Whiting Petroleum: Should You Buy?

Whiting Petroleum (WLL) disappointed the Street with its third-quarter results on the back of huge write downs and lower oil prices. Although its adjusted loss came above the analyst’s expectations, but Whiting’s decision to cut capital spending spooked investors, which could further weigh on its stock in the days to come. Starting with its third-quarter numbers, let’s see its prospects in detail.

A bad quarter

Whiting Petroleum saw a fall of around 60% in revenue from last year to $508 million, while reporting an adjusted loss of 17 cents a share compared to an EPS of $1.24 in the same period last year.
Analysts were expecting a loss of 25 cents per share on revenue of $536.25 million. Despite its significant beat, investors were worried on its decision to cut spending until the pricing environment improves.

Meanwhile, Whiting Petroleum has undertaken some strong measures in the light of the present downturn in the commodity market. In this direction, it has sold around $400 million of assets and anticipates further non-core asset sales by the end of this year. The company is well positioned from a liquidity and debt maturity perspective to deal with lower oil prices. For instance, Whiting Petroleum has a strong capital structure with $38 million in cash, along with a credit facility of $3.5 billion.

In addition, it has a strong asset portfolio, which will act as the key to its future growth. For instance, in the Williston Basin, Whiting Petroleum controls the sweet spots in the Central, Eastern and Southern region of the basin, and continues to increase productivity with new completion technology.

Also, Whiting has made significant improvement in its cost base. There has been a significant reduction in its DD&A, LOE, and G&A expenses on a year-over-year basis. This is essential for its survival in the long run and will help the company to mitigate the current downtrend in oil prices.

Despite these initiatives, its headwinds are far from over as the company wrote down $2.57 billion in assets. As per a report published in the RigZone, “The writedown was all the more surprising because much of the Kodiak acreage that Whiting acquired is in the core of North Dakota's Bakken shale formation, where costs typically are lower. Whiting effectively paid $23.77 per barrel for Kodiak's proven reserves of 167 million barrels of oil equivalent.”


Although we cannot expect a quick fix for oil prices, but the company seems to be making the right moves in the present environment. Presently, it does not have any signs of trailing or forward P/E, but analysts anticipate its earnings to increase 28.8% in the next fiscal year. Moreover, at current levels its stock seems fairly valued as it has a P/S multiple of 1.43 as compared to the industry average of 1.13, which is quite good. Thus, in the light of these facts, Whiting Petroleum seems to be a good long-term bet.
Published on Nov 6, 2015
By Yaggyaseni Mittra

Copyrighted 2020. Content published with author's permission.

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