Chord Energy Corp (CHRD) 2014 Q2 法說會逐字稿

Good morning, ladies and gentlemen, my name is Ryan and I will be your conference operator today. At this time I would like to welcome everyone to the second-quarter 2014 earnings release and operations update for Oasis Petroleum. All lines have been placed on mute to prevent any background noise.

After the speakers' remarks there will be a question-and-answer session. I will now turn the call over to Michael Lou, Oasis CFO, to begin the conference. Thank you. Mr. Lou, you may begin your conference.

Thank you, Ryan. Good morning everyone, this is Michael Lou. Today we are reporting our second quarter 2014 results.

We are delighted to have you on our call. I'm joined by Tommy Nusz and Taylor Reid, as well as other members of the team.

Please be advised that our remarks, including the answers to your questions, include statements that we believe to be 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 be materially different from those currently disclosed in our earnings release and conference call.

Those risks include among others matters that we have described in our earnings release as well as in our filings with the Securities and Exchange Commission, including our annual report on form 10-K and our quarterly reports on form 10-Q. We disclaim any obligation to update these forward-looking statements.

During this conference call we also may make references to adjusted EBITDA, which is a non-GAAP financial measure. Reconciliations to adjusted EBITDA to the applicable GAAP measures can be found in our earnings release and on our website.

With that, I'll turn the call over to Tommy.

Good morning and thank you for joining today's earnings call.

We're very pleased to report another record quarter of production with a volume of 43,700 BOEs per day, and another quarter of delivering on our production guidance range. This translates into a production growth of 10% year to date when adjusted for our Sanish divestiture, and we're set up for a very exciting second half.

The basin has continued to grow and evolve on a number of fronts, and Oasis continues to be a leader in operational improvement as we transform our Company from holding drill blocks to a manufacturing resource development business. We have rapidly grown production while adding value in other areas of the business as well. We continue to optimize well costs, improve efficiencies, and take control of key input elements in our business with OWS and OMS.

Additionally, the team has added and integrated significant acreage positions in the heart of the play over the last 12 months. With the growth that we've experienced in overall resource potential we've accelerate development from running 9 rigs in the first half of 2013 to 16 rigs operating today.

We expect meaningful production growth through the end of the year and, specifically in the third quarter, increasing production to between 47,000 barrels to 49,000 barrels of oil equivalent per day. We are currently focused on a couple of key areas that Taylor will provide more color on.

First, our transition to full field development, and second, improvements in resource recovery through optimized completion designs and understanding of the prospectivity of the full Three Forks column across our position. While movement to full field development across our 500,000 acres does create some variability on a quarter-to-quarter basis, I'm extremely proud of the fact that our organization continues to do what we say we were going to do, delivering on our expectations.

With that, I'll turn the call over to Taylor to provide more detail on what we're doing operationally.

Thanks, Tommy.

The Oasis team continues to deliver on its production targets, growing production quarter-over-quarter by approximately 6% and over 10% on the year, excluding production from Sanish. We had some inclement weather the led to numerous road closures in the second quarter, but conditions have now improved. During the quarter we increased wells waiting on completion by 20 wells up to 67.

This intentional rise in the well backlog helped us mitigate the impact of road closures during the spring breakup and has set us up to drive production growth in the second half of the year. We planned our rig and completion schedule in the second quarter to minimize rig moves during spring breakup, which naturally minimizes your ability to get wells completed.

Exiting break up we have increased the number of frac spreads from three to six and cleanout crews from four to seven, which will support our increased pace of work. We continue to expect to complete about 60% of our full [meer] wells in the second half.

As we mentioned last quarter, approximately 60% of our rigs are in full field development where we are drilling out full spacing units. In contrast, the other 40% of our rigs are drilling partial spacing units as we confirm infill spacing density, test new completion techniques, and hold land.

This portion of the program is an investment in the future that will pay off with an increasing percentage of the program being dedicated to full field development as we move forward. Going to full field development results in an increase in the number of wells drilled on pads.

We have trended from 45% of our wells on pads in early 2013 to more than 90% of our wells currently on pads. We were able to spud more than 40 wells without moving a rig to a different pad during the quarter.

To capitalize on pad drilling efficiencies we've increased our walking or skiddable rigs to 14 of 16 of our rigs compared to just five a year ago. Generally these rigs can move to another well on the same pad within 12 hours compared to the multiple days it takes to move to a new pad.

These efficiencies, combined with over all other operational improvements, have driven our base well cost down to $7.3 million including OWS in the first half of the year. In fact the full-year impact of savings on our base well design translates into about $100 million, which has enabled us to absorb the higher costs associated with the enhanced completion designs without increasing our capital budget.

We continue to expect to spend $1.25 billion on drilling and completion capital in 2014. Moving on to enhanced completion designs, Oasis has been on the leading edge in the basin to customize completions based on rock quality.

We have tailored fluid types, proppant quantities, proppant type and delivery mechanisms to optimize our completions and deliver strong returns across our acreage position. Earlier this year we discussed a move to 60% of our completions with techniques different from our base design.

