Good morning. My name is Keith, and I will be your conference facilitator today. Welcome to Whiting Petroleum's Fourth Quarter 2020 Conference Call. This call will be limited to 45 minutes, including Q&A. [Operator Instructions]. I will now turn the call over to Brandon Day, Whiting's Investors Relations manager.

Thank you, Keith. Good morning, everyone. This is Brandon Day, Whiting's Investor Relations manager. Thank you for joining us to discuss Whiting's fourth quarter results for the period ended December 31, 2020. With me today is Whiting's CEO, Lynn Peterson. Also available to answer questions during the Q&A session will be our CFO, Jimmy Henderson; COO, Chip Rimer; and VP of Commercial, Jo Ann Stockton. Please be advised that our remarks today, including answers to your questions, include forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to materially different from those currently anticipated. Those include risks relating to commodity prices, competition, technology, environmental and regulatory compliance, midstream availability and others described in our filings with the Securities and Exchange Commission, which are incorporated by reference. We disclaim any obligation to update these forward-looking statements. In addition, we may provide certain non-GAAP financial information in this call. The relevant definitions and GAAP reconciliations may be found in our earnings release and 10-K, which can be found on our website at whiting.com in the Investor Relations section. Following the prepared remarks, time permitting, we'll open the call to your questions. I would like to remind everyone that a replay of this audio webcast will be available via the company's Investor Relations page at www.whiting.com. I'd now like to turn the call over to the CEO of Whiting Petroleum, Mr. Lynn Peterson.

Thanks, Brandon. Good morning, everyone, and thanks for joining us today. I hope everyone continues to stay safe and healthy. We filed our 10-K yesterday, and you can refer to it for detailed information, so I hope to highlight some of the significant items. Let me begin with a huge understatement. That if nothing else, 2020 brought change and as we embark on a whole new year, the company is in excellent shape, both financially and operationally. The Whiting team has done a wonderful job scrubbing and challenging every cost throughout the company. We have reduced staffing, cut salaries to reflect the current state of the industry and forged a compensation plan for the executive team that more closely aligns with our shareholders as we look to reset the company. Our results in the fourth quarter begin to reflect these efforts as shown by our free cash flow. This call marks the end of the road for the year 2020, and now we can truly focus on a future for Whiting as we are all well positioned to take advantage of a solid asset base, a strong financial position and a team of talented employees. Before getting into the financial and operating results, I would like to give a shout out to our staff for the safety record in 2020. The company reported its lowest total recordable incident rate in the history of the company. The company also exceeded the state of North Dakota's gas capture rate without any exemptions, and will continue to strive to improve in all areas. Since many of the comparisons between 2020 and 2019 numbers are not meaningful due to the restructuring and curtailment of activity beginning in April of 2020, we will try to comment on the comparisons that are significant -- have significant…

[Operator Instructions]. And the first question comes from Leo Mariani with KeyBanc.

Just wanted to follow-up a little bit on that last comment that you guys made. In terms of the shares, the reserve for unsecured claimants out of the bankruptcy, you just talked about 900-and-something-thousand there that were issued. Are all those claims resolved? Or are there other potential issuances of shares related to unresolved claims?

I'm going to let Jimmy -- sure to address that, please.

Yes, I think we've got a good disclosure about this in the 10-K, but we reserved 3.1 million shares for these types of claims, and we still have some remaining unsecured claims to be cleaned up, and it will take some time to go through that process. This one was -- we were -- both sides were equally motivated to get it solved so that we could continue to work together going forward. And -- but we have some other legal claims that we'll continue to work through for the remainder of the year, basically.

Okay. I guess just with respect to M&A, I think you guys have been fairly vocal about maintaining just a very strong balance sheet and improving it back in order to potentially do some acquisitions at some point in time. I guess we've seen a couple of deals out of the Bakken recently. Just wanted to get a sense, are those deals that you guys have looked at? Are you very focused on the Bakken? Are you also kind of looking at other basins? Maybe just any kind of status update on M&A?

Yes. We're very familiar with the transactions that occurred. They're both a little bit unique in certain respects. So we chose, at this point, we're going to continue to look at our opportunities. Whether it's Bakken or wherever, I mean, Leo, we're looking for the right opportunity. We do know the Bakken, and that's where our focus is, and I expect it to remain. So yes, we can't comment too many items there.

Understood for sure. No, that's helpful. You guys talked about a second rig potentially late this year. Is that really just to kind of set up a 2-rig program potentially in '22? What's the thought process there?

