Why Investors Should Dump Whiting Petroleum

There seems to be no end in sight for the crash is oil prices. Crude is now lost about 70% of its value since mid-2014 and it hit multi-year lows as the Chinese market plunged over 7% twice in the last seven days. With the market still plagued with oversupply, I think investors should not go bottom fishing for oil stocks as there may be more pain ahead. One stock in particular that investors should avoid, however, is Whiting Petroleum (WLL).

Like every other company in the energy sector, Whiting Petroleum has had a rough 12 months.
The stock has already lost over three fourths of its value in the last 12 months, however it may have more downside potential.

High debt

Whiting Petroleum currently has a towering debt and with oil trading for just over $30 per barrel, its debt will continue to increase going forward. During the end of the latest quarter, Whiting Petroleum’s debt stood at a massive $5.25 billion. By comparison, the company’s market capitalization is just over $1.61 billion.

Such a high level of debt will prove to be a burden and in the long-term, even if oil prices recover to $45 per barrel, Whiting Petroleum will struggle. Hence, I don’t think Whiting Petroleum has bottomed, and investors should continue avoiding the stock for the foreseeable future.

Oil Oversupply

The oil market is currently plagued with oversupply and I don’t expect it to end anytime soon. The production is still high and given the recent surge in demand for renewable energy, the future of crude oil looks bleak. So, investors can expect the production to stay at record levels as oil’s worth with decline in the coming years.

Governments worldwide will invest more in renewable energy sources and oil may lose a lot of its value in the coming years. Hence, oil prices are unlikely to reach the $100+ levels again and investors can, at best, hope for a 50% rally. However, even if oil touches the $45 per barrel mark, Whiting Petroleum will still struggle due to its high debt and business model.


With oil expected to fall further, I think investors should avoid debt-burdened companies like Whiting Petroleum. Crude oil is currently hovering around multi-year lows and may fall to mid-20s in the coming months. Given the climate conditions worldwide, many countries will push the deployment of renewable energy sources. Hence, I think oil will not recover to levels that make Whiting Petroleum a good investment in the future.
Published on Jan 11, 2016
By Akshansh Gandhi

Copyrighted 2020. Content published with author's permission.

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