Based on success since that time, we have increased the overall percentage to 70% and expect over 30% of the completions to employ techniques that significantly increase the size of the job either through increased fluid volumes or proppant amounts. The biggest shift to date has been our move to slickwater completions.

We are experiencing over a 35% uplift on average across our Bakken wells, and have two additional results in Red Bank in Montana that we will discuss in a moment. Given these results we have increased our planned slickwater jobs from 20% to 25% of our well count for the second half.

Examples of slickwater success include preliminary results from our first Three Forks slickwater well completed in Red Bank. Accumulative production through 45 days has resulted in a greater than 35% production uplift compared to an offsetting Three Forks well, which was completed with our standard design for the area using crosslink gel and 3.5 million pounds of proppant.

While it's still early, the results are encouraging as we design the plans for full field development with slickwater wells. An example of this is the White Unit in Indian Hills, where we will test seven slickwater wells through the third bench of the Three Forks. We expect production to begin in this unit in the late third or early fourth quarter.

In Montana we completed the Signal Butte with slickwater, and it is producing 35% more than our Montana type curve. We are especially encouraged about this well, since it is on the far west side of our Montana position.

Because of the preliminary results here, we are moving forward with additional slickwater wells in this area during the remainder of the year. The increased production in the initial stage of a well's life is especially important in Montana where the tax structure is a bit more attractive than North Dakota.

With these results, we have seen differential production uplift throughout most of West Williston. The one area we haven't tested is Painted Woods. However given its location between our confirmed test, it makes sense that it would likely work here as well. We will also test this technique on the east side of the basin during the second half of the year.

We have also seen similar production uplift in the basin from increased sand frac jobs, and we are excited about its potential on our position. We expect to complete seven expect to complete 7 to 10 wells across our acreage with 2 to 3 times more sand than our base design.

These wells will generally be completed with more than 9 million pounds of sand with at least 36 stages. As we continue to refine our completion technology by area, we believe we can continue to improve economics across our position.

Another item we have focused on this year is the lower benches of the Three Forks. In Indian Hills and South Cottonwood the lower bench wells have continued to produce within or above our Three Forks type curve band and have the potential to add to our inventory.

We are especially excited about the Cornell well, which is in the Red Bank area. Preliminary production for this second bench well has been impressive, producing an average of 1,050 barrels of oil equivalent per day through the first seven days.

While it's still early time, it's another strong well at the top end of our Three Forks type curve band and should significantly expand our economic window for the lower benches north and west from the previous limit. To continue proving lower bench productivity, we have planned over 20 more wells that will be completed in the second half of the year.

The inputs we have discussed, pad drilling, well costs, and completion technology, are all critical to resource development. As we have stated in the past, an important part of our strategy around cost control and production optimization lay in the stimulation segment of our business. In this segment we saw some tightness in the availability of sand and completion services during the second quarter.

As we have stated in the past, OWS provides us a natural hedge against cost inflation in pressure pumping service, as well as certain segments in the supply chain. In the first half of 2014, OWS saved us approximately $350,000 per well, and since inception our first spread has returned 2.8 times our capital invested. So it has been a great investment for us. Our second crew, which began operations in the second quarter, have had a smooth startup and is currently operating 24/7.

In addition, OWS also supplies about two-thirds of the total proppant pumped into Oasis operated wells and gives us the ability to do our work when the proppant market gets a bit tight. This ability to source proppant directly gives us an advantage on cost, as well as transportation logistics and surety of supply.

Before hand the call over to Michael, I just want to say I am extremely proud of the Oasis team. Our people have worked hard to provide a lot of exciting opportunities that should enhance our business in the coming quarters.

Thanks, Taylor.

Oasis has continue to deliver on the long-term objectives and key drivers of value to the organization, a critical one being the move to full field development. One key component to success at full field development is the infrastructure, especially given some of the recent regulations announced. Since our IPO, we have discussed the benefits of large contiguous operated blocks and the benefit of consolidated acreage positions in development.

With respect to infrastructure, the consolidated blocks aid in the buildout as we can lay lines of pipe through multiple DSUs creating one continuous system for our project areas. We have spent a lot of time investing heavily and partnering with third parties to develop our infrastructure since 2010. And what we have put in place has enhanced our returns through lower costs, higher cash margins, and a higher gas capture rate.

On the gas side, we currently have 96% of our wells connected to gas infrastructure. We have worked hard to connect wells and we are confident in our ability to meet the state regulations. In fact, we have had success in getting approvals under the new permitting regulations and are already in process of obtaining our 2015 drilling permits.

With regard to oil, our gathering system collects approximately 75% of our produced oil, which has enabled us to deliver some of the best oil differentials in the basin at 8% for the quarter. The tight differentials are attributable to our ability to efficiently move crude between the pipe and rail markets in the basin. Recently there have been a few significant announcements to add more than 800,000 barrels of oil per day of pipeline take away capacity out of the basin by 2016.

