Whiting Petroleum CorporationWLL has been a preferred pick for investors lately. The shares of the company have rallied 76% over the past three months, while the stocks in this industry have collectively gained just 10%.
Whiting Petroleum hit a new 52-week high of $55.07 during the trading session on Jun 7, eventually closing at $54.66. Notably, over a year, the stock has surged a whopping 99%.
The company has been riding high on its strong acreage position in the Bakken shale play. Whiting Petroleum has an impressive earnings surprise history, as the company surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with an average positive surprise of 100.08%. Nevertheless, we're a bit concerned about the company's high debt levels.
Let's delve deeper to find out the factors that are fueling the stock and whether it can sustain the momentum, going forward.
Banking on Bakken
Whiting Petroleum is a top-tier operator in North Dakota's Williston Basin, centered on the Bakken formation. While Bakken has significant accumulations of profitable oil reserves, production in the area fell sharply during the oil slump. However, with rebounding crude prices, Bakken has been regaining strength, with output gradually approaching the peak levels that was achieved in 2014.
As such, Whiting Petroleum has been benefiting from its huge exposure in the shale play. The company has 410,000 net acres in the region, with drilling inventory of more than 20 years. Whiting boasts large undeveloped acres in the form of core Williston inventory that are prospective for development.
Whiting Petroleum delivered robust first-quarter 2018 results, on the back of increased production and higher realized prices. Notably, production totaled 11.43 million barrels of oil equivalent, with 81% of output coming from the Williston Basin region. This year, the company plans to drill 120 wells in the Williston Basin, exiting 2018 with a 14% year-over-year production growth from the play.
Monetizing DJ Basin Assets
Apart from its Williston assets, Whiting Petroleum's portfolio also holds acreage in the Niobrara shale's Redtail area in the Denver-Julesburg (DJ) Basin. In a bid to streamline its portfolio and pay back debts, the company has been contemplating to sell off some of its holdings in the DJ Basin. While any deal related to this has not been inked yet, bids have been placed and the company expects to complete the process by the third quarter.
Whiting Petroleum currently wants to sharpen its focus on the Williston/Bakken shale and plans to use the proceeds from the sale to tap on further growth opportunities in the productive Bakken region.
Improving Well Economics
Whiting Petroleum has been witnessing improvement in well production of late. Not just the flow rates have been getting better, the reserves are also growing and the trend is expected to continue going forward.
The company has been able to achieve a 57% reduction in its spud-to-total-depth time since 2011, while lowering well costs by 25% since 2014. Increased drilling efficiency allowed Whiting Petroleum to drive down costs by 26% from 2014 levels. Declining well costs along with increasing flow rates have driven margins of the company.
Cash Flow Provides Further Boost
Over the past two quarters, Whiting Petroleum generated approximately $200 million of discretionary cash flow, in excess of its capital spending. As costs continue to come down amid stronger oil pricing, the company is expected to generate a significant amount of free cash flow over the next few years.
Encouraging Earnings Estimates
Earnings estimates for Whiting Petroleum have moved north over the past month, reflecting analysts' confidence in the stock. Over this period, the Zacks Consensus Estimate for 2018 has increased around 18.3% to $2.72. The Zacks Consensus Estimate for 2019 has also moved up roughly 33.9% over the same time frame to $3.24.
Amid all the positives, Whiting Petroleum's high debt level of almost $3 billion restricts financial flexibility of the firm and limits its growth. Nonetheless, we believe that its increasing cash flow, divestment plans along with improving productivity bode well for the company, and poise it to improve its leverage metrics gradually. It won't come as a surprise if the company starts returning cash to its shareholders in the form of dividends/buybacks in the long term, as it is prioritizing on its cash-flow growth lately.
Do Energy Stocks Interest You? Check These
Whiting Petroleum carries a Zacks Rank #3 (Hold). One can take a look at some better-ranked stocks in the same industry such as Geopark Ltd. GPRK , Oasis Petroleum Inc. OAS and Wildhorse Resource Development Corp. WRD , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
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