Whiting Petroleum (NYSE:WLL) is expecting to be out of bankruptcy sometime in August. Between now and then, there’s no reason to hang on to WLL stock. Under terms of the bankruptcy, 97% of the company’s equity will be going to creditors.
Given that Whiting filed for bankruptcy on April 1, 2020, the recent rally in Whiting stock was a little head scratching. It’s clear that many traders were using the recent uptick in oil prices to claim a quick profit in the beleaguered stock.
Looking to capitalize on beaten-down stocks with poor fundamentals isn’t my investing style. But if it works for others, that’s great. But I expect those traders will be exiting their WLL stock positions any day now. After all, with only 3% of the company’s equity going to shareholders, there’s just nothing to get excited about.
Investors now need to consider what a post-bankruptcy Whiting looks like. And that’s what I’ll take a look at in this article.
The Price of Oil Will Continue to Be Under Pressure
The International Energy Agency (IEA) is forecasting that global oil demand is likely to contract in 2020. This would be the first time global oil demand has fallen since the economy was emerging from the global recession in 2009.
And although the report does forecast a sharp rebound for oil prices in 2021, the agency does not expect that to be sustainable. The IEA forecast for global oil demand shows an annual growth rate of 950,000 barrels per day (kb/d) through 2025. This would be in contrast to the 1.5 million barrels per day (mb/d) annual pace that oil has followed in the past 10 years.
None of that bodes well for Whiting. In a recent InvestorPlace article, Josh Enomoto made a clear case for why Whiting needs oil prices to be much higher to make their exploration activities viable. Enomoto wrote:
Even with improved demand for oil, prices are still too low for Whiting. If the company was having problems with light crude oil at $60, then prices below $40 would be moving the needle in the wrong direction.
Whiting Is a Traditional Oil Company in a New Energy World
One of the talking points that arose after the national lockdown is the positive effect that demand destruction in oil had on the environment. Of course, people weren’t driving electric cars or hybrids any more than they were driving traditional cars, but the point stands.
But the reality is that alternative and renewable energy sources are becoming increasingly more cost-effective. And that’s why many “traditional” oil companies, such as BP (NYSE:BP), Royal Dutch Shell (NYSE:RDS.A) and Exxon Mobil (NYSE:XOM), invest billions of dollars into these new technologies.
Whiting on the other hand does not have a footprint in this new energy future. It’s an oil company and a shale producer at that. The oil companies listed above have an alternative energy footprint, and they still need to have oil prices significantly higher than they currently are. For Whiting, that is an even larger imperative.
Is WLL Stock a Buy after Bankruptcy?
In the short term, traditional fossil fuels will still be needed if for no other reason than to help build out the infrastructure for the new economy. But the facts don’t look good for the overall demand outlook. Many businesses such as Twitter (NYSE:TWTR) are allowing employees to work from home forever. There is, as of yet, no consensus on what schools will look like in the fall.
Whiting was the first oil company to file for bankruptcy. The problem for the company is that, even as it emerges from bankruptcy, there’s nothing at the moment for investors to get excited about. And that means that WLL stock is still going to be under pressure even as it emerges from bankruptcy.
Whiting was one of the riskier stocks in the oil patch when the economy was humming along. In the current environment, there are simply too many other oil stocks that have a much brighter future than Whiting.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.