The pipeline additions will continue to add to an extremely strong take away environment in the Williston Basin. With a total pipeline capacity of nearly 1.6 million barrels of oil per day combined with forecasted rail capacity in 2016, takeaway capacity should easily surpass production growth providing opportunities to maximize oil price realizations.

We have also been active in developing our own salt water disposal business through OMS. We have approximately 52% of our water flowing through pipeline and 75% disposed into our wells.

These percentages ticked down, as you will recall with the acquisition, which has led in part to increased LOE. Additionally, LOE has trended up due to work overage coming out of the winter season in spring breakup. While per unit LOE costs have been higher than our historical average, we expect these to come down during the second half of the year. To account for these higher costs in the first half of the year, we have updated our full-year range to $8.50 to $10 per BOE.

One item I would like to point out is our consistently strong cash margins. The team has done a great job across the business from delivering the best possible oil realizations, the high percentage of our gas being sold, managing our G&A and operating costs, adding incremental revenue through OWS and OMS, and we are very pleased with our adjusted EBITDA margin, which was an impressive $64 per BOE.

Finally, our balance sheet is in great shape. We have 1.4 billion of liquidity, which includes a $1.5 billion of elected commitments on our $1.75 billion borrowing base. Our debt to EBITDA is a comfortable 2.2 times debt to second quarter annualized adjusted EBITDA, and we expect to continue to delever throughout the year as we get closer to cash flow breakeven.

To protect our leverage, we added some hedges in the quarter, increasing our 2015 position to on average 23,000 barrels of oil per day. We will continue to opportunistically layer on hedges as it makes sense to do so.

With that, I'll turn the call over to Ryan to open the lines up for Q&A.

(Operator Instructions)

Drew Venker, Morgan Stanley.

Good morning, everyone. You completed less wells than planned in 2Q, but you still delivered pretty solid volumes. Can you quantify how much those new completions have helped boost production?

Drew, at this point we only have a few of those new completion techniques online, and actually it's early days and a lot of that was post the quarter. So for 2Q not a lot of impact, and as we've stated before this program and the slickwaters and larger completions are backloaded. So you're going to see more of the impact towards the end of the year into third quarter and into the fourth quarter.

And so should we see fourth-quarter production really accelerate from 3Q? I guess that's what guidance implies.

You know at this point, we're projecting to be 47,000 to 49,000 in 3Q, and when you look at the full year weighted towards the bottom end of our range.

But still if you just back into the numbers it would imply another meaningful volume growth into the fourth quarter just like the third quarter.

Okay. And then just to clarify on the new completion techniques. The uplift you're seeing across the board is a pretty good average, is 20% to 35%?

Yes, generally it's -- most of it's around 35% or greater to this point.

Okay. That's helpful. And then lastly on OWS, how much of your operated program will be covered by your pressure pumping fleet in say the second half of the year?

So second half of the year, we'll probably on average run between four to six frac crews. And we've got two so it's going to be 30% to maybe as high as 50% of the activity at times.

And that kind of swings because of wells on pads and increased backlog of well completions like we're seeing at the end of the second quarter. But I'd say 30% to 50% in general.

Thanks.

Noel Parks, Ladenburg Thalmann.

Good morning.

Morning Noel.

Just a few things. In listening to the various contributing factors to improving the efficiency on the fracs, you listed off several fluid types and proppant types.

And you also talked about delivery mechanism. Could you just elaborate a little bit on that?

So the delivery mechanism just refers to coiled tubing for example. We've done some frac jobs where we are delivering it by coil. So it's just a different method of placing the proppant downhole.

Okay. Does that have much impact on the incremental cost for those fracs?

So in terms of cost, let's talk about slickwater and then a little bit about coil tubing. So the slickwater fracs that we've done generally relative to our base design are $2 million to $2.5 million more expensive than our standard completion.

It depends on where you are in the basin. So in the areas where we -- deeper parts of the basin where we still use ceramic proppant the cost is about $2 million more.

So keep in mind the slickwater frac we use at this point all ceramic proppant. So the contrast where we continue to use ceramic proppant is not as great as in areas where we use all sand.

So in shallower parts of the basin, like in Montana, we use on our base design all white sand. And the contrast or increased cost of that completion is higher. So more like $2.5 million to account for the move from sand to all ceramic.

Got you. And actually as you continue in this transition of experimenting with the fracs and also expanding into full field development, there was just a mention in the text about how that does add some variability just the transition to full field development. And could you be a little more specific about kind of what you have in mind and whether there's much of that variability still ahead or whether we're kind of getting close enough to full field developments where that won't -- quarter to quarter you won't see as much impact?

Sorry, are you talking about variability in terms of the well counts?

I guess, yes, just the pace of development. Sure, the well counts.

Sure. Just as you get a full field development, especially as we go to a higher density of drilling on each spacing unit, you're going to get well pads that have more and more wells on them. And with that higher density drilling in each spacing unit you're going to tend to have more of a lag in the time from when you spud on that unit to first production.

