Do You Really Want to Be Part of the 3% That Own Shares in Whiting Petroleum?

Why? That’s the question I asked myself when the InvestorPlace editors asked me to write about Whiting Petroleum (NYSE:WLL). I wrote about WLL stock in June and thought I had said everything that needed to be said. But apparently, Whiting was making the rounds as a bankruptcy trade. This was despite the company clearly stating that only 3% of its remaining equity would be available to shareholders.

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However, it seems that many traders are starting to jump ship. WLL stock has dropped over 20% in the last month as investors digest the sobering reality of what being part of the 3% means.

Whiting Will Exit Bankruptcy

Like most companies that enter bankruptcy, the drama was over by the time Whiting filed. There was no immediate concern of the stock going to $0. By working out a reorganization plan, the only question was how long it would take for the company to exit the process.

The company will be exiting bankruptcy any day now and at that point, as my colleague Mark Hake wrote, Whiting will have a little equity left for current shareholders. But that little bit equals 3%. And in Hake’s best-case scenario, the shares will be worth 66 cents per share.

But that was based on a couple of factors including that the price of oil would rise by 50% and the value of oil stocks would rise by 50%. The novel coronavirus may have something to say about that. Cases are rising for many reasons. But as recently as July 21, President Trump has acknowledged that the infection rate (and you would imagine death toll) will get worse before it gets better.

That doesn’t sound like schools are opening. And it means that it could be the absolute worst-case scenario for cruise ships and airlines.

So, about those oil prices? Exactly.

Will Whiting Get Bought Out

It wouldn’t be the boldest prediction to say that Whiting could be the target of a buyout. The problem is whether a potential investor will see any value in Whiting’s asset base. At the very least, the acquiring company will have a fair market price to work with.

In fact, Whiting has been the subject of takeover rumors in the past. Since the company expects to repay some of its debt in full, it may make the company more attractive.

Get Out of WLL Stock While You Still Can

I’m probably too conservative for some of you, but in general, when a stock goes into bankruptcy it’s going to have to do a lot to prove it’s worth my capital. Such is the case with Whiting. With oil prices likely to remain under pressure into 2021, there’s simply nothing to get excited about.

This is not a renewable energy company. Its business is “hydrocarbon exploration.” In other words, it’s a shale producer. If Joe Biden wins the White House, the shale industry won’t enjoy the benign neglect it received from the Obama administration. At that time, it was a necessary evil to begin building the new energy infrastructure. Today’s cancel culture will have little patience for the oil industry in general, and shale producers specifically.

And if President Trump manages to win re-election, oil prices will still have to be much higher for Whiting to have any hope of making money.

The bankruptcy trade may have made somebody money, but it’s time to jump ship. There are no more women and children to save. Even the orchestra has packed up and left. If Hake’s most optimistic projection is accurate, shareholders will get a haircut of over 50% with no reasonable hope of growth and no dividend.

It’s simply time to get out of WLL stock.

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.

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