
of the contract and the closing date of the acquisition, which resulted in a
bargain purchase gain of $66 million . The acquisition remains subject to a
final settlement between Whiting and the sellers of the properties. Refer to
the "Acquisitions and Divestitures" and "Fair Value Measurements" footnotes in
the condensed consolidated financial statements for more information on this
transaction.
Interest Expense. The components of our interest expense, which were consistent between periods, were as follows (in thousands):
Three Months Ended
March 31, December 31,
2022 2021
Credit agreement $ 1,468 $ 1,702
Amortization of debt issue costs 894 894
Other (84) 830
Total $ 2,278 $ 3,426
Income Tax Expense. For the three months ended March 31, 2022 and December 31,
2021 , $7 million and $1 million , respectively, of U.S. income tax expense was
recognized. Our overall effective tax rate of (24.2%) for the three months
ended March 31, 2022 is lower than the U.S. statutory income tax rate primarily
due to share-based compensation, other permanent items and a full valuation
allowance in effect on our U.S. deferred tax assets, including the tax effects
of unrealized losses on derivatives. Our overall effective tax rate of 0.2% for
the three months ended December 31, 2021 was lower than the U.S. statutory
income tax rate primarily as a result of the full valuation allowance on our
DTAs.
Liquidity and Capital Resources
Overview. AtMarch 31, 2022 , we had$0.2 million of cash on hand,$50 million of long-term debt and$1.6 billion of shareholders' equity, while atDecember 31, 2021 , we had$41 million of cash on hand, no long-term debt and$1.7 billion of equity. We expect that our liquidity going forward will be primarily derived from cash flows from operating activities, cash on hand and availability under the Credit Agreement and that these sources of liquidity will be sufficient to provide us the ability to fund our material cash requirements, as described below, as well as our operating and development activities, dividends paid to our shareholders and planned capital programs. We may need to fund acquisitions or other business opportunities that support our strategy through additional borrowings or the issuance of common stock or other forms of equity. Cash Flows. During the first quarter of 2022, we generated$209 million of cash from operating activities, a decrease of$5 million from the fourth quarter of 2021. Cash provided by operating activities decreased between periods primarily due to an increase in cash settlements paid on our commodity derivative contracts, higher lease operating expenses, higher production taxes and higher cash G&A expenses between periods. These negative factors were partially offset by higher realized sales prices and lower cash interest expense between periods. Refer to "Results of Operations" for more information on the impact of volumes and prices on revenues and for more information on increases and decreases in certain expenses between periods. During the first quarter of 2022, cash flows from operating activities,$50 million of outstanding borrowings under the Credit Agreement and unrestricted cash on hand were used to fund the$216 million Williston Basin acquisition,$73 million of drilling and development expenditures and$10 million of dividends paid to shareholders. One of the primary sources of variability in our cash flows from operating activities is commodity price volatility, which we partially mitigate through the use of commodity derivative contracts. As ofApril 29, 2022 , we had crude oil derivative contracts (consisting of collars and swaps) covering the sale of 42,000 Bbl and 17,000 Bbl of oil per day for the remainder of 2022 and the first three quarters of 2023, respectively. As ofApril 29, 2022 , we had natural gas derivative contracts (consisting of collars, swaps and basis swaps) covering the sale of 87,000 MMBtu and 61,000 MMBtu of natural gas per day through the remainder of 2022 and the first three quarters of 2023, respectively. As ofApril 29, 2022 , we had NGL derivative contracts (consisting of swaps) covering the sale of 217,000 gallons and 84,000 gallons of NGLs per day for the remainder of 2022 and the first quarter of 2023, respectively. For more information on our outstanding derivatives refer to the "Derivative Financial Instruments" footnote in the notes to the condensed consolidated financial statements. 29
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Material Cash Requirements. Our material short-term cash requirements include dividend payments, tax payments, payments under our short-term lease agreements, recurring payroll and benefits obligations for our employees, capital and operating expenditures and other working capital needs. Working capital, defined as total current assets less total current liabilities, fluctuates depending on commodity pricing and effective management of payables to our vendors and receivables from our purchasers and working interest partners. As commodity prices improve, our working capital requirements may increase as we spend additional capital, maintain production and pay larger settlements on our outstanding commodity derivative contracts. Additionally, as discussed in "Proposed Merger with Oasis Petroleum Inc." above, onMarch 7, 2022 we entered into a Merger Agreement that will result in a material