Actionable news
All posts from Actionable news

Whiting Petroleum's Revolutionary Capex Cut


Whiting slashed capex by 80%.

Production expected to drop to 133,000 barrels per day in 2016.

Whiting should get through 2016 just fine, but beyond that questions remain.

Of all the energy companies, the highly-levered shale companies face perhaps the most difficult road ahead if crude oil prices are going to stay low for a long time. With high decline rates, shale drillers must keep drilling new wells just to keep production even. The more levered names in the Bakken Shale, in my opinion, could be the most vulnerable because that is where the discounts to NYMEX crude are the highest, and therefore it is also where realized prices are also the lowest.

Of the Bakken producers, Whiting Petroleum (NYSE:WLL) is either the biggest or second biggest, depending on how you calculate it. Just months before crude prices began plummeting, Whiting completed its major acquisition of Kodiak Oil and Gas. Whiting racked up over $5 billion in debt. This has made me pretty bearish about Whiting.

Indeed, the numbers looked pretty challenging last year: Whiting generated a little over $1 billion, but spent $2.5 billion in capital expenditure. With credit markets shutting off to energy companies, Whiting obviously couldn't continue on like this. As of late February, Whiting has greatly altered its course by bringing capex down to just $500 million, a drop of 80%. Most upstream companies are indeed cutting capex, but I've seen few cuts as steep as this.

This chart gives an idea of the significance of this capex cut. It's a big one, and I think that it's just the right thing for this environment. But what effects will it have?

Courtesy of Whiting Petroleum...