Whiting Petroleum Case Analysis

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Whiting Petroleum (WLL)
Whiting Petroleum announced its third quarter 2015 results on Wednesday, 28th October. The company produced 14.8 million barrels of oil equivalent (MMBOE) at the average rate of 160,590 barrels of oil equivalent per day (BOE/d). The total production was 38 % greater than the third quarter production of last year. This production volume is without the 8,700 BOE/d of production capacity from the assets sold out in the second quarter of this year. Till now, the company has sold approximately $ 400 million of assets out of which $ 100 million came in the third quarter itself. On the other hand the newly completed designs in the Williston Basin are delivering 44 % production increases over second quarter 2015 on a per well basis. Also, the Johnson pad in the Cassandra area has tested an average rate per well of 5,224 BOEs per day.
The company CEO commented that the company has enough liquidity and a strong capital structure. The company has $ 38 million cash in hand and an undrawn credit facility of $ 3.5 billion on a borrowing base of $ 4 billion that remained unchanged after redetermination with its lenders. This shows the confidence that the company’s lender group has in the quality of its assets and in the strategic plans that the company is following. Further, the first major bond maturity is still 2 years away from now. Thus the company can have enough time to work out its cash flow fundamentals and may be the energy market improves before that. And the company is well within all of the covenants in our credit agreement and our bond indentures. The company has significantly reduced its unit costs over the quarter compared to last year. The Depreciation, Depletion and Amortization (DD&A) rate per BOE was down 20 % to $ 21.40. The Lease Operating Expenses (LOE) per BOE decreased 26 % to $ 8.50 and G&A per BOE is down 12 % to $ 3.03. What Whiting is doing to survive? To weather these times of low oil and gas prices, oil and gas are focusing on their efficiencies more than ever. Some are focusing on their core assets while selling off the non-core assets to generate some cash flow and reduce some debt. On the similar lines, Whiting has completed a total of approximately $ 400 million of non-core asset sales with estimated remaining 2015 production of 11.6 MBOE/d. The company has dropped 3 out of a total of 11 rigs in September to reduce operating costs. On the capex front, Whiting decreased our capital spending 46 % in the third quarter and still managed to maintain the production rate as per plans. The company is also in the process of limiting its capex within
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Although it has not posted a very outstanding result for the previous quarter, it has got some strong points. It has reduced its operating costs and capex drastically. It has got some quality assets that are showing further improvements in efficiency and capacity. A big percentage of its production is hedged for the coming years as mentioned in the earnings presentation. And lastly, the confidence shown in the company by its lenders provides a positive signal to its equity investors as well. Hence Whiting is a decent bet in the current price environment and will get better as the prices

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