Whiting USA Trust II


Mike Ulrich
The Bank of New York Mellon Trust Company, N.A.

Corporate Trust
601 Travis Street, 16th Floor
Houston, TX 77002
Phone: 512-236-6599

Whiting USA Trust II Announces Trust Quarterly Distribution

Friday, November 4, 2016 2:00 pm PDT



Public Company Information:


AUSTIN, Texas--(BUSINESS WIRE)--Whiting USA Trust II (OTC Pink: WHZT) announced today that the Trust will make a distribution to unitholders in the fourth quarter of 2016, which relates to net profits generated during the third quarterly payment period of 2016. Unitholders of record on November 19, 2016 (which results in an effective record date of November 18, 2016 due to the 19th of November falling on a non-trading day) will receive a distribution of $0.065170 per unit, which is payable on or before November 29, 2016 (the “November 2016 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 November 19, 2016 record date (which results in an effective record date of November 18, 2016) as it relates to 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 November 2016 distribution.

Sales volumes, net profits and selected performance metrics for the quarter payment period were:

Sales volumes:    
Oil (Bbl)(1) 249,431
Natural gas (Mcf)   343,516  
Total (BOE) 306,684
Gross proceeds:
Oil sales(1) $ 9,308,640
Natural gas sales   859,065  
Total gross proceeds $ 10,167,705  
Lease operating expenses $ 7,605,058
Production taxes 539,770
Development costs 475,559
Cash settlements on commodity derivatives(2)   -  
Total costs $ 8,620,387  
Net profits $ 1,547,318
Percentage allocable to Trust’s Net Profits Interest   90 %
Total cash available for the Trust $ 1,392,586
Proceeds from sale of oil and gas properties(3) 58,500
Provision for estimated Trust expenses (250,000 )
Montana state income taxes withheld   (1,967 )
Net cash proceeds available for distribution $ 1,199,119
Trust units outstanding   18,400,000  
Cash distribution per Trust unit $ 0.065170  
Selected performance metrics:
Crude oil average realized price (per Bbl)(1) $ 37.32
Natural gas average realized price (per Mcf) $ 2.50
Lease operating expenses (per BOE) $ 24.80
Production tax rate (percent of total gross proceeds) 5.3 %
(1)   Oil includes natural gas liquids.
(2) 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.
(3) In September 2016, Whiting completed the sale of three shut-in oil and gas wells (effective for all cost and sales proceeds, if any, beginning September 1, 2016) for a total purchase price of $65,000 ($58,500 to the 90% net profits interest). The divested properties were located within the Chester and Blair fields in Michigan and had no remaining proved reserves since these wells were being prepared for plugging and abandonment operations by Whiting.

Status of the Trust

Oil and natural gas prices have fallen significantly since reaching highs of $105.00 per Bbl and $4.80 per Mcf, respectively, during 2014. As a result of the decline in commodity prices, the Trust did not have sufficient available funds to make any distributions to unitholders during the nine months ended September 30, 2016, and the NPI generated relatively minimal distributable income for the November 2016 distribution. The Trust is unable to predict future commodity prices; however, it appears likely that future distributions, if any, to Trust unitholders will continue to be significantly impacted by low oil and natural gas prices.

If the net profits interest (“NPI”) continues to generate limited net profits or additional net losses, 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 Trustee may borrow the funds required to pay the Trust’s liabilities if the Trustee determines that the cash on hand and the cash to be received, which is dependent on future net proceeds, are insufficient to cover the Trust’s liabilities. If the Trustee determines that the Trust’s cash reserves are insufficient to cover the general and administrative expenses of the Trust during periods when the NPI generates net losses or limited net profits, Whiting intends to loan to the Trust the amount of funds necessary to satisfy payment of its liabilities.

Trust Termination

The Trust will wind up its affairs and terminate shortly after the earlier of (a) the sale of the NPI or (b) the net profits interest termination date, which will be 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 June 30, 2022 based on the Trust’s year-end 2015 reserve report. After the termination of the Trust, it will pay no further distributions.

The Trust is required to sell the NPI and terminate if cash proceeds to the Trust from the net profits interest are less than $2.0 million for each of any two consecutive years. During the nine months ended September 30, 2016, the Trust received cash proceeds of $0.5 million from the net profits interest and, when giving effect to the November 2016 distribution, the Trust will only have received $1.9 million in cash proceeds from the NPI for the year ending December 31, 2016. Therefore, if the cash proceeds to the Trust from the net profits interest are less than $2.0 million for the year ending December 31, 2017, the Trust will be required to sell the NPI and terminate.

The market price of the Trust units will decline to zero at termination of the Trust, which will occur around or shortly after the sale or termination 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

The Trust’s net profits interest 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.

As of September 30, 2016, on a cumulative accrual basis, 6.63 MMBOE (63%) 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, 2015, the Trust’s 10.61 MMBOE are projected to be produced by June 30, 2022, shortly after which the Trust would terminate (if not otherwise required to terminate at an earlier date as discussed above). Additionally, the 2015 year-end reserve report reflects expected annualized decline rates of approximately 14% for oil and 21% for gas between 2016 and 2022, which estimates are derived from NYMEX oil and gas prices of $50.28 per Bbl and $2.58 per MMbtu as calculated pursuant to current SEC and FASB guidelines, whereas comparable reserve report NYMEX oil and gas prices as of October 31, 2016 were $41.97 per Bbl and $2.31 per MMBtu, respectively. Lower oil and gas 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. Additionally, 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) commodity price declines, (ii) fixed and semi-variable costs not decreasing as fast as production volumes or (iii) expected future development being delayed, reduced or cancelled.

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, 2015 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.


Whiting USA Trust II
The Bank of New York Mellon Trust Company, N.A., as Trustee
Mike Ulrich, 512-236-6599