Don’t Get Your Hopes Up for Whiting Petroleum Shares

Excess oil production, demand crushed by the spread of the novel coronavirus and a lack of storage all contributed to a horrendous oil-price rout in April. And undoubtedly, they were all factors in the price deterioration of Whiting Petroleum (NYSE:WLL) stock.

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It’s true that the per-barrel WTI oil price has recovered from April’s jarring lows. Despite this, WLL stockholders haven’t had much reason to celebrate. As the price of oil climbed, a dwindling number of WLL shareholders held on as the stock soon resumed its downward slide.

If an oil-price turnaround couldn’t bolster WLL stock, can anything save it now? It’s a legitimate question as an ongoing energy-sector shakeout could only leave a handful of survivors, with Whiting Petroleum an unlikely candidate for the short list.

The Story’s Worst Chapter

If the phrase “Chapter 11” doesn’t scare you away from WLL stock, then perhaps nothing will dissuade you. There are exceptions to every rule, but filing for bankruptcy protection is often the beginning of a company’s end.

Once a major oil producer in the North Dakota region of the Bakken Formation, the company officially filed for Chapter 11 bankruptcy proceedings in April. Some commentators might say that they saw it coming from a mile away. Yet, it shook the American oil market to the core as investors wondered if more companies might follow.

Whiting Petroleum Chairman, President and CEO Bradley J. Holly actually tried to spin this unfortunate event as a positive development for the company. He reported that Whiting has “explored a wide variety of alternatives to address our balance sheet and looming note maturities in a highly capital constrained market environment.”

It takes some reading between the lines to detect the bad news and blame deflection contained therein. For one thing, Holly’s blaming the oil market’s problems for Whiting’s problem. Yet, there are plenty of oil companies that aren’t filing for Chapter 11 (yet).

Beyond playing the blame game, Whiting’s CEO indirectly acknowledged the company’s unfavorable balance sheet. And “looming note maturities” is a fancy way of saying that Whiting would soon have to repay a whole lot of debt. In truth, no CEO-speak spin job can hide the cracks in Whiting’s foundation.

An Oil Major’s Last Gasp

It’s heartbreaking to watch a once revered oil major like Whiting Petroleum fall so far. And for WLL stockholders, it’s no less painful to witness the shares’ sustained price decline.

Interestingly, the WLL stock price actually leaped 15% after the company announced its Chapter 11 filing. This type of price action is difficult to explain from a rational perspective. But then, as we should all know by now, the markets aren’t always rational.

The most likely explanation is that the buy-side WLL stock traders felt a sense of relief. After all, the terms of the Chapter 11 filing indicated a reorganizing of the company. Could Whiting Petroleum emerge from this a better company offering a stronger shareholder value proposition?

Don’t count on it. According to the Chapter 11 restructuring terms, Whiting’s existing shareholders at that time would receive only 3% of the newly reorganized company’s equity. So basically, the stockholders would get the very, very short end of the stick.

In any case, WLL stockholders haven’t had much to celebrate lately. The share price has remained stubbornly low. In fact, it’s been so low for so long that the New York Stock Exchange has threatened to delist the stock.

Specifically, as reported in a press release from Whiting, the company received a notice stating that WLL stock “is not in compliance with the NYSE’s continued listing standard that requires the average closing price of a listed company’s common stock be at least $1 per share over a consecutive 30 trading-day period.”

A delisting would effectively be viewed as a demotion by the trading community. It’s like being sent to the doghouse. But in Whiting’s case, given the company’s financial problems, it might have to live in the doghouse permanently. And in time, it might not exist at all.

The Takeaway on WLL Stock

Harboring hope in a recovery for WLL stock is, to put it bluntly, a noble but lost cause. There are other energy-sector plays out there, and some of them will get to keep their well-earned place on a major stock exchange.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, he did not hold a position in any of the aforementioned securities.


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