Shares of Whiting Petroleum [stock_market_widget type="inline" template="generic" color="default" assets="WLL" markup="(NYSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] fell after its fourth-quarter results and 2019 production outlook were weaker-than-expected. The oil and gas company’s top and bottom line performance was hurt by lower-than-anticipated production and weak oil prices, and that trend looks set to continue this year.
But with the stock having lost half of its value in the past six months, should investors consider this drop as a buying opportunity? Let’s find out.
Whiting’s Problem Grounded Production and Earnings
Whiting’s fourth-quarter revenue was flat year over year at $473.2 million, but the company managed to reduce its adjusted net loss from $0.17 per share in the year-ago period to $0.05 this period. However, both numbers missed Wall Street estimates. In fact, analysts were looking for a non-GAAP profit of $0.51 per share, so it wasn’t surprising to see a massive sell-off in Whiting shares given the big earnings miss.
Whiting produced a total of 11.96 million barrels of oil equivalent (MMBOE) during the quarter, which missed the lower end of its guidance band of 12.2 million to 12.6 million MMBOE. Crude oil accounted for 68% of the total production. The average daily production for the quarter came in at 129,960 barrels of oil equivalent (BOE), an increase of 2% over last year.
But the increase in production was offset by weak pricing. Whiting’s realized price during the quarter came in at $38.21 per barrel of oil equivalent, down from $40.07 per BOE in the prior-year period.
However, oil prices have strengthened this year. West Texas Intermediate (WTI) crude is up nearly 20% in 2019 on account of supply actions being undertaken by OPEC and its allies. But Whiting investors are not anticipating the higher production to translate into meaningful gains.
Expenses Make for a Weak Outlook
Whiting has been known for maintaining a fast pace of production growth even when oil prices have been weak. Last year, the company’s production increased by 8% as compared to 2017. So when the company announced that it anticipates nearly flat production in 2019 investors weren’t impressed.
Whiting anticipates production between 46.7 MMBOE and 47.7 MMBOE this year. The lower end of the guidance band is right in line with its 2018 production. What’s more, the company expects lease operating expenses may rise from $6.81 per barrel of oil equivalent in 2018 to a range of $6.70-$7.10 this year.
At the same time, its general and administrative expenses are expected to increase from $2.16 per BOE last year to a range of $2.65-$2.95 per BOE this year. Another problem with Whiting’s outlook is that it expects its capital expenses to remain almost flat at $820 million in 2019 as compared to last year’s outlay of $832 million.
Now, many of its peers are looking at higher production in 2019 despite cutting their capital budgets by huge margins. The fact that Whiting is unable to do the same indicates that its assets are probably not as efficient as those of its peers.
Moreover, the company’s revenue and earnings are expected to slide substantially in 2019 as consensus estimates suggest. Therefore it makes sense to stay away from Whiting Petroleum for the time being as production issues and higher expenses will knock the wind out of its sails barring any significant changes.
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.