short-term cash commitment of approximately$24 million as ofMarch 31, 2022 for certain advisory and other third-party fees directly attributable to the Merger. The majority of these costs are contingent on closing and final amounts may differ significantly from this preliminary estimate. Our long-term material cash requirements from currently known obligations include repayment of outstanding borrowings and interest payment obligations under our Credit Agreement, settlements on our outstanding commodity derivative contracts, future obligations to plug, abandon and remediate our oil and gas properties at the end of their productive lives, operating and finance lease obligations and contracts to transport a minimum volume of crude oil and natural gas within specified time frames. The following table summarizes our estimated material cash requirements for known obligations as ofMarch 31, 2022 . This table does not include repayments of outstanding borrowings on our Credit Agreement, or the associated interest payments, as the timing and amount of borrowings and repayments cannot be forecasted with certainty and are based on working capital requirements, commodity prices and acquisition and divestiture activity, among other factors. As ofMarch 31, 2022 , our outstanding borrowings under our Credit Agreement were$50 million , with a weighted average interest rate on the outstanding principal balance of 4%. Refer to "Credit Agreement" below as well as the "Long-Term Debt" footnote in the notes to the condensed consolidated financial statements for more information. This table also does not include amounts payable under obligations where we cannot forecast with certainty the amount and timing of such payments, including any amounts we may be obligated to pay under our derivative contracts, as such payments are dependent on commodity prices in effect at the time of settlement. Refer to the "Derivative Financial Instruments" footnote in the notes to the condensed consolidated financial statements for further information on these contracts and their fair values as ofMarch 31, 2022 , which fair values represent the cash settlement amount required to terminate such instruments based on forward price curves for commodities as of that date. Refer to the "Commitments and Contingencies" footnote in the notes to the condensed consolidated financial statements for more information on other obligations that we may have where the timing and amount of any payments is uncertain. Payments due by period (in thousands) Less than 1 More than Material Cash Requirements Total year 1-3 years 3-5 years 5 years Asset retirement obligations (1)$ 108,186 $ 13,092 $ 14,218 $ 12,779 $ 68,097 Operating leases (2) 20,139 3,601 5,759 3,860 6,919 Finance leases (2) 1,853 1,232 563 58 - Total$ 130,178 $ 17,925 $ 20,540 $ 16,697 $ 75,016
Asset retirement obligations represent the present value of estimated amounts (1) expected to be incurred in the future to plug and abandon oil and gas wells,
remediate oil and gas properties and dismantle their related plants and
facilities.
We have operating and finance leases for corporate and field offices,midstream facilities, equipment and automobiles. The obligations reported
above represent our minimum financial commitments pursuant to the terms of (2) these contracts. Refer to the "Leases" footnote in the notes to the
consolidated financial statements in Item 8 of our Annual Report on Form 10-K
for the year ended December 31, 2021 (as amended) for more information on
these leases.
Exploration and Development Expenditures. During the three months ended
March 31, 2022 and 2021, we incurred accrual basis exploration and development
("E&D") expenditures of $91 million and $56 million , respectively. Of these
expenditures, 98% were incurred in the Williston Basin of North Dakota and
Montana , where we have focused our current development activities. Capital
expenditures reported in the condensed consolidated statements of cash flows are
calculated on a cash basis, which differs from the accrual basis used to
calculate the incurred capital expenditures as detailed in the table below:
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Three Months Ended March 31,
2022 2021Capital expenditures, accrual basis $ 90,862 $
55,602
Decrease (increase) in accrued capital expenditures and other noncash capital activity (18,051)
(19,874)
Capital expenditures, cash basis $ 72,811 $
35,728
We continually evaluate our capital needs and compare them to our capital resources. Our 2022 E&D budget is a range of$360 million to$400 million , which we expect to fund with net cash provided by operating activities and cash on hand. Our level of E&D expenditures is largely discretionary, although a portion of our E&D expenditures are for non-operated properties where we have limited control over the timing and amount of such expenditures, and the amount of funds we devote to any particular activity may increase or decrease significantly depending on commodity prices, cash flows, available opportunities and development results, among other factors. We believe that we have sufficient liquidity and capital resources to execute our development plan over the next 12 months. With our expected cash flow streams, commodity price hedging strategies, current liquidity levels (primarily consisting of availability under the Credit Agreement) and