Whiting USA Trust II (the “Trust”) (OTC: WHZT) announced today that the
Trust will make a distribution to unitholders in the first quarter of
2019, which relates to net profits generated during the fourth quarterly
payment period of 2018. Unitholders of record on February 19, 2019 will
receive a distribution of $0.095481 per unit, which is payable on or
before March 1, 2019 (the “February 2019 distribution”).
As of the date of this press release, 99.9% of the Trust’s total
18,400,000 units outstanding were held by Cede & Co. (The Depository
Trust Corporation’s nominee) as the official unitholder of record. The
record date of February 19, 2019 for this distribution is only
applicable to unitholders of record such as Cede & Co., and the ex-date,
as set by The Financial Industry Regulatory Authority, Inc., or FINRA,
actually determines which street name holders will be eligible to
receive the February 2019 distribution.
Sales volumes, net profits and selected performance metrics for the
quarterly payment period were:
|
Sales volumes:
|
|
|
|
|
Oil (Bbl)(1)
|
|
|
|
239,530
|
|
|
Natural gas (Mcf)
|
|
|
|
260,676
|
|
|
Total (BOE)(2)
|
|
|
|
282,976
|
|
|
Gross proceeds:
|
|
|
|
|
Oil sales(1)(3)
|
|
|
$
|
10,585,881
|
|
|
Natural gas sales
|
|
|
|
857,240
|
|
|
Total gross proceeds(2)
|
|
|
$
|
11,443,121
|
|
|
Costs:
|
|
|
|
|
Lease operating expenses(4)
|
|
|
$
|
7,963,612
|
|
|
Production taxes
|
|
|
|
564,494
|
|
|
Development costs
|
|
|
|
735,214
|
|
|
Cash settlements on commodity derivatives(5)
|
|
|
|
-
|
|
|
Total costs
|
|
|
$
|
9,263,320
|
|
|
Net profits
|
|
|
$
|
2,179,801
|
|
|
Percentage allocable to Trust’s Net Profits Interest
|
|
|
|
90
|
%
|
|
Total cash available for the Trust
|
|
|
$
|
1,961,821
|
|
|
Provision for estimated Trust expenses
|
|
|
|
(200,000
|
)
|
|
Montana state income taxes withheld
|
|
|
|
(4,976
|
)
|
|
Net cash proceeds available for distribution
|
|
|
$
|
1,756,845
|
|
|
Trust units outstanding
|
|
|
|
18,400,000
|
|
|
Cash distribution per Trust unit
|
|
|
$
|
0.095481
|
|
|
Selected performance metrics:
|
|
|
|
|
Crude oil average realized price (per Bbl)(1)
|
|
|
$
|
44.19
|
|
|
Natural gas average realized price (per Mcf)(6)
|
|
|
$
|
3.29
|
|
|
Lease operating expenses (per BOE)(4)
|
|
|
$
|
28.14
|
|
|
Production tax rate (percent of total gross proceeds)
|
|
|
|
4.9
|
%
|
__________
|
(1)
|
|
Oil includes natural gas liquids.
|
|
(2)
|
|
The February 2019 distribution includes production of 30,786 BOE
attributable to four Keystone South farm-out wells, which
production generated gross proceeds of $1.4 million during the
fourth quarterly payment period of 2018.
|
|
(3)
|
|
(3) Oil sales decreased $2.7 million from $13.3 million during the
third quarterly payment period of 2018 to $10.6 million during the
fourth quarterly payment period of 2018 primarily due to a decline
in New York Mercantile Exchange (NYMEX) crude oil prices and
widening differentials in certain fields located in Wyoming and
Texas.
|
|
(4)
|
|
Lease operating expenses increased $0.7 million from $7.3 million
during the third quarterly payment period of 2018 to $8.0 million
during the fourth quarterly payment period of 2018 primarily due
to differences in timing associated with invoices received and
paid for non-operated properties between periods.
|
|
(5)
|
|
All costless collar hedge contracts terminated as of December 31,
2014, and no additional hedges are allowed to be placed on Trust
assets. Consequently, there are no further cash settlements on
commodity hedges for inclusion in the Trust’s computation of net
profits (or net losses, as the case may be), and the Trust has
increased exposure to oil and natural gas price volatility.
|
|
(6)
|
|
The average sales price of natural gas for the gas production
months within the distribution period exceeded the average NYMEX
gas prices for those same months within the period due to the
“liquids-rich” content of a portion of the natural gas volumes
produced by the underlying properties.
|
|
|
|
|
The Trust’s net profits interest (“NPI”), which is the only asset of the
Trust other than cash reserves held for future Trust expenses,
represents the right to receive 90% of the net proceeds from Whiting
Petroleum Corporation’s interests in certain existing oil and natural
gas properties located primarily in the Rocky Mountains, Permian Basin,
Gulf Coast and Mid-Continent regions of the United States.