Now the way we deal with that is we apply more rigs to each of those spacing units to keep that cycle time down. But as compared to just drilling one or two or a small number of wells on a spacing unit to a larger volume, you're going to tend to see the time from -- or the amount of wells waiting on completion could trend as high like this quarter as high as four to five times the well count. So it could get as high as 60 to 80. But in generally you're going to see that work down and then come back up as you're drilling more wells on pads.

But if you think about it, Noel, if you've got anywhere from 8 to 14 or 15 wells on a pad, and now in some of these cases in the [Tough Toe] unit we had three rigs running at the same time to try to manage cycle times as Taylor talked about. But with call it eight wells, well where in the past if you were set back by whatever it is, weather, a well screening out on stimulation, whatever it is, it impacts one well. When you've got eight it impacts eight wells.

Sure

Just because it tends to run more in series than in parallel. Now we offset some of that by running multiple rigs on a pad and those kinds of things, but it still sets you back.

So if you've got some kind of hiccup or, like I say on stimulation or road closures or something, you got a whole bunch of wells that get pushed back. Now over time as you said, you get enough of it going and infrastructure in place, that input impact should be muted. But in transition it's going to make things a little bit more variable.

Thanks a lot. That's just what I was looking for.

And I just had one more for Mike. On the -- as far as taxes go could you just give sort of a rough idea of where you stand with your tax [napper] and loss carry-forwards and credits and so forth and sort of the outlook for cash taxes?

Yes. You know right now, Noel, with IDCs and whatnot our cash taxes are pretty minimal. We do pay AMT taxes, but our cash taxes are actually -- continue to be fairly minimal and probably will be for the next two years or so.

And actually are carry-forwards still building at this part or are you working them down? I guess thinking as you kind of have kept ramping up the drilling.

As you're ramping up drilling your carry-forwards are continuing to build.

Okay. Great. I think that's it for me, thanks a lot.

Thanks, Noel.

Michael Rowe, TPH.

Hello. Good morning.

Good morning.

I'm just wondering a couple of things, looked like your completion backlog or your wells waiting on completion backlog was about 67 at the end of Q2 versus 47 at Q1. Just given the size of your rig program, where do you all -- what do you feel like is a comfortable level for you all to have kind of in backlog? And if you could just maybe discuss how you see that trending in Q3 and Q4 that would be helpful.

Like we mentioned with the 16 rigs running, exiting the quarter at 67 and with all the wells coming off, or rigs coming off of pads, we expect in Q3 to work that number down. However we're going to have a bunch of pad drilling again going into Q4 and the end of the year as we go into winter, which we normally do. So you're going to then see it ramp back up close to that 60 to 70 wells waiting on completion range at the end of the year.

Okay. And then just one more question on the new completions. You had a good slickwater result looks like there in Montana for the middle Bakken and you're seeing 35% production uplift.

So was kind of curious how quickly do you all think at an incremental $2 million per well that it would pay back the slickwater incremental investment on that side of the basin? And I guess just based on what you know now do you feel like the economics of slickwater are better than the deeper parts of the basin? Based on what you know to date?

So it's really, really pretty early time. When we look at the Montana result we're encouraged by what we're seeing early. And when you look at the cost increase it's on par in terms of a percentage of cost relative to the base cost of those wells.

So we feel like you're going to get a return that is at least as good as the existing wells with the current cost structure. We've got a good path we think of really bringing the cost down. If we continue to see that type of performance, the economics are going to be pretty compelling.

As far as deeper parts of the basin versus areas like this that are further out from the center, we're seeing good results in both. We've seen like we said on average about 35% uplift across the Bakken wells where we've collected data.

And this well is really pretty similar to that. So we'll see how that pans out as we continue.

And Michael, on our returns across-the-board as you've seen in our presentation that current oil prices where we get very strong returns from an IRR standpoint, 70% to 80% in that neighborhood. And so with slickwaters, as Taylor mentioned the economics are just the same.

You're going to get those paybacks similar to what our current wells are, which are kind of a 14- to 16-month payback. That will be consistent, and as we move down cost of the slickwater completion that could improve.

Okay, great. Thanks. I'll hop back in the queue.

Ryan Oatman, SunTrust.

Hello. Good morning.

Good morning, Ryan.

Regarding the infrastructure, can you describe how you plan to attack the requisite gas gathering and oil transportation infrastructure on the recently acquired acreage? Do you think that will be built by a third party or do you plan to build that yourself?

Ryan, we've talked about that that we're continuing to evaluate that. We should come out with a little bit more data towards the end of the year on which direction we are heading.

But we are actually continue to evaluate all different options. It may be a combination of using some third party and doing some of it ourselves. But we haven't decided all that fully yet.

Okay. And given that infrastructure is probably necessary before really attacking that acreage, when do you plan to shift to development mode on that acreage?

Yes, as we kind of discussed off of the acquisition, it would take probably 18 to 24 months to put that infrastructure in place. So we have plans that where we'll start drilling on that acreage kind of latter part of next year as that infrastructure gets in place.

