Introduction to Cost Analysis
17
INSERT BLACK & WHITE PICTURE Bakken Producer Financial Stress January 2015
Transcript of Introduction to Cost Analysis
INSERT BLACK & WHITE PICTURE
Bakken Producer Financial Stress
January 2015
page 2
Executive Summary
Effect of Crude Oil Pricing – The recent decline in crude oil pricing is affecting the
viability of higher-cost oil extraction for shale plays
Hedging and Price Exposure – Producers have varying degrees of exposure to the
recent decline based on financial hedges
Covenant Violations – Producers funding operations through credit revolvers are at
risk of violating covenants with crude oil priced below $50 per bbl.
Future Outlook – Most producers are scaling back capital spending and growth to
weather the current environment of low pricing—some producers are likely to default on
financial obligations and will not be able to generate cash from oil production
page 3
Producer Review
Producer Comments Risk
Assessment
Whiting
Petroleum
Low amount of production hedged. Likely to violate
lending covenant of 4.0 EBITDAX to Debt ratio
Critical
Emerald Oil Significant hedges through Q2 2015, but likely to violate
lending covenant
Critical
Continental
Resources
Monetized 100% of hedge position in Q3 2014 at
$90 per bbl. leaving the rest of production exposed.
Moderate
Oasis
Petroleum
Significant hedges through 2015, but likely to violate
interest coverage of 2.5X covenant on credit revolver
Moderate
Northern Oil
& Gas
Significant hedges through 2016 protect credit and
capital budget
Low
page 4
Producer Financial Benchmark Producers are positioned differently to handle the current WTI environment.
CLR WLL EOX OAS NOG
2015 Cash Requirement ($1,806,013,788) ($970,535,673) ($44,277,215) ($382,859,925)
Requirement as a percent of Cash and Credit 77% 31% 23% 24% 0%
Average Hedged Revenue per BBL 2015 $51.21 $51.56 $65.33 $68.34 $76.06
Hedge Asset Value percent of Market Cap 0% 2% 36% 25% 49%
WTI Break-even $45.31 $47.11 $47.23 $45.68 $45.88
Minimum Interest Coverage Ratio 2015 2.63 2.41 3.52 2.48 6.28
Maximum Debt to EBITDA 6.53 5.20 4.70 6.52 3.38
Days of Cash on Hand 118.3 10.6 103.5 64.1 0.0
Estimated Credit Default Q4 2015 Q4 2015 Q1 2016
page 5
2015 Hedge Profile Hedge positions improve crude oil selling price as much as $30 above spot.
Hedge Profile (Net $/bbl)
EOX
CLR, WLL, WTI
OAS
NOG
$0.00
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
$90.00
$100.00
Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016
CLR WLL EOX WTI OAS NOG
Impact above spot
Producer per bbl.
CLR $ 0.00
WLL $ 0.37
EOX $ 12.22
OAS $ 18.32
NOG $ 30.03
page 6
Production Cost Analysis WTI Needs to stay above $45-$47 for Bakken producers to cover costs.
$0.00
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
CLR WLL EOX OAS NOG
DD&A
Marketing Differential
Interest
G&A
Taxes
Production Expense
Hurdle
Growth cannot be sustained unless WTI is above $70 per bbl.
page 7
Company Report – Whiting Petroleum (WLL) Diagnostics
Whiting Petroleum has a credit line covenant
not to exceed a Debt to EBITDA ratio of 4.0
Based on current expenditures, Whiting will
violate that covenant in Q4 2015 and could
trigger default
Q1 2015 will be challenging for Whiting
Petroleum for Interest Coverage. Although
not a covenant, low interest coverage is a
sign of financial distress
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Q32016
Debt to EBITDA
0.0
2.0
4.0
6.0
8.0
10.0
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Q32016
Interest Coverage
page 8
Company Report – Whiting Petroleum (WLL) Liquidity Report
Whiting Petroleum utilizes a mostly
untapped credit revolver as the primary
source of liquidity
Whiting can maintain a capital plan at 75%
of 2014 expenditure by utilizing the revolver
Debt to EBITDA coverage covenants could
restrict access to the credit revolver and
trigger a default
$0
$500,000,000
$1,000,000,000
$1,500,000,000
$2,000,000,000
$2,500,000,000
$3,000,000,000
$3,500,000,000
page 9
Company Report – Emerald Oil (EOX) Diagnostics
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Q32016
Debt to EBITDA Ratio
0.0
5.0
10.0
15.0
20.0
25.0
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Q32016
Interest Coverage
Emerald Oil’s credit revolver has a covenant
that Debt to EBITDA must remain below
4.0:1.0. At expected crude pricing, Emerald
will violate this covenant in Q4 2015.
