When oil prices plunged late last year, analysts and investors feared the worst when it came to the future of Whiting Petroleum Corp. (WLL). That's why its stock fell hard from a peak near $95 per share last fall to a bottom of just $25 per share as of January. The fear was that the collapse in oil prices would crush its ability to make money and leave the company in a credit crunch. Neither has proven to be true as the company actually reported surprisingly strong first-quarter results.

Drilling down into the numbers
Whiting Petroleum's record first-quarter production exceeded the high end of its own guidance. For the quarter, production averaged 166,930 barrels of oil equivalent per day, or BOE/d, for a total of 15 million BOE. That was 67% higher than the first quarter of 2014 due to strong organic growth and the acquisition of Kodiak Oil & Gas in late 2014. On a pro forma sequential basis, production was up 3% over last quarter. One of the other key drivers of production growth was the company's Redtail Niobrara play, where production rose 28% from the previous quarter to 13,000 BOE/d.

Despite this strong production, Whiting Petroleum turned in an adjusted loss of $39.1 million, or $0.23 per share, but that was $0.09 per share better than analysts anticipated. However, it was well under the $126.2 million, or $1.05 in adjusted earnings, the company delivered during the first quarter of last year. That said, Whiting is still making money on oil and gas -- it produced $249.3 million in discretionary cash flow during the quarter, which was 48% below the first quarter of 2014 due to weaker commodity prices.

One reason why the loss wasn't as steep as analysts were expecting is Whiting's strong operating cost savings. As the company's depreciation, depletion, and amortization rate per BOE dropped 28% year over year, its lease operating expenses per BOE fell 13% and its general and administrative costs decreased 18%. The cost reductions derived from a combination of cost-control measures and technology-driven productivity increases.

In addition, a combination of service company price reductions, operational efficiencies, and new technology applications is expected to substantially reduce completed well costs in the company's two shale plays by the end of this year. Bakken shale well costs are forecast to drop from $8.5 million last year to $6.5 million by year-end 2015, while costs are expected to drop from $6 million to $4.5 million in the Redtail Niobrara.

Whiting also has exceptionally strong liquidity, which investors had gravely worried about when oil prices turned south last year. After completing $108 million in noncore asset sales during the quarter and raising $3 billion in capital, Whiting's liquidity stands at $4.5 billion. This was after the company's banks reaffirmed its borrowing base, which investors had feared would be cut. That liquidity, when combined with the company's discretionary cash flow, is expected to fund Whiting's $2 billion capital expenditures program in 2015.

A look ahead
Whiting expects that $2 billion in capital to drive production growth in 2015. In the second quarter, the company plans to produce 14.8 to 15.2 MMBOE, and for the full year it expects production of 58.8 to 59.4 MMBOE. The company also this year plans to sell other noncore assets that have higher operating costs than its average cost for the Bakken and Niobrara assets. These sales could lead to lower than expected production. However, strong well results and lower well costs in 2015 could also provide some upside to guidance.

Investor takeaway
As Whiting Petroleum's first-quarter results testify, the company is in much better shape than investors and analysts had feared. It drove production above expected levels as advancements in technology are yielding better output results. Furthermore, the company is aggressively cutting costs, which is leading to better margins and profitability. While the company still has work to do, it is making significant progress.