As an oil and gas producer, Whiting Petroleum Corporation (NYSE:WLL) is subject to the whims of energy prices. While acquiring oil reserve assets in the Dakotas or the Permian Basin is important, the company's profits are also derived from a myriad of market forces that are largely out of its control. Whiting knows that better than most: Its stock has languished far worse than those of many of its peers.
But there may be hope. To learn what might be in Whiting Petroleum's future, it helps to have a basic knowledge of its past. Read on for some highlights of Whiting Petroleum's history.
A Rocky (Mountains) history
Kenneth R. Whiting and Bert Ladd co-founded Whiting Petroleum Corporation in 1980. Alliant Energy acquired it 12 years later, and it went public with an IPO in 2003. The original Whiting had its roots in Colorado and has stayed true to those roots to this day. The vast majority of its reserves come from the Rocky Mountain states.
Along with much of the oil industry, Whiting was a darling of the stock market right up until the trouble started in 2014. Perhaps in anticipation of the problems ahead, the company made a wise move to put itself up for sale. The company's production costs are decent, standing at $13.38 per barrel for fiscal 2016, but nowhere near the low levels of peers Anadarko Petroleum or Pioneer Natural Resources. There were thus no takers, and Whiting has continued operating as an independent oil and gas producer. Whiting is in survival, not growth, mode today. Recently, in the face of losses amid depressed oil prices, the company has sold off assets. The latest of its deals, which closed on Sept. 1, is the $500 million sale of its Fort Berthold area assets in North Dakota. The proceeds will go toward paying down some of Whiting's sizable liabilities.
The Fort Berthold properties represent about 7% of Whiting's total production. While the sale gives the company a lifeline and probably brought a fair price, a business doesn't grow in the long term by asset sales alone, and management knows that. Its current strategy is to focus on projects that offer outsize return potential. Amid sagging energy prices, the company has consolidated its reserve portfolio and operations around its Williston Basin assets. These moves are being made against the backdrop of capital spending cuts. For the third quarter of 2017, the company expects its drilling rig count to fall from six to four and to remain there for the rest of 2017. All that management has said of future asset sales is that they will be carried out as appropriate.
Revenue for Q2 2016 came in at $311.5 million. The net loss was $66 million, which included a one-time gain of $47 million. Production in Q2 2017 totaled 10.3 million barrels of oil equivalent. A total of 10 wells were brought online and began producing, down from 22 a year earlier.
CEO James Folker noted that despite his team's plan to cut annual capital spending to $950 million for the year, Whiting still expected to achieve 14% production growth, representing a 23% increase over fiscal 2016 adjusted levels. He also reiterated the company's commitment to the Williston Basin, where it controls a net 449,857 acres, and to strengthening Whiting's balance sheet.
Whiting's management team is making the best of a bad situation. The company continues to lose money and has generated losses since the beginning of the current oil downturn. Its stock trades around an all-time low of just below $5. Investors should (at the very least) consider Whiting's history a cautionary tale: selling off assets in order to keep the lights on never leads to long-term riches. Whiting has managed to stay afloat so far, through cost-cutting, a focus on higher-quality wells, and asset sales. The problem is, if oil prices don't stage some sort of rebound soon, Whiting will eventually run out of assets to sell. Risk-tolerant investors may find Whiting intriguing, but even the most adventurous among them should consider that there are always more fish in the sea.