flexibility to modify future capital expenditure programs, we expect to fund all planned capital programs, comply with our debt covenants and meet other obligations that may arise from our oil and gas operations. Dividends. OnFebruary 8, 2022 , we announced an inaugural quarterly dividend of$0.25 per share. The first dividend totaling approximately$10 million was paid onMarch 15, 2022 to shareholders of record as ofFebruary 21, 2022 . OnApril 14, 2022 , we announced our second quarterly dividend of$0.25 per share to be paid onJune 1, 2022 to shareholders of record as ofMay 20, 2022 . While we believe that our future cash flows from operations can sustain this dividend, future dividends may change based on a variety of factors, including contractual restrictions, legal limitations, business developments and the judgment of our Board. There can be no guarantee that we will pay dividends or otherwise return capital to our shareholders in the future. Credit Agreement.Whiting Petroleum Corporation , as parent guarantor, andWhiting Oil and Gas , as borrower, are parties to the Credit Agreement, a reserves-based credit facility with a syndicate of banks. The Credit Agreement had a borrowing base and aggregate commitments of$750 million as ofMarch 31, 2022 . As ofMarch 31, 2022 , we had$699 million of available borrowing capacity under the Credit Agreement, which was net of$50 million of borrowings outstanding and$1 million in letters of credit outstanding. The borrowing base under the Credit Agreement is determined at the discretion of the lenders, based on the collateral value of our proved reserves that have been mortgaged to the lenders, and is subject to regular redeterminations onApril 1 andOctober 1 of each year, as well as special redeterminations described in the Credit Agreement, which in each case may increase or decrease the borrowing base. Additionally, we can increase the aggregate commitments by up to an additional$750 million , subject to certain conditions. OnApril 1, 2022 , we entered into an agreement with the lenders under the Credit Agreement to defer the regularly scheduled redetermination scheduled for such date untilSeptember 1, 2022 . Up to$50 million of the borrowing base may be used to issue letters of credit for the account ofWhiting Oil and Gas or our other designated subsidiaries. As ofMarch 31, 2022 ,$49 million was available for additional letters of credit under the Credit Agreement.
The Credit Agreement provides for interest only payments until maturity on
In addition, the Credit Agreement provides for certain mandatory prepayments, including a provision pursuant to which, if our cash balances are in excess of approximately$75 million during any given week, such excess must be utilized to repay borrowings under the Credit Agreement. Interest under the Credit Agreement accrues at our option at either (i) a base rate for a base rate loan plus a margin between 1.75% and 2.75% based on the ratio of outstanding borrowings and letters of credit to the lower of the current borrowing base or total commitments, where the base rate is defined as the greatest of the prime rate, the federal funds rate plus 0.5% per annum, or an adjusted LIBOR plus 1.0% per annum, or (ii) an adjusted LIBOR for a eurodollar loan plus a margin between 2.75% and 3.75% based on the ratio of outstanding borrowings and letters of credit to the lower of the current borrowing base or total commitments. The Credit Agreement also provides that the administrative agent and we have the ability to amend the LIBOR rate with a benchmark replacement rate, which may be a SOFR-based rate, if LIBOR borrowings become unavailable. Additionally, we incur commitment fees of 0.5% on the unused portion of the aggregate commitments of the lenders under the Credit Agreement, which are included as a component of interest expense. 31 Table of Contents The Credit Agreement contains restrictive covenants that may limit our ability to, among other things, incur additional indebtedness, sell assets, make loans to others, make investments, enter into mergers, enter into hedging contracts, incur liens and engage in certain other transactions without the prior consent of our lenders. The Credit Agreement also restricts our ability to make any dividend payments or cash distributions on our common stock except to the extent that we have distributable free cash flow and (i) have at least 20% of available borrowing capacity, (ii) have a consolidated net leverage ratio of less than or equal to 2.0 to 1.0, (iii) do not have a borrowing base deficiency and (iv) are not in default under the Credit Agreement. These restrictions apply to all of our restricted subsidiaries and are calculated in accordance with definitions contained in the Credit Agreement. The Credit Agreement requires us, as of the last day of any quarter, to maintain commodity hedges covering a minimum of 50% of our projected production for the succeeding twelve months, as reflected in the reserves report most recently provided by us to the lenders under the Credit Agreement. If our consolidated net leverage ratio equals or exceeds 1.0 to 1.0 as of the last day of any fiscal quarter, we will also be required to hedge 35% of our projected production for the next succeeding twelve months. We are also limited to hedging a maximum of 85% of our production from proved reserves.