Yes. The whole thought is to build our drill the uncompleted count up, so we can maintain our '22 production level. Otherwise, everything starts to drop around the end of the year and the first part of 2022. So I think we've got to kind of plan late third quarter, early fourth quarter time frame to bring it in.

And the next question comes from Neal Dingmann with SunTrust.

Lynn, my first question is your thoughts around Whiting's inventory. You all recently lead -- kind of laid out that showed, I think, if I recall, as many as about 432 core locations at $55. So really have one, obviously, nice increase there at $55. And so my question is, what type of -- kind of increase where we continue to see now that we're at $60, running to $65. And maybe could you talk about how -- I'm just kind of wondering, again, when they look at these locations, are they pretty widely spread throughout? Or is it a couple of the other ones that tarp on some of the others that are more centrally located?

Yes, and I'll let Chip jump in here as well. But I think, generally, we put $55. We don't want to get ahead of ourselves here. So I think you do see that inventory number growing. And certainly, as we get to $60, we see an increase as well. But Chip, you mind walking through kind of where we see all these locations in general?

Yes. So you got to -- and I appreciate the question. So of course, our core at Sanish, and we'll see probably over close to 200 locations in Sanish that we see. As we get in that $50 range for Sanish kicks in around $40 or so. And then as we get to Foreman Butte at $55, we're seeing 100, 120 locations as we go. And so as prices go up, we continue to see that -- continue to grow.

Not as much in Pronghorn, Chip, anything down? I'm just wondering if you're going out there?

No, Pronghorn's going to be a lot -- has to activate a lot higher.

And all of our focus in on just the core area there, Neil.

Yes. Got it. Got it. And then just one more for Jimmy. Jimmy, can you remind...

Neil, just let me add one comment. I mean we did state that these are economic conditions at these dollar prices. It's important to know. There's obviously a lot of locations out here, given certain levels of oil pricing.

So yes, this hurts our rate of return level. And also, there's a little bit in Redtail that takes off also in that $50, $55 oil.

No, I think we all appreciate that, Lynn. That I think it's a number that I don't want to say before we didn't trust, but it's a number we could definitely hang out hat on now. I really appreciate that, Lynn. And then, Jimmy, just a follow-up is, can you remind me post kind of when you came out of restructuring, I think there was some sort of stipulations in there regarding your RBLs, what the repayment needs to be? Is it before you can do shareholder buybacks or other shareholder returns or different things like that? I just -- I'm not sure if I'm clear on that.

Yes. And our RBL that our exit facility, if you will, does have a requirement to get to basically September. And so as the history of free cash flow before we would be able to make dividends or buy back stock. I think if we were in a position and desire to, we could probably push on that a little bit, but that's kind of what we've been adhering to. And we wanted -- as we've said in the script, we want to continue to pay down debt because that is our liquidity to pursue opportunities going forward. And so that's still our preferred use of free cash flow at this point. For the short and medium term, I'd say that's a -- that would be our focus.

Yes. You'll -- you show them, Jimmy, when you get down to 0 debt, you can't do much better?

No. We're not there. But we'll get there pretty quick. We hope to not get to that point because we hope opportunities present themselves that we can reinvest this liquidity. But at some point, with just going status quo, you get there pretty quick. You guys have done the modeling and kind of think everybody knows the pace of our ability to pay down that debt.

And the next question comes from David Deckelbaum with Cowen.

I wanted to follow-up real quick just on the fourth quarter. In the ops update that you guys put out before you reported the quarter, you highlighted that production was a little bit better-than-expected on a more favorable base decline. Can you elaborate a little bit on that? Or is this a case of just having more uptime? Or are you seeing some improved reservoir performance? And I guess, what would you attribute to that to?

I'll let Chip address. I mean, generally speaking, I think we had some nice weather in the fourth quarter, and we are a little bit ahead on our activity pace, but Chip?

Yes, I appreciate the question. So we created a base management team here. I guess, it was just coming out of Chapter 11 there and wound up. They've really been focusing on downtime. And so part of that is good weather. We had our lowest downtime in 3 years in the fourth quarter, which really helped us going forward. So some of our run times also extended. So we manage our run times on our -- see how long our artificial lift is going. And those extended almost 7% over -- year-over-year from fourth quarter to fourth quarter. Some of the runtimes going longer, you've got the downtime better and then you get better oil.

And just to ask on activity. I know you're working down some of the DUCs in the Foreman Butte Hidden Bench area. And I know you had some DUCs in the Sanish partial area. Should we assume that, that second rig kind of floats around? Or is this going to be mostly a Sanish partial field program?

I think we'll initially move it into the Sanish area, David. That where our goals are right now, at least.