There's some drill blocks that are going to be earlier. So it's not all going to be pushed out like the White Unit; we just drilled the Tough Toe wells.

And so we have done a little bit of drilling like Tommy's talked about, like on the rest of the acreage test the rock. So we're looking at taking cores and other subsurface measurement combined with some spacing test and really all the acquired blocks has given us the data to set us up for that full field development. Like Michael said, we'll have the full infrastructure in place so that we can take off on a drilling program on the acquired blocks starting in late 2015.

All right, very helpful. That's it for me. Thank you.

Thanks.

Dan McSpirit, BMO Capital Markets.

Thank you, folks, good morning. First question, could you discuss how the decline rate differs on the slickwater completed wells versus completed with the older method? And what does this mean for the Company's base decline rate? That is, what is the base decline rate today and how is it expected to change say 12, 24 months from now?

Yes. So far we're not seeing a big difference in decline rate of the slickwater wells. We're seeing increased production.

In some of them they actually had less of a decline profile, but generally you can think of it as bumping up the overall type curve at a higher production rate. So that's what we've got to continue to watch is what does that decline profile look like out in time when you get 12 months out, 24 months out. So at this point, we don't have any guidance for you how, we just say it wouldn't change the impact to the over client profile with Company

Okay great. And as a follow-up if I may, for how long have the slickwater, Three Forks, and Montana wells highlighted in the press release been online?

And then as a follow-up to that I guess could you clarify when you say 35% uplift you're referring to initial production or ultimate recovery? And then if you could just remind us of the names of those wells again, the two wells that were highlighted in the press release?

Okay. So first in Montana it's been on for about 45 days. And the 35% uplift refers to production compared to the parent well in that area, and so over that same period of time.

So it's just for that first 45 days. The well in Red Bank, which is the Three Forks well, again it's compared to another nearby Three Forks well and it's for the period and it's been on production for about the same amount of time, a little more than 45 days.

And the names of those wells, I'm sorry?

So the well in east Red Bank is called the Tough Toe and it's the Tough Toe 8T -- T stands for Three Forks. And the well in Hebron is the Signal Butte 2B.

Thank you very much.

You're welcome.

Michael Hall, Heikkinen Energy Advisors.

Thank you. Good morning.

Good morning, Mike

I guess just on the completions, continuing on that. Given it sounds like quite a bit lower of a percentage than the first half wells were done using these various newer style jobs versus the 60% total for the full year.

Is it fair to assume then the back half of the year is quite a bit above that 60% level? And then can you just remind me how you guys factored these jobs into your prior guidance?

Yes. So we actually, Mike, we moved that 60% up to 70% of the total wells and that is for the second half of the year. So that means 70% will be different than our base completion design.

On the bigger volume jobs, it's a total of 30%. And that breaks down to about 25% of the remaining completions for the year of slickwater and about 5% of the remaining jobs will be larger volume fracs where we pump the two to three times the normal amount of sand that we do, close to 10 million pounds.

We've got a number of those that we've done recently and we're getting set up for a number of those that happen mid to later in 3Q and then even more into 4Q. A good example of that is that White Unit which we're going to have seven wells all slickwater pumped within the same spacing unit.

That's going to come on in the fourth quarter. So the overall impact to the volumes we think you'll see some and we're factoring that in or trying to factor that in and that's primarily going to be fourth quarter and beyond.

All right. That's helpful. Thanks.

And then on the -- have you done any jobs that are a combination of the slickwater with the higher sand loadings? I believe slickwater already has somewhat higher sand loadings as I recall, but those higher loading jobs you're talking about, do you combine the two or any plans to do that?

We haven't done that yet. We've -- the base design for us on slickwater right now is about four times the amount of fluid but the proppant is actually about the same as our base design. So it ends up being the base design is 60,000 barrels to 70,000 barrels of fluid and 3.5 million to 4 million pounds of proppant. Depending on where you are in the slickwater design it's about 250,000 barrels of fluid.

And again 3.5 million to 4 million pounds of proppant. The big difference is that it's all ceramic in the slickwater job.

Got it. Go ahead. Sorry.

If you try to place 9 million pounds of the slickwater job, you're talking about 500,000 barrels. So that's a bit of a stretch.

Got it. Fair enough. And then how about cemented liners, plug and perfs and increased perf clusters per stage. Have you guys tested any of that or any plans to?

So we have tested cemented liners in the past and in fact the slickwater jobs that we're doing are cemented liners. So they're one version of testing cemented liners.

The perf clusters we've varied that depending on the job in general. What we've seen between cemented liners and wells that are not cemented where we use light completion techniques, the results appear to be pretty similar. We don't think that the cemented liner by itself is differential, but for some applications, like the slickwater frac job, it really makes sense because of the pressures and the rates that you're pumping.

Okay. And then I guess just jumping up to kind of thinking about activity. Number one, in the second quarter given some of the road closures and things you talked about, was the mix of wells that were brought on more biased to areas where you're not in full field development in pad drilling? So I'm thinking it would be more like Montana and North Cottonwood or maybe up in Red Bank? Or is that mix pretty typical of your annual mix in the second quarter?