The
Credit Agreement requires us to maintain the following ratios: (i) a consolidated current assets to consolidated current liabilities ratio of not less than 1.0 to 1.0 and (ii) a total debt to last four quarters' EBITDAX ratio of not greater than 3.5 to 1.0.
For further information on the loan security related to the Credit Agreement, refer to the "Long-Term Debt" footnote in the notes to the condensed consolidated financial statements.
Critical Accounting Policies and Estimates
Information regarding critical accounting policies and estimates is contained in Item 7 of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , as amended. No material updates were made to such critical accounting policies and estimates during the three months endedMarch 31, 2022 .
Effects of Inflation and Pricing
The oil and gas industry is very cyclical, and the demand for goods and services of oil field companies, suppliers and others associated with the industry puts extreme pressure on the economic stability and pricing structure within the industry. Typically, as prices for oil and natural gas increase, so do all associated costs. Conversely, in a period of declining prices, associated cost declines are likely to lag and not adjust downward in proportion to prices. Material changes in prices also impact our current revenue stream, estimates of future reserves, borrowing base calculations of bank loans, depletion expense, impairment assessments of oil and gas properties and values of properties in purchase and sale transactions. Material changes in prices can impact the value of oil and gas companies and their ability to raise capital, borrow money and retain personnel. Higher demand in the industry could result in increases in the costs of materials, services and personnel. As commodity prices have risen substantially in 2021 and 2022, the cost of oil field goods and services have also risen materially in response to increased competition resulting from increased drilling and completion activity as well as inflationary cost pressures on theU.S. economy. We expect these inflationary pressures to continue throughout the remainder of 2022.
Forward-Looking Statements
This report contains statements that we believe to be "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. All statements other than
historical facts, including, without limitation, statements regarding the
Merger, any statements regarding the expected timetable for completing the
Merger, the results, effects, benefits and synergies of the Merger, future
opportunities for the combined company, our future financial position, business
strategy, dividends, cash flows and debt levels, acquisitions and divestitures,
projected revenues, expenses, earnings, returns, costs and capital expenditures,
and plans and objectives of management for future operations, are
forward-looking statements. When used in this report, words such as "expect,"
"intend," "plan," "estimate," "anticipate," "believe" or "should" or the
negative thereof or variations thereon or similar terminology are generally
intended to identify forward-looking statements. Such forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those expressed in, or implied by, such
statements.
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These risks and uncertainties include, but are not limited to, risks associated with:
? declines in, or extended periods of low oil, NGL or natural gas prices;
? the occurrence of epidemic or pandemic diseases, including the coronavirus
pandemic;
? any impact of the ongoing Russian-Ukrainian conflict on the global energy
markets and geopolitical stability;
? action or inaction of the
other oil exporting nations to set and maintain production levels;
? hedging muting the impacts of improvements in commodity prices on our results;
regulatory developments, including the potential shutdown of the Dakota Access
Pipeline and new or amended federal, state and local initiatives relating to
? the regulation of hydraulic fracturing, air emissions and other aspects of oil
and gas operations that could have a negative effect on the oil and gas
industry and/or increase costs of compliance;
? the geographic concentration of our operations;
? our inability to access oil and gas markets due to market conditions or
operational impediments;
? adequacy of midstream and downstream transportation capacity and
infrastructure;
? shortages of or delays in obtaining qualified personnel or equipment, including
drilling rigs and completion services;
? adverse weather conditions that may negatively impact development or production
activities;
? potential losses and claims resulting from our oil and gas operations,
including uninsured or underinsured losses;
? lack of control over non-operated properties;
? cybersecurity attacks or failures of our telecommunication and other
information technology infrastructure;
? revisions to reserve estimates as a result of changes in commodity prices,
regulation and other factors;
? inaccuracies of our reserve estimates or our assumptions underlying them;
? impact of negative shifts in investor sentiment and public perception towards
the oil and gas industry and corporate governance standards;
? climate change issues;
? litigation and other legal proceedings;
? the anticipated impact of the Merger on the combined company's results of
operations, financial position, growth opportunities and competitive position;
the possibility that stockholders of Oasis may not approve the issuance of new
? shares of Oasis common stock in the Merger or that stockholders of Whiting may
not approve the Merger Agreement; and
other risks described under the caption "Risk Factors" in Item 1A of our Annual
? Report on Form 10-K for the period ended
supplemented by the additional risk factors described in Item 1A in this
Quarterly Report on Form 10-Q for the three months ended
We assume no obligation, and disclaim any duty, to update the forward-looking statements in this Quarterly Report on Form 10-Q.
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