HOUSTON--(BUSINESS WIRE)--Whiting USA Trust II (OTC: WHZT) announced today that the Trust will make a distribution to unitholders in the first quarter of 2018, which relates to net profits generated during the fourth quarterly payment period of 2017. Unitholders of record on February 19, 2018 will receive a distribution of $0.171231 per unit, which is payable on or before March 1, 2018 (the “February 2018 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 effective record date of February 19, 2018 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 2018 distribution.
Sales volumes, net profits and selected performance metrics for the quarterly payment period were:
Sales volumes: Oil (Bbl)(1) 246,782 Natural gas (Mcf) 333,921 Total (BOE)(2) 302,436 Gross proceeds: Oil sales(1) $ 12,066,925 Natural gas sales 1,129,346 Total gross proceeds(2) $ 13,196,271 Costs: Lease operating expenses $ 7,844,216 Production taxes 709,059 Development costs 970,366 Cash settlements on commodity derivatives(3) - Total costs $ 9,523,641 Net profits $ 3,672,630 Percentage allocable to Trust’s Net Profits Interest 90 % Total cash available for the Trust $ 3,305,367 Provision for estimated Trust expenses (150,000 ) Montana state income taxes withheld (4,715 ) Net cash proceeds available for distribution $ 3,150,652 Trust units outstanding 18,400,000 Cash distribution per Trust unit $ 0.171231 Selected performance metrics: Crude oil average realized price (per Bbl)(1) $ 48.90 Natural gas average realized price (per Mcf)(4) $ 3.38 Lease operating expenses (per BOE) $ 25.94 Production tax rate (percent of total gross proceeds) 5.4 %
(1) Oil includes natural gas liquids. (2) The February 2018 distribution includes production of 21,099 BOE attributable to the first two Keystone South farm-out wells, which production generated gross proceeds of $1.0 million during the fourth quarterly payment period of 2017. (3) 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. (4) 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.
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 2017 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, 2017, on a cumulative accrual basis, 7.95 MMBOE (75%) 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, 2017, the Trust’s 10.61 MMBOE are projected to be produced by December 31, 2021, shortly after which the Trust would terminate. The 2017 year-end reserve report reflects expected annualized production decline rates of approximately 13.3% for oil and 25.9% for gas between 2018 and 2021, which estimates are derived from NYMEX oil and gas prices of $51.34 per Bbl and $2.98 per MMbtu as calculated pursuant to current SEC and FASB guidelines. As of January 31, 2018, the NYMEX oil and gas prices were $64.73 per Bbl and $3.00 per MMBtu, respectively.
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. As a result of the low commodity prices experienced during 2016, the Trust did not have sufficient available funds to make any distributions to unitholders during the first three calendar quarters of 2016, and the NPI generated relatively low distributable income for the fourth quarter of 2016. Additionally, in the current commodity price environment, the Trust’s distributions have increased sensitivity to fluctuations in operating and capital expenditures, as was the case for the third quarterly payment period of 2017 which resulted in a cash distribution of approximately $0.01 per Trust unit. 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.
The Trust is unable to predict future commodity prices. 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 in costs 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 or the Trust.
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, 2017 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 properties, and future production and development costs. 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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