Current EOX Stock Info

EOX Says Breakeven Price in the Bakken is $55/BOE

Emerald Oil is a pure play Williston Basin E&P with operations targeting the Bakken, Pronghorn and Three Forks shale oil formations. The company averaged production of 3,855 BOEPD in its Q3’14 results, along with net income of $13.7 million ($0.21 per share). The results represent respective increases of 3% and 80% and on a quarter-over-quarter basis.

“Emerald is well positioned to weather the current oil price environment,” said McAndrew Rudisill, Chief Executive Officer of Emerald Oil, in a company release. Click here for a list of results of completed EOX wells.

Borrowing Base Update

On December 1, 2014, Emerald Oil’s borrowing base increased to $250 million from $200 million. The increase is in line with company expectations and may grow even more in the next redetermination, which is scheduled for March 2015. In a conference call following its Q3’14 results, Ryan Smith, Chief Financial Officer of Emerald, said “We believe that our cash on hand combined with cash flow from operations and availability under our credit facility will adequately fund on drilling program for 2015 and allow us to be opportunistic in our pace of growth going forward.”

The company ended its most recent quarter with $13 million in cash and $20 million drawn on its revolving credit facility.

Situation in Oil Swoon

EOX management outlined three major benefits for the company in the current commodity environment: Breakeven prices, held by production (HBP) acreage and lease operating expenses (LOE).

  • Breakeven prices: “I think it’s pretty widely understood that on a realized $55 oil price…that’s basically breakeven economics for most of the operators in the Williston Basin,” said Rudisill in the call. “I’d put us in that same category.”
  • HBP acreage: EOX will transition from an infill program to drilling exclusively on its undeveloped units across its 121,000 net acres in North Dakota and Montana. Units on the latter region currently have no booked reserves. “So every new well that’s drilled on an undeveloped unit even in this oil price environment will result in new PDPs being created and then to some degree new PUDs for offset well locations,” said Rudisill. “It doesn’t make sense to drill infill wells in a declining oil price environment, but it definitely makes sense to drill HBP acreage.”
  • LOE costs: Management began its conference call by saying the company’s focus is to reduce operating costs and improve economics. LOEs for the quarter were $12.70/BOE, but the company anticipates costs dropping below $10/BOE once it completes the installation of new rod pumps on its existing wells. Production is also expected to be more stable and consistent due to reduced workovers.

EOX Moving Forward

Management mentioned its permits added up in the third quarter – a period that was also somewhat constrained due to road maintenance in the area. Therefore, the company expects less third-party obstacles moving forward and an increased inventory of green-lighted wells.

The company is considering reducing its rig count to two from its current level of three and will make the decision once a drilling lease expires at the end of March 2015. Regardless of the operated rig count, the company expects to fulfill all acreage requirements by no later than early 2016. An announcement will be made once EOX reaches a decision.

Regardless of its rig program, Emerald still forecasts 2015 production to increase by 55% (midpoint) in comparison to its 2014 levels. The rise in volume will “significantly increase” the company’s borrowing base as operations progress, said Smith. EOX expects 80% to 85% of its production to be HBP by the end of 2015 under its current scenario.

Moving to the balance sheet, EOX now has $242 million in available liquidity following the borrowing base increase and is fully funded for 2015. Its anticipated capital expenditures for 2015 are expected to range from $215 million to $260 million. Drilling and completion costs are projected to reach $225 million – a decrease of 10% compared to 2014.

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Analyst Commentary

Global Hunter Securities (11.04.14)

Emerald Oil, Inc. (AMEX: EOX; $2.88; Buy; $10.00 PT) Q3 Update: Focusing on priorities

Mixed. Q3 earnings were shy of estimates on lower production, pricing, and opex, and Q4 guidance was lowered by 6%. Looking into 2015, EOX will prioritize holding acreage and reducing its outspend rather than ramping its rig count, a message that should be welcomed by investors. We see current liquidity ($200MM plus $50MM expected borrowing base increase) funding the more conservative 2015 program (50%+ production growth), giving EOX greater flexibility in an uncertain commodity environment.  

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