Description:
Whiting Petroleum (WLL) was founded in 1980 and is based in Denver. At the end of 2012, the company had reserves of 379 million barrels of oil equivalent (MMBOE) and a net production of some 93,000 (or 93 MBOE) per day. Whiting Petroleum is an independent oil and natural gas company, mainly involved in E&P with core operations in North Dakota, Oklahoma and Texas. In early 2007, the company made a major discovery (the Sanish field in the Williston basin, North Dakota), and since then has assembled a bit more than 710,000 acres (around 290,000 hectares, or slightly bigger than Luxembourg) for explorations there. Other fields the company exploits are: the Niobrara Shale, the Wolfcamp/Wolfbone field and some additional smaller explorations. In total WLL exploits about 209 wells.
In E&P, one of the principal determinants of a company’s edge lies in the measured resource potential and the per-unit production cost. WLL realizes a strong price with low exploration and production costs and a good track-record on drilling.
It is expected that WLL will raise its capex by about 300 basis points (bps), representing an organic production increase of about 20%. This will require a spend of about USD 2.5 billion, which has been financed by the disposal of some assets. Based on average operating metrics and estimates of BOE, WLL is priced at a discount compared with the small and mid cap group and the Bakken peer group average.
Based on estimates, the company’s production will have increased by 80% in the period from 2010 to 2015. Also, the average reserve replacement rotation should increase by 220% during the next five years, with proven reserves climbing to just on 620 MMBOE by 2017.
Strengths and weaknesses analysis / Fundamental analysis:
Strengths:
- A number of smaller fields could become JV candidates,
- As a small E&P concern, WLL has a strong mix in its production portfolio,
- WLL maintain a key position in the Bakken/Three Forks basin,
- WLL’s present E&P experience should be of use in the newly acquired Niobrara Shale and Permian basins.
Weaknesses:
- The principal risk for E&P are exploration risks, also known as geological risks,
- Looking beyond 2017, to sustain the present course of development, the company needs to acquire additional exploration rights and acres,
- Exploration of the Bakken/Three Forks formations in the Williston Basin is not without risks, the principal being weather related (i.e. freezing temperatures and flooding),
- Volatile natural gas and crude oil prices may have adverse short-terms impacts on the availability of capex.