Whiting Petroleum Corp (NYSE:WLL) plunged Thursday on a quarterly earnings miss but anyone who’s held WLL stock for any length of time knows that big swings are just part of the deal.
As the largest oil production company in North Dakota, WLL is a pure-play for fracking and an indirect play on crude prices. Naturally, this makes Whiting’s outlook especially uncertain.
To be fair, it’s becoming clear that the Whiting stock story is really about 2017. WLL signed another participation agreement last quarter. The partnership will allow it to drill an additional 44 wells this year and add $50 million to capital expenditures. That’s a fairly upbeat view of the market. As the company said in a media release:
“All of the new combined operational activity should help stabilize production in the last quarter of the year and give positive momentum entering 2017.”
For now, however, things are rough. Production fell and crude prices dropped in the most recent quarter, a double whammy that shellacked the bottom line.
The company’s second-quarter loss widened to $301 million, or $1.33 a share, compared with a net loss of $149.3 million, or 73 cents a share, in the prior-year period.
On an adjusted basis — which is what analysts care about — Whiting Petroleum’s net loss came to 70 cents a share. Wall Street, on average, was looking for a loss of 46 cents a share. That’s a big earnings miss.
Revenue slumped to $339.6 million from $590 million a year ago. Analysts expected the top line to hit $388.3 million. Production fell 22% to 12.2 million barrels of oil equivalent.
Remember that WLL Stock Is a Roller Coaster
The market punished Whiting Petroleum stock on the report, but as noted above, this name is unusually volatile.
That can be attributed partly to high short interest. Perhaps traders are using WLL as a proxy for oil prices. Whatever the reason, 18% of the float is sold short. Two months ago, that number was above 25%.
And then there’s the wider view. At $1.41 billion, WLL is a small-cap stock. Small caps tend to be comparatively volatile — although WLL really overdoes it. With a five-year beta of 3.18, shares can be described as being three times more volatile than the broader market.
Be that as it may, the short float is in decline. Apparently, sentiment is improving. That makes some sense.
The company is cleaning up its balance sheet by converting debt to equity — a bummer for existing shareholders — but it’s helping to ease pressure on cash flow. WLL also repay $200 million in long-term debt. At the same time, a couple of participation agreements have WLL poised to ramp back up at a cautious pace.
It’s hard to have conviction on this name one way or the other if for no other reason than oil-price instability. Just look at the Street’s view. Of the 39 analysts covering the stock, 16 call it a buy, 22 say it’s a hold and one has it at sell.
Take your pick. The only thing for certain is that whichever way WLL stock trends, it’s sure to be a bumpy ride.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.