Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Whiting Petroleum Corp (NYSE:WLL) spiked 11% on Monday morning after a report late Friday evening that it was seeking a buyer. According to the Wall Street Journal report the company is in the middle of an auction process. It is unknown which companies might bid or if a deal will even be found for the beleaguered oil company.
So what: Whiting Petroleum has found itself on the wrong side of the oil price slide. The company bought Bakken shale rival Kodiak Oil & Gas right before oil prices imploded last year and now the company is saddled with a bit too much debt for the current oil price. The $11 billion company has about $5 billion in debt after paying $3.8 billion for Kodiak in a deal that added $2 billion to its debt load.
What's interesting is that about two years prior to buying Kodiak it was thought that Whiting was looking to sell itself. However, at that time it was said to be seeking too high a sale price and so potential buyers didn't bite. That's when Whiting decided to go from acquisition target to acquirer and bought Kodiak. However, now that the Kodiak deal has backfired the company has become the second shale-focused company that's rumored to be up for sale since prices plunged.
Now what: Investors will likely continue to be barraged with rumors of shale-focused companies being put on the auction block. Several drillers have too much debt for the current oil price and the easiest way to fix the problem is to merge with a deeper pocketed rival. This could lead to a merger wave over the coming year as well capitalized companies look to bulk up at bargain basement prices.