Although not a credit covenant, Emerald Oil
should be able to maintain an interest
coverage ratio above 4 even with lower
crude prices
page 10
Company Report – Emerald Oil (EOX) Liquidity Report
With the current capital plan to spend $62 -
$81 million in 2015, Emerald Oil will require
access to their line of credit to operate in
2015.
If Emerald Oil violates the credit covenant of
a debt to EBITDA ratio of 4.0, access to the
credit line may be suspended
$0
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
$140,000,000
$160,000,000
$180,000,000
$200,000,000
Cash Credit Q42014
Q12015
Q22015
Q32015
Q42015
page 11
Company Report – Continental Resources (CLR) Diagnostics
Although not a liquidity covenant,
Continental Resources will struggle with a
high Debt to EBITDA ratio for much of 2015
and 2016
Q1 2015 will be challenging for Continental
Resources for Interest Coverage. Although
not a covenant, low interest coverage is a
sign of financial distress
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Q32016
Debt to EBITDA
0.0
2.0
4.0
6.0
8.0
10.0
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Q32016
Interest Coverage
page 12
Company Report – Continental Resources (CLR) Liquidity Report
Continental Resources monetized the value
of their hedges at the end of Q3 2014 at an
average WTI price of $90 per bbl. This
generated $433 million in cash for the
company.
With the current capital plan to spend
$2,700,000,000 in 2015, Continental
Resources will need to rely heavily on their
$1.75 BUSD credit revolver
$0
$500,000,000
$1,000,000,000
$1,500,000,000
$2,000,000,000
$2,500,000,000
$3,000,000,000
page 13
Company Report – Oasis Petroleum (OAS) Diagnostics
Oasis is highly leveraged with a EBITDA
ratio beyond safe ranges
Oasis Petroleum will violate debt covenants
in Q1 2016 that could default on the credit
revolver
0.02.04.06.08.0
10.012.014.0
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Q32016
Debt to EBITDA
0.0
1.0
2.0
3.0
4.0
5.0
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Q32016
Interest Coverage
page 14
Company Report – Oasis Petroleum (OAS) Liquidity Report
Oasis’ primary source of liquidity is cash
from operations and their credit revolver
There should be ample cash for operations
unless the interest coverage covenant is
triggered for default
$0
$200,000,000
$400,000,000
$600,000,000
$800,000,000
$1,000,000,000
$1,200,000,000
$1,400,000,000
$1,600,000,000
$1,800,000,000
page 15
Company Report – Northern Oil & Gas (NOG) Diagnostics
Northern Oil & Gas will maintain a safe debt
to EBITDA ratio well into 2016
Northern Oil & Gas won’t feel pressure from
Interest Coverage until the end of 2016 due
to the extent of previous hedged positions
0.0
1.0
2.0
3.0
4.0
5.0
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Q32016
Debt to EBITDA
0.0
2.0
4.0
6.0
8.0
10.0
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Q32016
Interest Coverage
page 16
Company Report – Northern Oil & Gas (NOG) Liquidity Report
With a large portion of volume hedged,
Northern Oil & Gas will continue to generate
cash from operations while still deploying the
capital plan.
$0
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
$300,000,000
$350,000,000
$400,000,000
page 17
For more information contact:
Tom Bokowy, Partner (208) 610-0032
Cost & Capital Partners LLC
