Whiting Petroleum Is Down in the Dumps

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Whiting Petroleum stock has been down in the dumps this year, losing over 70% of its value as the downturn in oil prices over the past few months has affected the company’s results big time. This was evident from the company’s last set of results that exposed its weaknesses and also forced it to lay off a third of its workforce.

Whiting had to cut 254 jobs as a delay in the development of infrastructure in North Dakota dented its performance. Biz Journals reports Whiting CEO as remarking:

Infrastructure constraints were more severe than anticipated, and we did not have enough cushion for operating delays,” Brad Holly, president, CEO and chairman of the company, said on a call Thursday.

However, this is not the only problem Whiting is facing right now.

Weak Price Realizations Wreaked Havoc on Whiting’s Performance

Whiting Petroleum delivered production of 127,090 barrels of oil equivalent per day during the second quarter of fiscal 2019. This was slightly higher than the year-ago period’s output of 126,180 barrels of oil equivalent per day.

However, Whiting’s top line plunged 19% annually to $426.3 million during the quarter. This massive revenue drop was a result of lower realized prices that Whiting witnessed during the quarter. The company’s average sales price of oil dropped 14% year over year to $54 per barrel. The price of natural gas liquids was down 45% year over year, while natural gas prices plunged 64%.

At the same time, Whiting witnessed an increase in its cost profile. The company’s lease operating expense increased to $7.52 per BOE during the quarter as compared to $6.55 in the year-ago period. Given the negative direction Whiting’s key operating metrics went during the second quarter, it was not surprising to see the company deliver an adjusted net loss of $22.7 million as compared to a substantial profit of $141 million a year ago.

And because of the all-round weakness that Whiting is witnessing, the company has been forced to scale back its guidance for the remainder of the year.

Scaling Back Its Expectations

Whiting Petroleum now expects annual production in the range of 45 million to 46.5 million barrels of oil equivalent this year, down from the earlier forecast of 46.7 million to 47.7 million BOE. However, the company has not reduced its capital spending forecast for the year.

The lower output will be a result of the infrastructure problems the company is facing in North Dakota, but it would have been better had Whiting lowered its capital spending guidance as well. That’s because the weak oil prices are now hurting its cash flow profile. Its discretionary cash flow of $225 million was lower than the capital expenditure of $232 million during the quarter.

Now, it is important for Whiting to spend within its means as the company has a big debt burden. Whiting said that it has less than $7 million in cash and total debt of over $2.3 billion. As such, Whiting needs to lower its spending otherwise it runs the risk of burning more money in the weak oil pricing environment.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan
Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects.

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