Whiting Petroleum (NYSE:WLL), known as the “King of the Bakken” during the 2010s’ oil boom, went bankrupt in April. But WLL stock came back. Same name. Different guys. New attitude.
Whiting emerged from bankruptcy in September with just hundreds of millions in debt, instead of billions, and new management devoted to “capital discipline and free cash flow.”
As oil prices have firmed this fall, so has Whiting stock. Shares are up 21% since the restructuring, 65% from a late October low.
Is it time to get back on board the oil train?
A Closer Look at WLL Stock
The old Whiting didn’t just crash because of debt. It crashed because the Bakken, a shale oil field extending from western North Dakota into surrounding states and Canada, is hard to make money in.
During the height of the boom, the area around Williston looked like something out of the 1860s. Wildcatters were sending out unconditioned oil to eastern refineries in trains.
These became known as “bomb trains” because the oil held volatile gas and liquids, not just crude. Some blew up. Wells depleted quickly in the tight, thin shale formations.
This didn’t matter when oil was at $100. That’s when Whiting consolidated its control in the field, buying Kodiak Oil for stock. It stayed afloat as oil settled into a trading range of $30-60 per barrel from 2016-2019, selling assets when necessary. When the Russia-Saudi price war started and the pandemic hit, it quickly went bankrupt.
The Pipelines
To stay solvent, the new Whiting needs mid-stream facilities that “condition” oil by heating it and extracting volatile gas and liquids. It also needs pipelines to take that oil to market cheaply. Even in September, Bakken oil was trading at a little over $35/barrel, an $8/barrel discount to the standard West Texas Intermediate (WTI) price.
That makes the Dakota Access Pipeline, with a capacity of handling 570,000 barrels/day, essential. A judge ordered it shut in July, but the case remains under review.
Incoming President Joe Biden has promised to kill a second pipeline, Keystone XL, running from Alberta. Activists want him to kill Dakota Access as well. Energy Secretary nominee Jennifer Granholm is said to oppose the pipelines.
Facing Future
If you owned WLL stock before the bankruptcy, you’ve already gone through a 1:75 reverse split.
The new company has just 38 million shares outstanding, and about 550,000 trade in an average day. In emerging from bankruptcy Whiting cut 16% of its workforce and forced pay cuts on the rest. It’s pumping about 90,000 barrels/day with capital spending in the $34-39 million range. Instead of $3 billion in long-term debt there’s a $750 million revolving credit facility.
The new structure meant it could report a net loss of just $241 million, $2.64 per share, for the September quarter. The hope is that Whiting will operate at near breakeven for the current quarter, which will be reported February 4. A recent analyst report carried a price target of $27. That’s 10% higher than its December 17 price of $24.50.
The Bottom Line on WLL Stock
There’s something worse than being hated. That’s being ignored.
Since Whiting re-emerged from bankruptcy, few reporters have covered it. “The Well has run dry” wrote our Lou Carlozo.
While I think the short-term prospects for the oil patch are good, given vaccines and pent-up travel demand, Whiting’s prospects aren’t. Without pipelines the numbers don’t work.
If the Biden Administration gives Dakota Access a reprieve, Whiting could be profitable for a few years. The market cap is $931 million for a company that did $1.6 billion in business during 2019.
You can speculate on that. But investors who believe in the oilpatch are better served in Permian plays like Pioneer Natural Resources (NYSE:PXD) and EOG Resources (NYSE:EOG). They’re worth twice their annual sales, not half, but they can make money.
On the date of publication, Dana Blankenhorn did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn.
