What: Shares of Whiting Petroleum (NYSE:WLL) are down 10.7% as of 10:45 a.m. EDT as oil prices are sliding to the $40-per-barrel range. This was just after the company last week announced a less-than-impressive earnings announcement, where management said it was increasing its capital spending program for the rest of the year.
So what: Just as oil prices were looking like they were set to improve, we see a rapid decline to the $40-per-barrel range that puts most oil and gas producers on the losing side of breakeven cost ranges. For Whiting, this recent drop stings particularly hard because it announced just last week that it was planning to add $50 million to its capital spending budget for the rest of the year as management was starting to see improving fundamentals for oil prices. This past quarterly result showed that the company still isn't generating enough cash to even hold production steady. If it were to ramp up spending this quarter and oil prices were to remain around $40 as it is today, then chances are that Whiting will slip even deeper into the loss column than it already has.
Now what: Whiting is making some very creative moves to try to fund new drilling activity without spending money. In the past two quarters, it agreed to share 50% production on certain wells on the condition that its partner shoulders 65% of the funding for the well. It can be discouraging to see a company take steps like this, but it has to in order to maintain some cash flow without taking on more debt.
It's going to take a while before Whiting is in better financial shape, and until we see that improvement, the company is at best a speculative bet on oil prices and anyone looking for a long-term investment should probably look elsewhere.