Yes, you hit on something that did occur and so good way to think about it and why you get that performance or relationship is the deeper areas you got a lot higher density in the wells that you drill per spacing unit. So we got on pads on those units and they're the ones that end up extending the most and they happen kind of at a fall over relative to where we thought we might be into the third quarter.

The ones that we're able to get pulled up and completed were in those units that are more distal. So like Hebron, North Cottonwood, and some of those places. So we ended up having just like you said a little higher well count in some of those other areas, a little bit less in the deeper parts of the basin.

Okay, that's helpful. And then would that kind of flip a little bit then as we think about the third quarter? And then how many wells do you expect to turn on in the third quarter?

Yes, so it should flip a little bit in 3Q. We've got more wells like I said on pads in those higher density units.

I don't have a projected well completion number at this point, but like we said, we started with 67 wells waiting on completion, we're going to work that down in 3Q. And then when you look at the full year, we're going to have 60% of the total well count weighted towards the back half of the year.

So 40% of the completions were done in the first half. And you can do the math, that's 81 wells so far.

Okay, that's helpful. Appreciate the color, guys. Thanks.

Thanks.

David Tameron, Wells Fargo.

Thanks. Good morning.

Hey, Dave.

Question I think I just want to clarify what the response to the Dan McSpirit question about the shape of the curve as far as it relates to these new wells, am I hearing it right that basically the curve shifts up just based on a higher IP but you're not seeing any other change in the actual shape of the curve other than just shifting up? Is that the right way to think about it?

At this point, we don't think -- we haven't overall on average observed a big change. I will say that early time some of these slickwater fracs because the amount of volume pumped come on a little higher rate.

So you can see a higher very early time decline, but overall the curve once you come off that we think is pretty similar. But that's what we've got to understand is what are these jobs going to do over the longer term? So you get 12 months, 24 months out what does that profile look like?

And that's the case whether it's slickwater or these big volume jobs. We've said that consistently is you just -- it's early days and you're trying to figure out is it 100% incremental recovery or is it 100% acceleration? And we just don't know that yet.

Okay. Sorry, go ahead. Sorry about that. I guess most of the questions have been asked, but just a couple more around the production guidance. And I think you have laid it out, but are there any big hurdles that need to happen for you to hit your second-half numbers or, assuming you get normal weather and you don't get a lot of downtime out in the field other than what you typically build into production forecast?

But how should we think about the P50? Is that a P50 number or is that a P75, P25? How should we think about the second half production ramp? p

The 47,000 to 49,000 is a lot like what we put out there. We gave a number for 2Q and we tried to get a range that we're pretty confident we can hit somewhere in that range.

And so it's consistent with what we've done in the past. 2Q where it's a little bit lower end of the range but certainly within it. And we think we'll be able to do the same in 3Q.

Okay. Do you care to give us an exit rate for the year, just given the big ramp it looks like in the fourth quarter?

No. At this point, we would tell you look at the 3Q number and then full-year guidance. We're going to be at the lower end of the range and you can do the math.

Okay. Last question. And you might have addressed this and I might have missed it, but LOE, any reason it's been a little slower to come down than you anticipated post the acquisition? Or I guess what's driving that number higher as well?

So really the two biggest drivers on our LOE at this point are the disposal cost and then also workover expense. At the time we brought the new properties in we also had a third component that was higher which was fixed cost.

We've actually trended that down pretty nicely and have started that in the range where we need it. The last two pieces that we need to work down are going to be the disposal piece and then the workover expense. Workover expense typically tends to be up in the winter. Get a lot of wells when you get a really cold winter that go offline.

More cost to do that work to get everything back on, and we saw that both in 1Q and 2Q. We think that that will trend down in better weather for the second half of the year.

The third piece, which is the disposal component, Michael talked some about that, that it's going to take us a little longer to get the full disposal facilities in place. And so while we'll make some headway on that with some additional pipe and disposal wells in the ground this year, we won't get all the way where we want to be until really more towards the end of 2015.

So when you bake all that stuff together, it just takes time to work it down, but we feel good about the trajectory right now. And based on that we're going to be, like we've said in the past, we hope to be kind of more in the [$900 million] to [$950 million] range by year end. That's kind of how we got to our new full-year guidance.

Okay. And so the workover expense isn't necessarily related to -- I mean it's nothing different than typical field logistics? I mean you're not seeing more of that with older wells or is there anything -- is there any trend there or is that just the winter workover season that is running off?

Some of it is. We are experiencing a bit higher on the frac protect cleanout business.

Okay.

The good news in that is we're going back into some of these wells, the older wells that we hadn't been in before to find out if they're completely open all the way out to the end.

So we have had a bit more of that. But I think just on a go-forward basis, I do think even long-term our workover expense is going to be a bit higher.

Okay.

Just to be sure that the wells are cleaned out. And so I think it's probably is going to be a bit higher.

No. That's helpful. All right.

