Value Line has initiated coverage of Whiting Petroleum (WLL) in its flagship product, The Value Line Investment Survey. Whiting is an independent exploration and production company. It produces oil, natural gas, and natural gas liquids, but is focused on oil. With a large acreage position in the Bakken area in North Dakota, it is the second-largest oil producer in the state. The company also has properties in the Niobrara region in Colorado and the Permian Basin in Texas. The company is headquartered in Denver and employs more than 900 people in 16 states.
Whiting Petroleum was founded in 1980 by Kenneth Whiting and Bert Ladd. Three years later, it merged with Keba Oil & Gas and Hingeline-Overthrust to become public. Alliant Energy (LNT) acquired Whiting in 1992. In November of 2003, Whiting had an initial public offering. Alliant sold its remaining interest in Whiting in 2004.
As of year-end 2013, Whiting’s proved reserves amounted to 438.5 million barrels of oil equivalent—16% higher than a year earlier. The company’s production in 2013 was 94.1 thousand barrels of oil equivalent per day. This results in an average reserve life of 12.8 years. Whiting’s drilling success rate in 2013 was 96%. All told, the company’s revenues exceeded $2.8 billion last year, and its net income (adjusted for impairment charges and gains on asset sales) was nearly $500 million, more than 20% higher than the 2012 tally.
With oil prices high, these are good times for independent oil producers such as Whiting. In the past five years, WLL stock has outperformed the Standard & Poor’s 500 Index and the Dow Jones U.S. Exploration and Production Index by a wide margin. But favorable price realizations aren’t the only reason for Whiting’s strong showing. New technology has improved the company’s well completion. Besides its own exploration and production efforts, Whiting grows through acquisitions. The company completed 17 significant purchases from 2004 through 2013. It also divests properties from time to time.
Whiting is off to a good start in 2014. In the first quarter, adjusted share profits advanced 12% thanks to rises in production and realized prices. The company’s favorable prospects have not gone unnoticed by Wall Street: The share price is up more than 20% since the start of the year.
The most obvious risk factor for Whiting is commodity prices, although the company hedges some of its production. In 2013, it took two impairment charges totaling $267.1 million (these are noncash and nonrecurring items) to write down certain properties, mainly involving natural gas. In addition, as is the case for other oil and gas producers, government regulations—especially environmental regulations—affect the company. Whiting’s operations utilize hydraulic fracturing (“fracking’’), so any restrictions on fracking by the U.S. Environmental Protection Agency or by states in which the company operates would hurt. When times are good, increased industrywide drilling can make it harder for companies to obtain equipment and/or people.
Whiting stock is best suited for investors seeking exposure to the domestic oil exploration and production industry. However, this issue is not right for every investor. The company pays no dividend, and does not anticipate paying one anytime soon. Long-term debt made up 40% of total capitalization as of March 31, 2014, and the company’s securities are rated below investment grade by the credit-rating agencies. Moreover, considering that its Beta is well above one, Whiting stock might well be too volatile for risk-averse accounts.
For a more thorough look at Whiting, and the particular investment merits of its stock, subscribers should examine our full report in The Value Line Investment Survey.
At the time of this article’s writing, the author did not have a position in any of the stocks mentioned.