Here's Why Whiting (WLL) Is Worth Holding Despite All Odds
Zacks Investment Research | Oct 16, 2019 12:18AM ET
Whiting Petroleum Corporation’s (NYSE:WLL) stock has plummeted 83.9% in the past 12 months compared with the industry’s 53.9 decline. Apart from lower oil prices, the company recently saw its discretionary cash flow decline below capital spending, reflecting a negative free cash flow (FCF). Investors were further spooked by Whiting Petroleum's downward revision of its 2019 production guidance.
However, this upstream player boasts an enviable acreage of top-tier assets and a multi-year drilling inventory. Moreover, the company’s continually improving oil well costs has driven drilling efficiency while leading to lower cash expenses in the process. Reportedly, Whiting Petroleum’s deal talks with its smaller rival Abraxas Petroleum (NASDAQ:AXAS) might expand the company’s acreage in North Dakota's Bakken Shale and spread the burden of its operating expense over larger production. These are likely to impact the company’s near-term results.
Let’s delve deeper.
Factors Impeding Whiting Petroleum's Growth
Whiting Petroleum has revised its 2019 production outlook due to issues related to infrastructure constraints that are expected to persist in the remaining year. The firm expects 2019 production in the range of 45-46.5 million barrels of oil equivalent, down from 46.7-47.7 million barrels of oil equivalent projected before.
Whiting Petroleum also announced its streamlining initiative that will include a 33% cutback in headcount including the elimination of 94 positions at the executive and corporate levels. Management predicts this strategic move to save $50 million annually.
The consistent ramp-up of domestic production, courtesy of soaring shale output dragged down oil prices toward the psychologically critical $50 threshold. This will keep Whiting Petroleum — with around 80% liquids-weighted production — under pressure. Moreover, at the current oil price level, the company is unlikely to fund its operations, thereby making it heavily dependent on other sources of financing.
On a further discouraging note, the company’s second-quarter discretionary cash flow of $225.4 million was lower than the capital spending of $232 million. This further accounts for a negative free cash flow of $6.6 million. At a time, when maximum companies are exercising caution by trimming the respective 2019 capex, Whiting Petroleum’s spending forecast remains almost unchanged from last year’s level. This may further put pressure on its cash flows.
Whiting Petroleum Corporation Price
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