Thanks, Tommy. Thanks, Taylor.

Okay.

Ron Mills, Johnson Rice.

Hey, Taylor, maybe just a little bit more clarity on the second half completions. You have another 120 or 125 completions probably to get to that planned number for the year. How do those look in terms of -- or how are those weighted in the third quarter versus the fourth quarter?

In terms of? When you talk about weighting whatdo you mean?

In terms of how many if you have 120 or so wells left to complete to make up the remaining 60% of your completions for the year, how many of those will be in the third quarter versus the fourth quarter?

You're going to have about 55% or so in 3Q and then about 45% of that is going to be in 4Q if things kind of work out. So actually you should see a little bit bigger slug in the third quarter.

Like I said, we're going to work down these wells waiting on completion and then kind of a buildup as we get back to year end. So a little lower percentage happening in 4Q.

Okay. And then on the cost of the enhanced completions, the slickwater I think you talked about being $2 million, $2.5 million higher.

What's the relative impact if you on the wells where you are not using the slickwater but you're increasing the proppant volumes by 2 to 3 times? Are you doing those increased proppant completions in areas where you don't think the slickwater is as applicable?

So we're actually going to try those increased volume jobs in a lot of places where we're doing the slickwater. The overall cost impact of doing those larger jobs is about $2 million, but in general we think it will be a little bit smaller than because it's just popping more volume of all white sand.

So maybe more like $1.5 million to $2 million. But we've got jobs planned on the east side in Indian Hills and even in Montana.

We've seen some data in Montana where we're pretty encouraged that it could work there as well. So across the position we're optimistic.

In your release you talked about slickwater maybe being more applicable across more of the position that you now have tested in Montana, Red Bank, Indian Hills. Is it fair to say that you think that the slickwater's going to be applicable across the majority of your acreage relative to what you thought maybe three months ago?

Yes, Ron, it's expanded quite a bit and based on what we've seen to this point, we think potentially we could have uplift across most of it. The place that we're still pretty reserved is in Cottonwood and specifically North Cottonwood. So when you get above the area that we call Alger all to the north there we continue to pump a little smaller frac jobs to help control water cut. But we're going to test it in the south end and if we see positive results we'll march it more slowly.

Okay great. And then in the White Unit you have seven slickwater tests.

Are those spread across both the Bakken and the Three Forks? And is that the pad where you're going to drill 15 to 20 wells in total?

Yes, that pad is actually, like I talked about earlier, since it's on the acquired acreage it's infill spacing test. And we're not drilling out the full spacing unit. It's just seven wells.

And it will have one -- there's an existing Bakken well in that spacing that is producing. We'll drill another Bakken well, two first bench wells, two second bench wells, and two third bench wells. So we'll drill and then frac with slickwater across the whole section. And to your point about density, that's an area where you could have we think on the order of 15 to 20 wells drilled in a full spacing unit drill out.

And is that still really focused more on kind of the Indian Hills and South Cottonwood area where you think you end up with that kind of density, including the second and third benches?

Correct. At this point still those areas.

Okay great. And then Michael, one for you. You made a comment earlier about approaching free cash flow position is in terms of relative timing; I think you've talked about getting there within the next 18 months or so.

Is that still intact? And does that assume similar activity levels and capital spending to this year, or what are some of the inputs to that free cash flow positive comment?

Yes, it is similar, Ron. Obviously we've accelerated pretty rapidly over here over the last 12 months.

But with that level of activity going into next year we should get to and given kind of current oil prices and the differentials et cetera, we should get to a cash flow of breakeven next year. Sometime next year.

So there are a lot of things that kind of depends on, whether or not you keep the same level of activity. Some of those decisions that we talked about a little bit earlier on infrastructure, are we going to use third party, are we going to do some of it ourselves. But from just kind of the drilling or the E&P side of it, yes, I think we can get to quick cash flow neutral in 12 months.

And then on the pricing, you did have better pricing than most guys. You owe it to OMS in your comments, but if you think of the increase transportation cost versus the increased price realizations how much was kind of a net benefit on the price uplift versus the increased cost?

Yes, obviously on our LOE side we had slight increases to that LOE cost. Call it $1 to $2 versus where we have been historically. The good thing is that the infrastructure side can move those cash margins in a bigger way.

So I think our realizations are actually upwards of a couple dollars better than some of the other players in the basin. And so having good solid infrastructure that gives you a lot of flexibility, we've kind of said this a lot, but it gives us a lot of flexibility to move back and forth between pipe and rail and continuing to have that flexibility I think is a good thing.

The other part of it is having 96% of our wells connected to gas infrastructure allows us to get that incremental gas revenue, and remember that all drops to the bottom line, which is incredibly powerful for us from a cash margin standpoint. So we have been able to make up a lot of some of those smaller increasing costs on the LOE side with just much better realizations on the oil side and much higher sales on the gas side being connected to infrastructure.

Okay. Great. Thank you so much.

Thanks, Ron.

David Deckelbaum, KeyBanc.

