INSERT BLACK & WHITE PICTURE Bakken Producer Financial Stress January
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 2
Producer Review Producer Whiting Petroleum Emerald Oil Continental Resources Oasis Petroleum Northern Oil & Gas Comments Low amount of production hedged. Likely to violate lending covenant of EBITDAX to Debt ratio Significant hedges through, but likely to violate lending covenant Monetized 100% of hedge position in at $90 per bbl. leaving the rest of production exposed. Significant hedges through, but likely to violate interest coverage of 2.5X covenant on credit revolver Significant hedges through protect credit and capital budget Risk Assessment Critical Critical Moderate Moderate Low page 3
Producer Financial Benchmark Producers are positioned differently to handle the current WTI environment. CLR WLL EOX OAS NOG 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 $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 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 Estimated Credit Default page 4
Hedge Profile Hedge positions improve crude oil selling price as much as $30 above spot. Hedge Profile (Net $/bbl) $100 $90 $80 $70 $60 EOX OAS NOG Impact above spot Producer per bbl. CLR $ 0 WLL $ 0.37 EOX $ 12.22 $50 $40 $30 $20 $10 $0 CLR, WLL, WTI CLR WLL EOX WTI OAS NOG OAS $ 18.32 NOG $ 33 page 5
Production Cost Analysis WTI Needs to stay above $45-$47 for Bakken producers to cover costs. $80 $70 $60 $50 $40 $30 $20 DD&A Marketing Differential Interest G&A Taxes Production Expense Hurdle $10 $0 CLR WLL EOX OAS NOG Growth cannot be sustained unless WTI is above $70 per bbl. page 6
Company Report Whiting Petroleum (WLL) Diagnostics Debt to EBITDA 6.0 5.0 3.0 1.0 Whiting Petroleum has a credit line covenant not to exceed a Debt to EBITDA ratio of Based on current expenditures, Whiting will violate that covenant in and could trigger default Interest Coverage 1 8.0 6.0 will be challenging for Whiting Petroleum for Interest Coverage. Although not a covenant, low interest coverage is a sign of financial distress page 7
Company Report Whiting Petroleum (WLL) Liquidity Report $3,500,000,000 $3,000,000,000 $2,500,000,000 $2,000,000,000 $1,500,000,000 $1,000,000,000 Whiting Petroleum utilizes a mostly untapped credit revolver as the primary source of liquidity Whiting can maintain a capital plan at 75% of expenditure by utilizing the revolver Debt to EBITDA coverage covenants could restrict access to the credit revolver and trigger a default $500,000,000 $0 page 8
Company Report Emerald Oil (EOX) Diagnostics Debt to EBITDA Ratio 8.0 7.0 6.0 5.0 3.0 1.0 Emerald Oil s credit revolver has a covenant that Debt to EBITDA must remain below :1.0. At expected crude pricing, Emerald will violate this covenant in. Interest Coverage 25.0 2 15.0 1 5.0 Although not a credit covenant, Emerald Oil should be able to maintain an interest coverage ratio above 4 even with lower crude prices page 9
Company Report Emerald Oil (EOX) Liquidity Report $200,000,000 $180,000,000 $160,000,000 $140,000,000 $120,000,000 $100,000,000 $80,000,000 With the current capital plan to spend $62 - $81 million in, Emerald Oil will require access to their line of credit to operate in. If Emerald Oil violates the credit covenant of a debt to EBITDA ratio of, access to the credit line may be suspended $60,000,000 $40,000,000 $20,000,000 $0 Cash Credit page 10
Company Report Continental Resources (CLR) Diagnostics Debt to EBITDA 7.0 6.0 5.0 3.0 Although not a liquidity covenant, Continental Resources will struggle with a high Debt to EBITDA ratio for much of and 1.0 Interest Coverage 1 8.0 6.0 will be challenging for Continental Resources for Interest Coverage. Although not a covenant, low interest coverage is a sign of financial distress page 11
Company Report Continental Resources (CLR) Liquidity Report $3,000,000,000 $2,500,000,000 $2,000,000,000 $1,500,000,000 $1,000,000,000 Continental Resources monetized the value of their hedges at the end of 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, Continental Resources will need to rely heavily on their $1.75 BUSD credit revolver $500,000,000 $0 page 12
Company Report Oasis Petroleum (OAS) Diagnostics Debt to EBITDA 1 1 1 8.0 6.0 Oasis is highly leveraged with a EBITDA ratio beyond safe ranges Interest Coverage 5.0 3.0 1.0 Oasis Petroleum will violate debt covenants in that could default on the credit revolver page 13
Company Report Oasis Petroleum (OAS) Liquidity Report $1,800,000,000 $1,600,000,000 $1,400,000,000 $1,200,000,000 $1,000,000,000 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 $800,000,000 $600,000,000 $400,000,000 $200,000,000 $0 page 14
Company Report Northern Oil & Gas (NOG) Diagnostics Debt to EBITDA 5.0 3.0 Northern Oil & Gas will maintain a safe debt to EBITDA ratio well into 1.0 Interest Coverage 1 8.0 6.0 Northern Oil & Gas won t feel pressure from Interest Coverage until the end of due to the extent of previous hedged positions page 15
Company Report Northern Oil & Gas (NOG) Liquidity Report $400,000,000 $350,000,000 $300,000,000 $250,000,000 With a large portion of volume hedged, Northern Oil & Gas will continue to generate cash from operations while still deploying the capital plan. $200,000,000 $150,000,000 $100,000,000 $50,000,000 $0 page 16
For more information contact: Tom Bokowy, Partner (208) 610-0032 Cost & Capital Partners LLC tbokowy@costandcapital.com page 17