That's correct.

Okay. And Lynn, I just wanted to follow-up on some of the M&A discussions. I know you can't say a lot, but I guess, one, can you characterize, I guess, how many opportunities are out there now? And you all can just elaborate a little bit on the pipeline. And I guess I would wonder as well as you've evaluated some of the deals, we note that many of the deals, especially in the Bakken, have a very heavy PDP component. When you look at value creation for Whiting right now, are you looking for something that has a bit more of an undeveloped tail to it?

It's a good question, David. And we're trying to look at everything, I guess, I'll start there. You're right, the basin is older. It's one of the more mature basins. So most of these do have a very high component. Frankly, most of them don't have a lot of inventory going forward. So I think that's one of the challenges we're faced here is how do we try to get both of those situations. Location of the acreage is also important. Do we want to be on the reservation? Do we want to be off the reservation? These are questions that we have to ask ourselves. So it's a myriad of questions. And I think we look at every PDP deal and we are trying to find some pockets of undeveloped. But again, I think we're all probably limited in this, call it, 5- to 8-year range of inventory here and depending on what oil prices do. I mean we look at a $55 oil price. I think every package you look at is kind of similar in nature.

Yes. I guess it would stand that with so many of those types of deals out there, there's nothing that really jumps off the page that would incentivize you to chase because it looks too similar to what you already have?

Yes. No, it's an interesting environment. But again, I also think if we can find the situation to double where we have today, we're better shaped because, again, some of this will be to the cost. We can work on overhead costs and these type of things, which will be -- bring value to the bottom line. So I think there's definitely merit in looking at all these. And I do believe size and scale matters. I haven't changed my mind there at all. We've got to grow here. And we've got to figure our path forward here.

And the next question comes from Noel Parks with Tuohy Brothers.

I just wanted to touch back on the workover program that you're putting some capital into this year. Can you just talk a little bit about the cost of what sort of productivity or returns you think you might get out of them? And how you come up with the priority of which areas or which wells to tackle first?

Yes. We think it's our best dollar spend, and I'll let maybe Chip walk through our focus and how we go about this process.

Yes, Noel. Let's start it. We have two meetings a week on the production side with all our operations. And we're looking to see what the best opportunities are out there in all of our fields. And so we have a team that manages our workover rigs. We have about 25 plus or minus rigs that work out there. That team goes to our most economical wells. They are our best returns. And so that's what we focus on. The guys will look at it and where do we need rigs do we need rigs up in Williston or down in Watford City or where that might be. And that is on a daily basis. That wasn't always the case a couple of years ago. And now I love the way the teams are working, they operate together, managing their business. Our team inside here down in Denver manages -- runs economics, which wells to go. And then we focus on those. We focus on the cost, managing the cost across the board to make sure we're getting the best bank for the buck.

It's also an area where the weather hits us. This February, the weather is pretty tough. A workover rig is not protected. So the workers are out in the exposure, so.

Yes, to your point, the weather, it was brutal in February. The joined rig doesn't lose a beat. The completion is just a little slower. So the workover rigs just can't work in that. And so we're going to pick up a couple of additional rigs to manage that, but it's easily managed.

Great. And just from an accounting standpoint, will most of what you do this year wind up as CapEx? Or will it wind up in LOE?

Get a component of both. It just kind of depends on what the work is involved. Generally, you can -- if you're improving reserves or adding reserves, then we would call it capital, but for the most part, these are repair type operations, so primarily going to be in LOE.

Yes. Of the 25, probably 20 of those are work in LOE.

Yes. In our prepared remarks, Noel, we mentioned that we expect LOE to increase from the low levels that we saw in the last part of 2020, and a lot of that is due to increased work we've experienced just keeping these wells maintained and up and running.

Ladies and gentlemen, there are no further questions at this time. I'll turn the floor back to management for closing remarks.

All right. Thank you, everyone. We'll be attending some virtual conferences over the coming quarters. I sure hope at some point we can have some face to facing. For now, everything will continue to be virtual. I'd like to thank everybody for joining us this morning, your interest in Whiting. Once again, I want to thank the staff here at Whiting for the work that's gone on over the last 12 months. It's been certainly a change of working remotely in a large part of this, so just a huge shout out to the staff for what they've done here. And we're really looking forward to 2021. We think we're starting the year in a great spot. Certainly have seen a nice boost of oil the prices here, and we're excited with lies ahead of us. So thanks, everybody. Stay safe, and enjoy your day. Thank you.

This concludes today's teleconference. Thank you for attending today's presentation. You may now disconnect your lines.