Trust Termination
The Trust will wind up its affairs and terminate shortly after the
earlier of (a) the NPI termination date or (b) the sale of the net
profits interest. The NPI termination date is the later to occur of (1)
December 31, 2021, or (2) the time when 11.79 MMBOE (10.61 MMBOE to the
90% net profits interest) have been produced from the underlying
properties and sold, which is estimated to be December 31, 2021 based on
the Trust’s year-end 2018 reserve report. After the termination of the
Trust, it will pay no further distributions.
The market price of the Trust units will decline to zero at the
termination of the Trust, which will occur around or shortly after the
termination or sale of the net profits interest. As described in the
Trust’s public filings, since the assets of the Trust are depleting
assets, a portion of each cash distribution paid on the Trust units, if
any, should be considered by investors as a return of capital, with the
remainder being considered as a return on investment.
Net Profits Interest Overview
As of December 31, 2018, on a cumulative accrual basis, 8.97 MMBOE (85%)
of the Trust’s total 10.61 MMBOE have been produced and sold or
divested. Based on the Trust’s reserve report for the underlying
properties as of December 31, 2018, the Trust’s 10.61 MMBOE are
projected to be produced prior to December 31, 2021, shortly after which
the Trust would terminate. The 2018 year-end reserve report reflects
expected annualized production decline rates of approximately 9.9% for
oil and 22.3% for gas between 2019 and 2021.
Although oil and gas prices have stabilized since the lows experienced
during the 2016 distribution periods, oil and gas prices historically
have been volatile and may fluctuate widely in the future. The Trust is
unable to predict future commodity prices; however, if prices decline in
future periods, a reduction in the amount of net proceeds to which the
Trust is entitled is likely to occur. Additionally, in the current
commodity price environment, the Trust’s distributions have increased
sensitivity to fluctuations in operating and capital expenditures and
commodity price differentials, as was the case for the third quarterly
payment period of 2017 and the February 2019 distribution. If the NPI
generates net losses or limited net proceeds, the net profits interest
may not provide sufficient funds to the Trustee to enable it to pay all
of the Trust’s administrative expenses.
Lower commodity prices are likely to cause a reduction in the amount of
oil, natural gas and natural gas liquids that is economic to produce
from the underlying properties, which may in turn extend the length of
time required to produce the Trust’s 10.61 MMBOE. Alternatively, higher
commodity prices may potentially result in an increase in the amount of
oil, natural gas and natural gas liquids that is economic to produce
from the underlying properties, however, higher prices could result in
increases to the cost of materials, services and personnel. Furthermore,
cash distributions to unitholders may decline at a faster rate than the
rate of production due to industry-specific risks and uncertainties such
as (i) oil and gas price declines, (ii) fixed and semi-variable costs
not decreasing as fast as production volumes, (iii) expected future
development being delayed, reduced or cancelled or (iv) increased
operating or capital expenditures for non-operated properties that are
outside the control of Whiting Petroleum Corporation or the Trust.
Forward-Looking Statements
This press release contains forward-looking statements, including all
statements made in this press release other than statements of
historical fact. No assurances can be given that such statements will
prove to be correct. The estimated time when the Trust will terminate is
based on the Trust’s reserve report of the underlying properties as of
December 31, 2018 and is subject to the assumptions contained therein.
Additionally, the estimated time when the market price of the Trust
units should decline to zero is based on the economic rights of the
Trust units. The trading price of the Trust units is affected by factors
outside of the control of the Trust or Whiting, including actions of
market participants, among others. Other important factors that could
cause actual results to differ materially include expenses of the Trust,
fluctuations in oil and natural gas prices, uncertainty of estimates of
oil and natural gas reserves and production, uncertainty as to the
timing of any such production, risks inherent in the operation,
production and development of oil and gas, future production and
development costs, and other risks described in the Trust’s Annual
Report on Form 10-K for the year ended December 31, 2017 and in its
other filings with the Securities and Exchange Commission (the “SEC”).
The Trust’s annual, quarterly and other reports filed under the
Securities Exchange Act of 1934, as amended, are available
electronically from the website maintained by the SEC at http://www.sec.gov.
Statements made in this press release are qualified by the cautionary
statements made in this press release. The Trustee does not intend, and
assumes no obligation, to update any of the statements included in this
press release.
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