Thanks, guys, for taking my questions. Taylor, I don't want to make you any sort of beat the subject to death on the slickwater fracs, but I am curious on as you think out into 2015 and testing this design, if you compare the costs and the uplift there will you be testing jobs or intending to test jobs not using ceramics or using all sand at least in Montana? And how are you thinking about that terms of being able to then drive a potential slickwater frac base completion down?

Yes, you touched on one of the big drivers to cost and our plan was to make initial test with all ceramic and then make a step to using -- you can use a portion of ceramic and then sand and then the next step would be all stand. And so the places that are shallower, the more distal parts of the basin like Montana, will be the first place we'll do that. And then we'll work in towards the more central areas.

The other place that we can make an impact is on the water side of the business. So low cost sources are important.

And then also the transportation being on pipe as opposed to trucking can have a big impact. So those are really the two big pieces we'll be working on.

Okay. And are there any issues I guess in your term getting the adequate number of pumps for all these slickwater jobs?

For us right now, we haven't had any problem with that. And we're planning around it so we don't anticipate having a problem getting them pumped.

Okay. My last question is just are you doing any of these jobs on any of the up-and-down spacing pilots? And I guess to follow that if the returns by and large improve for all wells with an enhanced completion design, could that potentially cause you to rethink how many wells per section would be sort of a base case that would improve that total NPV per section?

Sure. That's a good question. We've got all these recent results that we've talked about. So the Tough Toe, for example is in a spacing unit where we drilled eight wells, and that was a Three Forks well. The rest of the fracs in that unit were more conventional.

The Hebron well was in a spacing test. It wasn't a full spacing that was drilled, but it was three wells in proximity. And so we'll look at those results relative to the more conventional stimulations.

And then the piece of data we want to capture on top of that is the White Unit where we'll drill them, all seven of those wells in spacing across the Bakken all the way to the third bench and see what the performance looks like. It could result in a bigger stimulated rock volume and bigger drainage, which would then impact the distance between wells. And that's what we've got to figure out.

Are you impacting more rock or are you just more effectively breaking up the rock in and around the well that we're stimulating? So I don't have that answer yet. That's what we're focused on.

Thanks so much. Enjoy the warmer weather up there in the second half.

Thanks.

Gail Nicholson, KLR Group.

Good morning, gentlemen. Most of my questions have been asked, but just a point of clarification. The slickwater test that you did over in Montana you said that was on the western side of your acreage?

Correct. It's -- well we've got a presentation that's updated and should be posted today and if you look at it, it actually shows a map of where that well is. And it's really on the western portion kind of northwestern portion of what we call the Hebron block. And so the point of that is in general as you head to the west even within Montana, that package of rock thins. So if it's effective in that it just makes us feel even better about going back to the west, I mean back to the east.

Okay.

And that block is about two townships wide. And it's on the western side of the Western Township.

Okay. And then from the standpoint of looking at that area, was that area performing, on a non-slickwater basis, performing in line with the 450 MBOE type curve over in Hebron? Or has it been performing a little bit under below that expectation?

It's been, in fact I think that's in one of the presentations that we put out, that the average of the Hebron wells have been performing in line with that lower end of the type curve range or the 450-ish type curve.

Okay perfect, thanks.

Andrew Coleman, Raymond James.

Hey, great. Thanks for taking my questions. Looking at the slickwater jobs, I guess building on some of David's questions there a couple of minutes ago, how much more flowback are you seeing?

And I guess from a cost side I assume that that all goes in the OpEx budget when your need for more water disposal But is that a meaningful adjustment?

So it's -- you're right most of that there is a portion that on all these wells that we capture in capital, but it's pretty small. Overall most of it does go into LOE, but with our own disposal systems and disposal wells in place, it should not be significant impact on overall lease operating expense.

Okay. Good. And then, I was thinking about -- are there any bottlenecks in terms of water supply out there as you look to expand the use of slickwater across the acreage?

There's some areas that you've got to really plan for to get the water in place. And so it's really important to get out in front. An example of that would be Wild Basin. It's an area where we're going to pick up and run four rigs starting late 2015, early 2016. And we're doing the work now to make sure that we can cost effectively get water in that area.

You can always truck it, but it would get super expensive. So we want to have piping in place and in that case, we've got a couple water providers that we're working with that will help us to get that water piped at or near our location so we can really keep our costs down.

Okay. And is there an opportunity -- I mean there's probably -- can you just produce water or is this stuff too saline to try and use in frac?

Right now we're just looking at it as freshwater. We've done tests with produced water. Since it's not cross-linked it would be easier to pump it, but we don't have immediate plans to do a slickwater job with produced water. But it's something we're looking at.

Okay. Great. Thank you.

Thanks.

We have no further questions in the queue. I would now like to turn our call back over to Oasis Petroleum for closing remarks.

Great. Thanks guys. The team has delivered on another great quarter. We remain excited about our ability to consistently execute against our plan and look forward to an exciting second half of 2014. Thanks for participating on the call today.

This concludes today's conference call. You may now disconnect.